Integrated Oil Russia Update: Shell Exits, Total Sticks

Following Shell’s SHEL announcement of a complete exit from Russia (see Feb 28. note), TotalEnergies released a statement condemning Russia’s military aggression against Ukraine but did not announce intentions to exit the country. Instead, it stated it merely would no longer provide capital for new projects. While things could change and greater sanctions force its hand or make it untenable to stay, Total TTE appears to be willing to ride out the storm for now. Its Russian assets include 20% of Yamal LNG, 21.64% of Arctic LNG 2, a 49% interest in ZAO Terneftegas operator of Termokarstovoye onshore gas field, and a 19.4% interest in Novatek.

As we’ve written, Total’s exposure is more complicated than peers. Nearly all of BP’s BP interests in Russia are held in its Rosneft stake and Shell’s were largely in two assets, but Total’s relationship is more involved as it holds direct interests in projects like Yamal LNG and Artic 2 LNG in addition to an indirect interest in the projects through its Novatek stake. As such, simply divesting its Novatek stake would not rid it of its Russia exposure. Total’s exposure is more meaningful as well, with Russia accounting for about 5% of Total’s oil production and 30% of its natural gas production.

Rystad places the value of Total’s Russian assets, outside of Novatek, at about $10 billion. The value of its Novatek stake has fallen sharply from $13.1 billion at the beginning of the year to an estimated $1.3 billion currently, based on ruble declines and London shares trading. As Total accounts for Novatek using the equity method, our fair value estimate is not impacted at this point by the share price declines. Furthermore, assuming no value for all Russian assets, we estimate would reduce our fair value estimate by 10% but largely be offset by recent increases in oil prices.

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