RoydadNaft –  India’s state-run Oil and Natural Gas Corporation (ONGC) has reached an arrangement with Moscow that will allow its overseas arm, ONGC Videsh, to retain its 20% interest in the strategic Sakhalin-1 oil and gas project in Russia’s Far East, sources familiar with the matter told Reuters on Friday.

The breakthrough hinges on the Kremlin permitting ONGC Videsh to settle its mandatory contribution to the project’s abandonment and decommissioning fund in Russian rubles, using approximately $800 million in dividends that have been frozen in Russian banks since Western sanctions were imposed in 2022.

The Sakhalin-1 project, located off the coast of Sakhalin Island, was previously operated by ExxonMobil, which held a 30% stake before announcing a complete exit from Russia following the invasion of Ukraine. In response, President Vladimir Putin issued a 2022 decree transferring the asset to a new Russian entity and later amended it this summer to allow qualified foreign investors to return under strict conditions.

Under the revised ownership structure, ONGC Videsh formally holds 20%, while a consortium of Japanese companies grouped under SODECO retains another 30%. Rosneft, Russia’s state oil giant, controls the operating company and the majority interest.

The abandonment-fund payment had emerged as a key hurdle for ONGC Videsh to maintain its stake. Western sanctions have blocked the repatriation of dividends earned by Indian state firms from various Russian energy ventures, leaving hundreds of millions of dollars trapped in Russian accounts.

By allowing these frozen funds to be converted into rubles and redirected toward the decommissioning obligation, Moscow has effectively removed the final obstacle to India’s continued participation.

The deal underscores New Delhi’s determination to safeguard long-term energy investments in Russia despite mounting pressure from the United States and its allies. Sakhalin-1 remains one of the few major Arctic-class oil and gas projects still open to select non-Western partners.

Japan has also reaffirmed the strategic importance of the Sakhalin projects for its energy security, with Tokyo quietly supporting its trading houses’ decision to stay invested.

Production at Sakhalin-1, which peaked at around 220,000 barrels per day before Exxon’s departure, has gradually recovered under Russian management and now supplies crude and LNG primarily to Asian markets.