Upstream | 1 October 2024
German player to pursue multibillion-euro arbitration over Russia energy assets
by Vladimir Afanasiev
Germany’s former major oil and gas producer Wintershall Dea said it has initiated two international arbitration proceedings against Russia, part of a number of claims it says it is pursuing ahead of its planned closure.
Wintershall Dea said that seeking the payment for its former Russian assets from Moscow will be among the company’s corporate goals as it completes the process of closing the firm following the sale of almost all of its oil and gas assets to UK-listed Harbour Energy.
In a statement released on Monday, the Germany-headquartered company said that it has initiated the proceedings against the Russian Federation to “protect its legal position and its shareholders’ interests”.
A company spokesperson told Upstream that the amount in dispute in both investment arbitration claims is “several billion euros”.
"Our investments in Russia are protected by Federal Investment Guarantees issued by the Federal Republic of Germany, which cover specific political risks. In order to protect its legal position and the interests of its shareholders, it is Wintershall Dea’s obligation to exhaust all possibilities of legal remedies to obtain compensation for the damage incurred", the spokesperson added.
Wintershall Dea announced its full withdrawal from Russia at the beginning of 2023 following Russia’s invasion of Ukraine the previous year. It later booked a loss of more than €4.5 billion ($4.9 billion) for the 2022 financial year related to its decision of deconsolidating its Russian holdings as Moscow stepped up its military offensive in Ukraine.
“The reason for these proceedings is the Russian Federation’s violations of its obligations under its bilateral investment protection treaty with the Federal Republic of Germany and under the Energy Charter Treaty,” the company said in the statement.
Wintershall Dea last month completed the sale of its E&P businesses to the UK’s Harbour Energy in an $11 billion deal. Besides the Russian reimbursement, it said its main tasks are the sale of other remaining assets, organisational restructuring, and ultimately, the closure of its headquarters in Kassel and Hamburg in Germany.
The “de-facto expropriation [of Wintershall’s interests in Russian gas ventures] was formalised in December 2023 when President [Vladimir] Putin issued decrees invalidating [gas sale] contracts and transferring assets to Russian companies,” the company said in its annual report for the last year.
According to the decrees, Russian limited liability companies have been established as successors to the five joint venture companies between Wintershall Dea and Russian gas giant Gazprom, assuming all assets, rights, and liabilities in the process.
Putin’s decrees followed the “de facto economic expropriation that already occurred previously,” the company said.
It said that a decision by authorities to retroactively reduce the sale price of gas — which obliged Wintershall Dea and others to return the difference on sales previously completed at higher prices — had wiped more than €2 billion of cash from the balance sheets that the ventures were due to send to the German company in 2022.
The decrees had also deprived the company from the ability to sell its interests in Russian ventures that entitled the company to a share of the production of 276,000 barrels of oil equivalent per day in 2022.
Although the decrees said Wintershall Dea is due to receive in return a purchase price determined in accordance with Russian law, the amount and the possibility to repatriate the funds from Russia are “highly uncertain,” the company said.
Wintershall Dea held stakes in three gas and condensate ventures with Gazprom. It held 50% in Achimgaz, and 25% in both Achim Development and Severneftegazprom.
It also had 25% and 18% respective interests in two trading ventures, Gazprom YRGM Trading and Achim Trading.
These two ventures handled the sales and exports of produced hydrocarbons on behalf of shareholders.
Austrian energy major OMV’s minority shareholdings in Severneftegazprom and Gazprom YRGM Trading — companies where Wintershall Dea was also a shareholder — were also confiscated last year.
Two subsidiaries of OMV are seeking damages from Gazprom on gas supply matters in international arbitration institutes, the Russian gas giant revealed earlier this year after filing counter-claims against the subsidiaries in Russian courts.
OMV said in a comment to Upstream that the company”does not publicly discuss a legal strategy for any of its contracts”.
