THE SHELL LEAKS FILES: 17 SEPTEMBER 2026
SLF-2007-060
The Sakhalin Papers L: The Exit — Shell Walks Away, Moscow Rewrites the Ownership and Sakhalin II Enters a New Era
On 28 February 2022, Shell announced that it would leave Sakhalin II. Within weeks its directors had resigned from the venture and its managerial and technical personnel were being withdrawn. Then the legal structure itself changed. A Russian presidential decree transferred the project’s licences, rights and obligations from the Bermuda-incorporated Sakhalin Energy Investment Company into a newly created Russian company. Shell declined to join it. The Japanese shareholders stayed. More than four years later, Shell still records an interest in the old Bermuda company — and the financial and legal consequences of the exit remain the subject of litigation in Moscow.
1. Four days that changed Shell’s Russian strategy
Russia launched its full-scale invasion of Ukraine on 24 February 2022.
Four days later, on 28 February, Shell plc announced that its Board intended to withdraw from its joint ventures with Gazprom and related Russian entities.
The announcement specifically included:
Shell’s 27.5% minus one share interest in Sakhalin II;
its 50% interest in Salym Petroleum Development;
the Gydan Energy venture;
and its involvement in Nord Stream 2.
Shell said the decision had been taken in response to the invasion and that it would work through the commercial and energy-supply consequences while complying with sanctions. (Shell)
This was the beginning of the end of Shell’s direct participation in Sakhalin II.
It was not yet the end of its legal interest.
2. Sakhalin II had been one of Shell’s most important Russian assets
At the time Shell announced its withdrawal, Sakhalin II was not a marginal investment.
It was a large integrated oil and gas development containing offshore production platforms, pipelines running the length of Sakhalin Island, an oil-export terminal and Russia’s first LNG plant.
Before the 2022 upheaval, ownership of the operating company was:
Gazprom — 50% plus one share
Shell — 27.5% minus one share
Mitsui — 12.5%
Mitsubishi — 10%
Shell had spent decades helping develop the project and remained a major technical participant even after Gazprom had acquired control in 2007. (Yahoo Finance)
The decision to leave therefore represented much more than the disposal of a passive financial holding.
It meant unwinding one of Shell’s longest and most technically significant relationships in Russia.
3. Shell widened the withdrawal eight days later
On 8 March 2022, Shell announced a broader phased withdrawal from Russian hydrocarbons.
The company said it intended to withdraw from Russian crude oil, petroleum products, natural gas and LNG and would close its Russian service-station, aviation-fuel and lubricants operations.
The announcement came after Shell had faced criticism for purchasing a cargo of Russian crude oil after the invasion. Shell acknowledged that the purchase had been a mistake and said it would stop spot purchases of Russian crude. (Shell)
For Sakhalin II, however, the central problem was more complicated.
A petrol station can be sold.
A minority interest in a strategically important Russian LNG project governed by a production-sharing agreement is considerably harder to unwind.
4. Shell began withdrawing the people as well as the capital
Shell’s subsequent SEC filings provide unusually clear evidence of what happened inside the project.
The company states that, from 1 April 2022, it had lost significant influence over Sakhalin II.
Why?
Because Shell’s executive directors resigned and its managerial and technical personnel were withdrawn.
From that date, Shell stopped accounting for Sakhalin Energy as an associate under the equity method and instead treated the investment as a financial asset measured at fair value. (SEC)
Contemporaneous Bloomberg reporting independently recorded Shell withdrawing dozens of employees assigned to Sakhalin II during April. (Bloomberg)
The documentary sequence is therefore clear:
the Board announced the exit;
the directors left;
technical and managerial personnel were withdrawn;
and Shell formally concluded that it no longer exercised significant influence over the venture.
5. The financial hit arrived immediately
Shell’s first-quarter 2022 reporting recorded an impairment charge of:
US$1.614 billion
against the Sakhalin II investment.
Shell explained that the recoverable amount had been estimated principally by reference to risk-adjusted dividends declared from Sakhalin Energy’s 2021 results. (SEC)
This was not Shell’s total Russia-related charge.
