Analysis: As Russia avoids energy sanctions, oil majors flee but TotalEnergies stays

• BP, Shell, Exxon, Equinor flag Russia exits
• TotalEnergies sticks with Russian natgas assets
• LNG central to TotalEnergies' strategy

France's TotalEnergies cuts a lonely figure hanging onto its Russian investments during a mass exodus of western oil majors from the country after its invasion of Ukraine, even though no sanctions have forced such divestments.

"For existing assets, the company says it will respect European sanctions whatever the consequences. But for the moment, there are no sanctions on energy," said a source familiar with the thinking inside TotalEnergies.

TotalEnergies has a future-oriented position in Russia, heavily weighted towards liquefied natural gas (LNG), with stakes in the yet-to-be built $21 billion Arctic LNG 2 project as well as in the producing Yamal LNG operation.

With the world trying to slash carbon emissions, oil majors are betting on LNG to replace more-polluting coal and oil. TotalEnergies first bought a stake in Russian gas producer Novatek in 2011 for $4 billion and gradually increased its stake to just under 20% by 2018.

"The company cannot divest assets from one day to the next unless sanctions force it to do so. One must take time to reflect," said the source.

The French government has declined to comment on specific companies and Russia. French President Emmanuel Macron, who convened members of a Franco-Russian forum on Tuesday, did not urge TotalEnergies or French companies to leave Russia, two participants told Reuters. Among those present was TotalEnergies Chief Executive Patrick Pouyanne.

In contrast, Britain's government immediately applauded Shell's and BP's decision to exit Russia. Chief ExecutiveOfficer Bernard Looney told employees BP "couldn't reasonably carry on in Russia given the conflict in Ukraine," according to a company source.

Billions of dollars of impending write-downs are piling up for the companies that have said they would exit their Russian assets: BP, Shell, Equinor and Exxon Mobil. For now, there are few potential buyers for the stakes and operations they are leaving in Russia.

Share prices of the companies that have exited Russia have outperformed TotalEnergies in recent days.

"We see a potential exit by TTE being much more complicated than it is for peers," said RBC equity analyst Biraj Borkhataria

on Wednesday. "We see Russia as strategically important for TTE, particularly for its LNG business."

TotalEnergies aims to satisfy 10% of global LNG markets by 2025 with 50 million tonnes a year. Russia accounts for 6 million tonnes from Yamal and another 4 million tonnes from Arctic LNG 2 once operational, according to RBC.

Reuters could not verify total returns on investments in Russia by the oil majors, which do not regularly publish asset and country-specific financials. Still, it was clear that BP, for example, has already made good on its investments.

When former U.S. President Donald Trump hit Iran with sanctions, TotalEnergies also stuck with its investment in a big gas field, dropping it only after failing to obtain a sanctions waiver from Washington in 2018.

At the time, media reported that Pouyanne told Trump that continued investment could help democratic progress in Iran.

In 2021, TotalEnergies' cashflow from Russia amounted to $1.5 billion. It declined to give further details on its Russian investments and previous years' cashflows.

Meanwhile, BP faces a write-down of up to $25 billion for dropping Russia and losing out on annual dividends from Rosneft which have fluctuated between around $300 million and $780 million, according to its quarterly results.

But the cashflow it has received from Russia over the years might soothe some of that pain.

In 2003, BP and Russian investors created TNK-BP in which BP invested $8 billion. In the 10 years that followed, BP received around $19 billion in dividends.

In 2013, Rosneft bought BP's stake in TNK-BP for around $12 billion in cash and Rosneft shares that have yielded dividends for BP of over $4 billion.

Shell, which was an early partner in Russia's first LNG plant, Sakhalin II, sold half of its 55% stake to Gazprom in 2007 for $4.1 billion, two years before the project came online.

Its 2021 net earnings from Sakhalin II and its Salym oilfields, which started full production in 2006, were $700 million, it said. Tax reports showed accumulated earnings from Russia were around $384 million in 2020, $455 million in 2019 and a loss of $16 million in 2018.

Flagging impairments from its Russian exit, Shell said it had around $3 billion in non-current assets. A Shell spokesperson declined to give further details.

As for Exxon Mobil shutting the door on its $4 billion in assets in Russia and triggering what could become a write-down, it has benefited from operating large offshore oil and gas fields near Sakhalin Island since 2005.

Exxon did not break down its investments in Russia and declined to comment on a potential writedown. But Chief Financial Officer Kathryn Mikells said on Wednesday that leaving its Russian oil and gas operations would shave 1%-2% from earnings.

"All of them will struggle to repatriate future income from Russia. A difference between them is that TotalEnergies' can argue they have less direct ties the government because Novatek is privately-owned. The question is how long that argument can hold," said Giacomo Romeo, Jefferies equities analyst.

"In terms of investment recoverability, direct stakes in LNG assets such as Sakhalin, Yamal and Arctic LNG are different from stakes in companies such as Rosneft and Novatek. Chinese or Indian investors might be interested in stakes in LNG assets, if the price is low enough and there are enough uncontracted volumes."

additional reporting by Ron Bousso, Sabrina Valle, writing by Shadia Nasralla; Editing by David Gregorio