European and U.S. energy majors rushed to quit joint ventures in Russia since it invaded Ukraine as investors dial up the pressure on companies to reduce their exposure to the geopolitical conflict.
"We have to view this through the [environmental, social and governance] lens," Thierry Bros, a professor at the Institute of Political Studies in Paris who specializes in energy and climate, said in an interview. "Companies that told us day in, day out that they were ESG inclusive, green and all this — i.e., the BPs and Shells — they were not coherent [with investments in Russia]. They are facing incoherence, and they have to leave Russia overnight."
Taking billion-dollar impairments could be considered "cheap" if it helps energy companies align their investments with their social commitments to shareholders, Bros said.
"It's not all the impairments," Bros said. "It's all the equity stories they will have to rethink."
Late on March 1, Exxon Mobil Corp. joined the list of international oil and gas companies exiting Russia. ExxonMobil announced that it was exiting the Sakhalin-1 offshore oil and gas complex it operates for a consortium of Japanese, Indian and Russian companies. The American supermajor said it would make no new investments in Russia.
"ExxonMobil supports the people of Ukraine as they seek to defend their freedom and determine their own future as a nation," the company said in an after-hours statement.
After Russia invaded Ukraine, BP PLC said Feb. 27 it would divest its nearly 20% stake in Russia's state-controlled oil producer PJSC Rosneft Oil Co. and that BP CEO Bernard Looney would resign from Rosneft's board. U.K.-based Shell PLC followed, saying on Feb. 28 that it would exit joint ventures with Russian-government-backed PJSC Gazprom.
Norway's largest oil producer, Equinor ASA, also said it would start leaving its businesses and halt new investments in Russia, while Norway's $1.3 trillion sovereign wealth fund said it will pull out of all investments in the country.
The announced divestments have increased pressure on France's TotalEnergies SE, which has a significant stake in Russian oil and gas operations, to follow suit. TotalEnergies said March 1 that it "will no longer provide capital for new projects in Russia." But it stopped short of exiting its position in Russian energy, which includes stakes in the independent oil and gas company PAO Novatek and in the country's biggest LNG production facilities, Novatek's Yamal LNG and Arctic LNG 2.
So far, government sanctions imposed on Russia in response to the Feb. 24 invasion have largely avoided targeting the energy sector. But the divestment steps announced by private-sector energy companies are a sign of the pressure companies are feeling from shareholders to reduce or eliminate exposure to Russia, according to Raymond James analyst Pavel Molchanov.
"There will surely be more to come," Molchanov said.
Molchanov said the divestments are essentially a "symbolic step" but that similar moves in the financial sector, such as banks and insurance companies refusing to provide services, would have a more tangible effect.
"In essence, this is the private-sector equivalent of sanctions," Molchanov said. "Just as foreign central banks will no longer cooperate with Russia's central bank, it would be a big deal for major international commercial banks to stop working with Gazprom, Rosneft or [PJSC LUKOIL]."
As it stands, there has been little perceptible pressure on fund owners to dump Russian stocks, according to Aniket Shah, global head of ESG and sustainable finance strategy at Jefferies. However, they could face pressure about the performance of those stocks. International sanctions carry "significant and wide-ranging negative consequences for doing business in Russia" as geopolitical uncertainty weighs on the credit quality of Russian companies, according to S&P Global Ratings.
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