Its 2022 annual accounts later recorded net pre-tax charges of US$4.170 billion associated with withdrawal from Russian oil and gas activities, including Sakhalin II, Nord Stream 2, Salym, Gydan and other Russian exposures.
The Sakhalin II impairment was one component of that larger total. (Shell)
That distinction matters.
The US$4.17 billion figure should not be presented as a Sakhalin II loss.
The authenticated accounting record attributes US$1.614 billion specifically to Sakhalin II.
6. Shell still received a dividend
Exit did not mean that every financial connection ceased immediately.
Reuters reported in July 2022 that Shell had received approximately US$165 million in April relating to Sakhalin Energy’s 2021 profits.
Shell explained that the dividend could be received because Sakhalin Energy Investment Company was incorporated in Bermuda. (euronews)
The payment illustrates the strange transitional position.
Shell had announced that it was leaving.
Its directors and personnel were being withdrawn.
The investment had been impaired.
Yet the existing corporate structure had not disappeared, and historical financial entitlements were still being processed.
That would change dramatically on 30 June.
7. Shell first tried to find a buyer
Before the Russian government changed the ownership structure, Shell was attempting a more conventional commercial exit.
Reuters reported on 26 May 2022 that Shell was in discussions with a consortium of Indian energy companies, including ONGC Videsh and GAIL, concerning a possible purchase of its 27.5% interest.
The same discussions reportedly included Shell’s long-term LNG and crude-oil arrangements connected with Sakhalin II.
Reuters stressed that any sale would require Moscow’s approval and that there was no certainty the negotiations would produce a transaction. (Business Standard)
This chronology is important.
Shell’s stated intention was to dispose of its interest.
It had begun looking for purchasers.
Then the Russian state changed the structure under which the project itself operated.
8. Presidential Decree No. 416
On 30 June 2022, President Vladimir Putin signed Decree No. 416, formally titled:
“On the application of special economic measures in the fuel and energy sector in connection with the unfriendly actions of certain foreign states and international organisations.”
The decree is an authenticated Russian legal instrument published through the official legal-information system. (Pravo Publication)
Its consequences for Sakhalin II were fundamental.
The rights and obligations of the existing Bermuda-incorporated Sakhalin Energy Investment Company were to be transferred to a newly created Russian limited liability company.
The project assets were to pass into Russian state ownership and be made available to the new entity.
Gazprom’s participation would continue.
The other shareholders would be required to decide whether they wished to participate in the new Russian company. (Yahoo Finance)
This was no longer a conventional corporate divestment process.
The state had rewritten the structure through which ownership and operation would continue.
9. Foreign shareholders had to apply to remain
Under the decree, the foreign shareholders were given a defined period in which to request equivalent interests in the replacement Russian entity.
The Russian government would then decide whether those requests should be approved.
If a foreign shareholder did not participate — or was not permitted to participate — the corresponding interest could be sold, with proceeds placed into a special account subject to the mechanisms established by the decree.
The decree also permitted claims for alleged damage connected with implementation of the production-sharing agreement to affect what might ultimately be paid. (Yahoo Finance)
That mechanism would eventually become extremely important for Shell.
Its consequences are still visible in Shell’s accounts and current Russian litigation.
10. What the decree did — and did not — establish
The nature of this document needs careful description.
Decree No. 416 was an executive act of the Russian presidency.
It was not a judgment issued after litigation between Shell and the Russian state.
The decree did not constitute a court finding that Shell had breached the Sakhalin II production-sharing agreement.
It did not determine damages against Shell.
It established a new legal structure and a mechanism for dealing with foreign shareholder interests.
Later Russian litigation would raise separate allegations about Shell’s conduct.
Those allegations should not be retrospectively treated as findings contained in the 2022 decree.
11. Shell’s chief executive said it was unlikely to join
On 28 July 2022, then chief executive Ben van Beurden publicly addressed the new structure.
He said it was “highly unlikely” that Shell would become a member of the Russian legal entity created to replace the old operator.
