December 09, 2022
TotalEnergies has moved to further loosen its ties with Russia more than nine months after the invasion of Ukraine, taking a $3.7bn writedown on its stake in Novatek and removing its directors from the board of the gas producer even as it holds on to the investment.
The French oil and gas group had moved more slowly than some big rivals like Shell in signalling a disengagement from Russia immediately after the invasion in February, and has come under fire for maintaining some holdings there and receiving dividends.
It has since said it saw no future in Russia and would halt new investments, and has also notched up several writedowns, including on its Arctic liquefied natural gas project in Siberia, bringing the total to $14.4bn with the latest Novatek hit. Total is still exporting LNG to Europe from its Yamal plant, which is allowed under international sanctions, but has sold oil operations.
In its latest announcement on Friday, Total said it had decided to withdraw its representatives from Novatek’s board given that its two directors were no longer able to fully carry out their duties due to sanctions.
As a result, Total’s 19.4 per cent Novatek stake will no longer be reflected as equity in its accounts, the French energy major said. However, it added it could not for now sell the investment, which is subject to a shareholder agreement with an investor under sanctions.
Total shares were down 1.6 per cent in early afternoon trading.
BP took the same steps in February when chief executive Bernard Looney quit Rosneft’s board three days after the Russian invasion. At that time, BP said it would no longer report reserves, production or profits from its 19.75 per cent stake in state-owned Rosneft.
Nine months later the UK-listed energy major has been criticised by the advocacy group Global Witness for failing to have sold the stake, which is still accruing dividends. BP told Global Witness this month that it would not recognise Rosneft dividends as income since writing down its shareholding.
Under Russian regulations, any Rosneft dividend payments would be made to “a specific restricted Russian bank account” and could not be transferred outside Russia without government approval, it added.
Total declined to comment on what would happen to its Novatek dividends now. It received $440mn in payments linked to the second quarter, which have been decried by the Ukrainian government as “blood money”. Total chief executive Patrick Pouyanné said in September the dividends were becoming harder to receive, but stopped short of saying the group would refuse them.
Novatek’s shareholders include the Volga Group, the investment vehicle of Gennady Timchenko, who had been on a US sanctions list since 2014, when Russia annexed Crimea, and was targeted by the EU asset freezes this year. Timchenko has a pre-emptive right to buy Total’s stake in Novatek, a person familiar with the matter said.
Other avenues to cut away completely, such as abandoning the Novatek stake and contracts linked to the Yamal operations, would entail penalties of tens of billions of dollars, the person added. Pouyanné had previously said that unless the EU imposed sanctions on Russian gas exports, which would trigger a “force majeure”, Total could face up to $50bn in penalties for breaking its contracts.
Biraj Borkhataria, head of oil and gas equity research at RBC Capital Markets, said he expected Total to hold on to its direct equity interest in the Yamal LNG project and its associated LNG offtake agreements. “[The Novatek writedown] likely marks one of its final steps in its partial Russia exit,” he added.
Despite the EU’s desire to reduce its dependence on Russian supply, there are still no restrictions on importing Russian gas into Europe. Imports of Russian LNG increased more than 40 per cent between January and October to 17.8bn cubic metres, representing roughly a quarter of Russia gas imports over the period.
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