US energy giant ExxonMobil has reportedly asked the Russian government to reimburse taxes worth several billion roubles it says it overpaid on the Sakhalin I project. The move comes as ExxonMobil evaluates its continuing operations in Russia against the backdrop of international sanctions against the country.
Sakhalin I - a project to find and produce oil and gas off the island of the same name - is the largest recipient of foreign direct investment in Russia.
Kommersant, citing unnamed sources, said ExxonMobil believes it overpaid profit taxes on its Sakhalin I oil and gas project. Russia reduced the profit tax in 2009 to 20% but ExxonMobil continued to pay at the earlier level of 35% after the project broke even in 2008. The newspaper quoted a source as saying that ExxonMobil had threatened to lodge a claim with the Stockholm arbitration court unless Russia cut its taxes for the project in line with the lower profit tax which applies across the country. It said the claims amounted to “several billions of roubles”. In 2014, the company overpaid by 10 billion roubles ($163.7 million), it said.
The issue was also discussed during a meeting between Russian Energy Minister Alexander Novak and Exxon CEO Rex Tillerson in Moscow on March 18. Novak and Tillerson reportedly discussed general energy market trends as well as cooperation in Russia specifically. The Sakhalin I project was discussed, which Exxon is developing as part of a consortium with Russian oil giant Rosneft, at the meeting and specifically taxation relating to that project.
ExxonMobil has increased ties with Rosneft in recent years, launching numerous joint projects in the Arctic and Far East. However, Rosneft has been hit by sanctions over the Ukraine crisis resulting in several projects being frozen.
But Sakhalin I is notably unaffected by the Western sanctions. The sanctions very specifically target technology transfers to three particular main types of projects: Arctic, deep water crude production and shale oil production and Sakhalin I doesn’t come under any of these types of crude production.
Sanctions have, however, frozen Exxon’s project with Rosneft in the Arctic Kara Sea where the US and Russian energy giants made a big joint discovery last year and then suspended their operations. Exxon officials have said their involvement in the Kara Sea project “is at a standstill”.
Other Exxon-Rosneft projects, included in their strategic cooperation and currently at a standstill, are possible deep water production in the Black Sea and production in Western Siberia. It is rumoured that Exxon may be keen to almost substitute the Arctic Kara Sea for an alternative which would not be covered by the sanctions. Analysts say, however, that such a move could possibly anger the US administration that has spearheaded the technology sanctions against Russia.
Moreover, the fall of the oil price makes that kind of development uneconomic at the moment.
Meanwhile, Russian President Vladimir Putin led last week’s celebrations of the one-year anniversary of the annexation of Crimea, which was the trigger of international sanctions against Russia that eventually led at a later stage to the introduction of financial and technology restrictions affecting the oil industry.
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Previously on Energy Insider:
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The Lazarus Pipeline: Borisov hopes to bring Nabucco back to life