Until a little after the beginning of the Ukraine war last year, ONGC, which has a 20% participating interest in Sakhalin-1, used to get a proportionate share of oil from the field, which it could sell to anyone. But now all the oil from Sakhalin-1 is sold by a new company Russia formed last year to operate the field, which had stopped production for several months. It’s now producing at near-normal levels of about 200,000 barrels per day, according to the people cited earlier.
ONGC has a 20% stake in the new Russian operator, which would give the Indian firm a proportionate share in dividends whenever they are paid out, they said.
Change in cash flow
This will change ONGC’s cash flows with respect to the project, a person familiar with the matter said. The ability to regularly sell Sakhalin-1 oil meant quick cash realisation. Dividends may come only once or twice a year. Since the beginning of the war, it’s been hard for Indian state firms to repatriate dividends from a few other Russian oil and gas fields as Western sanctions have restricted cross-border money transfers.
Indian state firms, including ONGC, Oil India, Indian Oil and BPCL, have stakes in a few other Russian fields where they receive only dividends but in Sakhalin-1, ONGC could previously sell its share of oil. Indian state firms have been unable to repatriate $300-400 million of dividends from Russia since the beginning of the war, a petroleum ministry official said last month.
This also means that an Indian company finds it hard to send its share of capex and opex for a Russian field, according to people familiar with the matter.
The operator uses the oil revenues to provide for much of the capex and opex for the project, instead of issuing cash calls to stakeholders, the person said.
The oil from Sakhalin-1, known as the Sokol blend, has mostly traded above the Western price cap of $60 per barrel, which means increased efforts for sellers to find buyers, shippers and insurers.