He said joining the new company would be inconsistent with Shell’s stated intention to leave Russia. (Interfax)
That position was later confirmed.
Shell did not take an interest in the replacement Russian operator.
The Japanese shareholders made a different decision.
12. Mitsui and Mitsubishi stayed
The contrast is significant.
Japan depended heavily on imported LNG, and Sakhalin II was an important source.
Mitsui and Mitsubishi therefore chose to seek equivalent stakes in the new Russian entity.
At the end of August 2022, the Russian government approved:
Mitsui’s 12.5% interest
and
Mitsubishi’s 10% interest
in the replacement operator. (Investing.com UK)
Reuters reported that the Japanese government had encouraged continued participation because of Sakhalin II’s importance to Japan’s energy security. (The Japan Times)
Three foreign shareholders had therefore faced essentially the same new structure.
Two chose continuity.
Shell chose exit.
13. The new operator was established
The replacement company, Sakhalin Energy LLC, was registered in Russia in August 2022 and took over operation of Sakhalin II.
Contemporaneous reporting records that customers also began receiving replacement LNG contracts from the new company.
Japanese utilities continued negotiating or renewing arrangements for Sakhalin II cargoes. (Investing.com)
Operationally, the project therefore continued.
Shell’s departure did not mean Sakhalin II ceased producing oil and LNG.
What changed was Shell’s relationship with it.
14. Shell’s LNG supply stopped
The separation became more tangible in the third quarter of 2022.
Shell’s annual accounts state that it still held two long-term LNG purchase contracts with Russian entities, but that a counterparty under one of those contracts stopped delivering cargoes during the third quarter.
Shell CFO Sinead Gorman subsequently confirmed that the affected contract concerned Sakhalin II. (Shell)
Thus by late 2022 Shell had lost not only management influence and participation in the new operating company.
It had also stopped receiving LNG under the relevant Sakhalin arrangement.
15. Shell objected to the transfer
Shell’s later public reporting makes another important point.
Although Shell declined to join the new Russian entity, that did not mean it accepted the extinguishment of every legal right associated with its original investment.
Its subsequent reporting stated that it objected to the transfer and reserved its rights.
This is reflected particularly clearly in Shell’s later description of the old company.
As recently as its 2025 Form 20-F, filed in March 2026, Shell stated that it still holds a 27.5% minus one share interest in Sakhalin Energy Investment Company Ltd, the Bermuda entity.
Shell added that this entity “purportedly no longer holds any licences, rights and obligations in Sakhalin-2.” (SEC)
That wording is legally significant.
Shell’s old corporate interest did not simply vanish from its records.
What disappeared was the old company’s effective control of the Sakhalin II project.
16. A corporate shell after the operating assets moved
This creates an unusual corporate position.
Before June 2022:
Sakhalin Energy Investment Company Ltd held the relevant project rights and operated Sakhalin II.
After the Russian decree:
those rights and obligations were transferred, under Russian law, to Sakhalin Energy LLC.
Shell declined to become a shareholder of that replacement Russian company.
Yet Shell continues to record ownership of its shares in the Bermuda-incorporated predecessor.
This distinction is essential to understanding later disputes.
Shell did not simply sell its original shares to Gazprom.
The operating project moved into a new legal vehicle.
Shell remained outside it.
17. The legal afterlife: Russia later sued Shell
The story did not end in 2022.
On 2 October 2024, Russia’s Prosecutor General filed proceedings in the Moscow Arbitration Court against eight Shell-group entities, including Shell plc and Shell Energy Europe Limited.
The case is identified in public legal databases as:
Prosecutor-General’s Office of the Russian Federation v Shell plc and others
Case No. A40-241354/2024. (ПРАВО.Ru)
Shell’s authenticated annual reporting describes what the Russian prosecutor is seeking.
According to Shell, the prosecutor alleges that Shell unlawfully abandoned support for Sakhalin Energy Investment Company.
The prosecutor also seeks approximately €1.5 billion from Shell Energy Europe for alleged unpaid gas deliveries during 2022.
