Shell quits Russia gas ventures as political pressure mounts
(Bloomberg) — Shell Plc is exiting its Russian gas ventures, including a massive LNG facility, after the invasion of Ukraine changed the rules of engagement between Western companies and Moscow.
The decision follows a similar move by BP Plc, which announced on Sunday that it will dump its stake in state-run oil producer Rosneft PJSC, taking a financial hit of as much as $25 billion. Shell is ending its partnerships with Gazprom PJSC, another Kremlin-controlled giant with a leadership closely tied to Russian President Vladimir Putin.
“Our decision to exit is one we take with conviction,” Shell Chief Executive Officer Ben van Beurden said. “We cannot -- and we will not -- stand by.”
The move comes after pressure from the U.K. government, which along with the U.S. and other allies is seeking to squeeze Russia’s economy and convince Putin that his invasion of Ukraine will mean financial ruin.
“Earlier today I spoke to Shell's chief executive, Ben van Beurden. Shell have made the right call to divest from Russia – including Sakhalin II
There is now a strong moral imperative on British companies to isolate Russia. This invasion must be a strategic failure for Putin.”
— Kwasi Kwarteng (@KwasiKwarteng) February 28, 2022
Shell didn’t give any information about the size of the financial hit it could take from exiting Russia, but said its non-current assets in the ventures amounted to $3 billion. The fact both oil majors are flagging impairments indicates they may be willing to walk away from the assets even without finding a buyer. Sanctions, and selling in almost forced circumstances, make it unlikely either will find buyers willing to make them whole.
Shell owns 27.5% of the Sakhalin-2 LNG facility and 50% of the Salym Petroleum Development, which last year earned the company $700 million of adjusted earnings.
The company will also end an exploration partnership with Gazprom called Gydan, and withdraw from the Nord Stream 2 pipeline, which was already suspended by German authorities.
Even after BP warned that it could take a much larger hit from exiting its Rosneft stake, shares of the company dropped a relatively modest 4%. Investors and analysts said it would be very hard to find buyers for Russian assets in the current climate, as a web of sanction is imposed on the nation. But the decision to leave removes other risks, such as the reputational damage from a close association with Kremlin-controlled entities.
“Shell’s stake in Russia was much smaller than BP’s, so not much at risk, but not worth staying either given the pressure,” said Morningstar analyst Allen Good. “It shouldn’t impact the firm’s value materially” or change its plans, he said.
The key change will be the loss of capacity from Shell’s LNG venture, said RBC analyst Biraj Borkhataria. Shell is the world’s biggest trader of the super-chilled fuel, which boosted its earnings significantly at the end of last year and features heavily in its energy-transition plans.
“Given the exit process may take some time, Shell can reposition its contracts or portfolio” to mitigate the impact, Borkhataria said.
The moves by the British companies -- and from Norwegian energy producer Equinor ASA -- show just how far Western powers are willing to go to punish Putin. BP and Shell have both been in Russia for decades and expended a lot of effort to establish, grow and maintain their presence there. Their decisions to leave those assets raise questions about other energy giant’s operations in the country.
TotalEnergies SE also has significant operations in Russia, representing around $1.5 billion of its total cash flow, or around 5%. It has a stake in gas producer Novatek PJSC as well as a large interest in the Yamal LNG project.
Exxon Mobil Corp. operates the Sakhalin-1 oil project in partnership with Rosneft. Chevron Corp. has a presence in lubricants.
