TotalEnergies to take $3.7 bln write-off on Novatek, withdraw directors

A sign with the logo of French oil and gas company TotalEnergies is pictured at a petrol station in Bouguenais near Nantes, France, November 14, 2022. REUTERS/Stephane Mahe/File Photo
  • TotalEnergies has held on to several Russian investments
  • To withdraw its two board members from Novatek
  • $3.7 billion write-off to be booked in Q4 accounts
  • Will likely still receive Novatek dividends -analyst

PARIS, Dec 9 (Reuters) - French oil giant TotalEnergies, one of the last Western holdouts in Russia, said it would take a $3.7 billion write-off on its stake in Russian group Novatek (NVTK.MM) and withdraw its two members from the company's board.

With the latest hit, TotalEnergies has booked $14.4 billion in impairments on its Russian holdings this year, still less than the $25.5 billion pre-tax charge rival BP took in March.

Unlike BP and Shell and despite criticism from some activists, TotalEnergies (TTEF.PA) has held on to several investments in Russia after the country invaded Ukraine on Feb. 24 and has faced international sanctions for doing so.

It holds a 19.4% stake in gas producer Novatek and minority holdings in liquefied natural gas (LNG) projects Yamal LNG and Arctic LNG.

TotalEnergies said in a statement on Friday that EU sanctions against Russia meant its two directors on Novatek's board were abstaining from voting in board meetings, in particular on financial matters, and so could not fully fulfill their roles.

"Under these circumstances, the board of directors of TotalEnergies has decided to withdraw the representatives of the company from the board of PAO Novatek with immediate effect."

It said it would also "no longer equity account for its 19.4% stake in Novatek", which will result in an impairment of around $3.7 billion in the fourth quarter.

Shares in the company, which has posted record high profits so far this year, were down 1.2% as of 1131 GMT.

The oil major, which back in September said it was becoming more "complex" to receive dividends from its Russian interests, did not say in its statement why it had decided to take the write-off now.

A company spokesman said the timing of the move was "in line with our principles of conduct of gradual withdrawing from our Russian assets."

NOVATEK DIVIDENDS

"The key questions from today's release is why now and not earlier," said RBC analyst Biraj Borkhataria. "The stake in Novatek was, in our view, potentially the least arduous of TotalEnergies' interests to exit."

He said he believed Friday's decision would not impact Novatek dividend payments to TotalEnergies. He said such payments were made in the second and fourth quarters, with the second-quarter payment of around $450 million.

"We would anticipate, given the strong year for commodity prices, the expected 4Q payment to be larger," Borkhataria said.

A source familiar with the matter said TotalEnergies, which has exited some Russian assets in the wake of the war and said it would not invest in new projects in the country, would remain in the Yamal LNG project, where it has a 20% stake. The company spokesperson said this was because "TotalEnergies, at the request of EU authorities, has to keep ensuring that it continues to supply gas to Europe via Yamal LNG."

Environmental group Greenpeace, which had long urged TotalEnergies to sever ties with Russia, said Friday's withdrawal from Novatek was welcome but late.

"The distancing from Novatek...is not enough to make TotalEnergies a responsible company, as long as it keeps a foot in Russia and continues to fuel the climate crisis," said Edina Ifticene of Greenpeace France.

In its statement, TotalEnergies said it could not sell the Novatek stake "given the prevailing shareholders' agreements, as it is forbidden for TotalEnergies to sell any asset to one of Novatek's main shareholders who is under sanctions".

It said the Novatek write-off also meant it would no longer book related reserves, with an impact on the company's reported proved reserves at the end of 2021 of 1.7 billion of barrels.

Addiitonal reporting by Tassilo Hummel, Dominique Vidalon and Reuters bureaus; writing by Silvia Aloisi; editing by Jason Neely and Louise Heavens

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