And the claim seeks access to approximately 94 billion roubles said to have been reserved for Shell as compensation for its Sakhalin interest, so that those funds can be offset against part of the alleged debt. (SEC)
These are allegations in pending litigation.
They are not established findings of liability.
18. The proceedings remain unresolved in Shell’s latest annual report
The Moscow proceedings have been conducted behind closed doors, with participants citing confidential and commercially sensitive information.
Public reporting recorded repeated adjournments during 2025. (Interfax.ru)
Most importantly, Shell’s 2025 Annual Report and Accounts, published on 12 March 2026, still described the proceedings as ongoing.
Shell stated that it could not reliably estimate either the magnitude or timing of any potential obligation and said there remained substantial uncertainty regarding the eventual outcome. (Shell)
That is the most recent authenticated Shell position located for this instalment.
Accordingly, this archive does not treat the Russian prosecutor’s case as resolved.
19. The accounting record tells the story almost clinically
Corporate accounts often reveal major historical ruptures in remarkably unemotional language.
In Shell’s case the sequence appears as a set of accounting events:
February 2022: intention to exit.
First quarter 2022: US$1.614 billion Sakhalin II impairment.
1 April 2022: significant influence lost after directors resigned and staff withdrew.
Second quarter: dividend received and value reassessed.
30 June: Russian presidential decree transfers project rights to a new entity.
Third quarter: Sakhalin-linked LNG cargo deliveries cease.
Year end: Shell remains holder of an interest in the old Bermuda vehicle but no longer participates in the replacement operator. (Shell)
Behind those accounting entries lay the end of nearly three decades of Shell involvement in one of Russia’s most important international energy developments.
Documentary Findings
Established: Shell announced on 28 February 2022 that it intended to exit its 27.5%-minus-one-share Sakhalin II interest following Russia’s invasion of Ukraine. (Shell)
Established: Shell recorded a US$1.614 billion impairment against the Sakhalin II investment in the first quarter of 2022. (SEC)
Established: Shell concluded that it lost significant influence over Sakhalin II from 1 April 2022 following resignation of its executive directors and withdrawal of managerial and technical staff. (SEC)
Established: Shell was actively exploring a commercial sale of its Sakhalin interest before the Russian ownership structure was changed. (Business Standard)
Established: Russian Presidential Decree No. 416 of 30 June 2022 created a new Russian structure to which Sakhalin II rights and obligations were transferred. (Pravo Publication)
Established: Shell chose not to become a shareholder in the replacement Russian entity, while Mitsui and Mitsubishi elected to remain and received approval for equivalent interests. (euronews)
Established: Sakhalin-linked LNG deliveries to Shell stopped during the third quarter of 2022. (Interfax)
Established: Shell continues to record ownership of a 27.5%-minus-one-share interest in the original Bermuda-incorporated Sakhalin Energy Investment Company, while stating that the entity purportedly no longer holds the project licences, rights and obligations. (SEC)
Established: Russian prosecutors subsequently brought proceedings against Shell entities arising in part from the 2022 exit and alleged unpaid gas deliveries. Shell’s March 2026 annual report states that those proceedings remain ongoing. (Shell)
Not established: Decree No. 416 did not constitute a judicial finding that Shell had breached the production-sharing agreement.
Not established: The Russian prosecutor’s later allegations have not been treated in this file as proven facts.
Not established: The documentary record examined here does not establish that Shell voluntarily sold its Sakhalin II interest to Gazprom in 2022.
Commentary
The most important feature of the 2022 Sakhalin exit is that there was no single moment when Shell simply handed over the keys.
The break occurred in stages.
First came the political decision to leave.
Then the directors resigned.
Then the technical and managerial presence was withdrawn.
Then the investment was impaired.
Shell tried to find a buyer.
Then Moscow replaced the project’s legal structure.
Shell declined to enter the replacement company.
Then its LNG supply disappeared.
And years later the old Bermuda company — still partly owned by Shell — remained on Shell’s books while holding, in Shell’s formulation, no effective Sakhalin II licences or operating rights.
That is not the pattern of an ordinary divestment.
Nor should it automatically be described as a simple confiscation without explaining the underlying legal mechanics.
The primary documents show something more complex:
Shell announced that it wanted to leave before the Russian restructuring occurred.
Russia then dictated the structure under which ownership would continue.
Shell refused to participate in that structure.
The financial value attached to the abandoned interest was subsequently determined within the Russian system rather than through a negotiated Shell sale.
Those distinctions matter because they explain why the consequences were still unresolved years later.
The Sakhalin story had begun as one of Shell’s great technical ambitions.
It became an environmental controversy.
Then a struggle over Russian control.
Then a mature LNG business.
Finally, in 2022, war and sanctions ended Shell’s operational participation.
But even that was not quite the end.
A company can leave a country more quickly than it can unwind decades of contracts, ownership structures and legal rights.
The Sakhalin papers make that unusually clear.
Source Record
The principal authenticated Shell announcement is “Shell intends to exit equity partnerships held with Gazprom entities,” 28 February 2022, confirming Shell’s intention to leave its 27.5% Sakhalin II interest and its other Gazprom-linked ventures. (Shell)
Shell — intention to exit Gazprom partnerships, 28 February 2022
Shell’s 2022 Form 20-F and interim SEC filings provide the principal accounting record: the US$1.614 billion Sakhalin II impairment, loss of significant influence from 1 April, resignation of directors, withdrawal of managerial and technical staff and subsequent treatment of the investment. (Shell)
The principal Russian legal record is Presidential Decree No. 416 of 30 June 2022, officially published by the Russian legal-information system. (Pravo Publication)
Russian Presidential Decree No. 416 — official publication record
Contemporaneous Reuters reporting records the mechanics of the decree, including creation of the new company and the process governing foreign shareholder participation. (Yahoo Finance)
Reuters — Russia will replace Sakhalin-2 project operator with new firm, 30 June 2022
Reuters also documented Shell’s attempt to find an Indian buyer before the restructuring. (Business Standard)
Reuters — Shell in talks with Indian consortium over Sakhalin II stake, May 2022
Contemporaneous reporting records the decisions by Mitsui and Mitsubishi to remain in the replacement Russian company. (euronews)
Shell’s latest authenticated position is contained in the Shell Annual Report and Accounts 2025, published 12 March 2026. It states that Shell still holds its interest in the Bermuda-incorporated predecessor company and records the continuing Moscow litigation arising from the Sakhalin exit and alleged 2022 gas debts. (SEC)
Shell Annual Report and Accounts 2025
The related Russian court proceedings are identified publicly as Prosecutor-General’s Office of the Russian Federation v Shell plc and others, Case No. A40-241354/2024. (Jus Mundi)
Archive disclaimer: This instalment distinguishes Russian executive measures, Shell corporate decisions and later litigation. Allegations made by the Russian prosecutor are identified as allegations and are not treated as judicially established facts. Figures relating to Shell’s Russian withdrawal are separated from the specific Sakhalin II impairment. The article does not characterise the 2022 presidential decree as a court judgment.
Site-wide disclaimer applies.
Next instalment
The Sakhalin Papers LI: The Billion-Rouble Exit Price — Novatek, Gazprom and the US$1 Billion Shell Still Could Not Simply Collect
In April 2023, the Russian government valued the unclaimed 27.5% interest in the replacement Sakhalin Energy company at:
94.8 billion roubles
and approved Novatek as the purchaser. (Interfax)
Shell’s response was revealing.
Its CFO said:
“No payments have been made and we retain our legal rights.” (Interfax)
Then the proposed buyer changed.
In March 2024, the Russian government cancelled the Novatek arrangement and approved a Gazprom-owned company as purchaser — for the same 94.8 billion roubles. (Interfax)
And the money did not simply arrive in Shell’s London bank account.
It became entangled with Russia’s special-account regime and eventually with the €1.5 billion claim now being pursued against Shell in Moscow.
The next file follows the money:
Who decided what Shell’s Sakhalin stake was worth, where did the 94.8 billion roubles go, and why — years after Shell announced its departure — does the company still describe the legal and financial outcome as uncertain?
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