Despite Sanctions Fight, ExxonMobil Begins Russia Oil Project

Luckily for America’s most powerful company in the world’s most important economic sector has not been hit by sanction shrapnel in the war of words flying from Moscow to Kiev, Brussels and Washington. U.S. oil giant ExxonMobil and its Russian partner Rosneft started drilling for oil together in the Arctic this weekend.

Best friends forever.

Or so both sides hope.

U.S. sanctions over the crisis in Ukraine have not impacted Russian and U.S. oil companies just yet, but there have been shots fired across the bow of Russia’s flagship enterprise: energy. For instance, the U.S. banned sharing technology used in fracking. The E.U. has banned the sale of components used in exploration and production machinery.  Financing of Russian oil and gas projects in Crimea, the peninsula once owned by Ukraine and recently annexed by Russia, is also off limits.

But ExxonMobil and Rosneft have been trying to get this project off the ground for over a year now.

Russia needs modern technology to extract its hydrocarbons, now located in trickier parts of Siberia and the Kara Sea, located within the Arctic Circle.  It won’t be smooth sailing for ExxonMobil.

Russian oil firms are not known to be the best partners. BP was a partner with Rosneft and other privately held oil firms but executive infighting between the joint venture partners drove that project into the ground.  Privately held Yukos Oil went belly up after it ran afoul of the government. It is now part of Rosneft. While its CEO Mikhail Khodorkovsky spent part of his life in prison.

ExxonMobil will have to hope that Washington does not drive a wedge between them.

ExxonMobil’s West Alpha rig is now drilling in one of the largest oil and gas projects around. And Russia’s Kara Sea reserves are at least as big as the Gulf of Mexico’s, Rosneft CEO Igor Sechin said on Saturday.

“These projects are the largest projects in the world’s oil and gas industry this year,” Sechin said in RIA Novosti.  ”We have come to the start of the drilling in the Kara Sea… and this is the largest project on a shelf in the world. Preliminary geological studies…look very promising,” he told the newswire.

Glenn Waller, ExxonMobil’s lead manager in Russia, reportedly said in a video conference call with Russian president Vladimir Putin, “Our cooperation is a long-term one. We see big benefits here and are ready to work here with your agreement.”

The company is painfully aware that its operations in the Kara Sea are, literally, on thin ice.

But, providing ExxonMobil doesn’t challenge Putin’s world view, or gets caught up in Washington politics, America’s largest oil company stands a chance in Russia.  Sechin and Putin both want ExxonMobil to stick around because it wants to learn new technologies.

Arctic exploration is one of the hardest in the world. Russia’s aging technology doesn’t make exploration or production any more affordable. The joint venture is about more than Rosneft acquiring a tech partner.  Their partnership stands as a testament to U.S. Russia relations. ExxonMobil has clout in Washington. It is the most important voice on oil and gas matters in the country.  It is unlikely the U.S. and Europe will play hardball with Russian energy.  But if sanctions worsen the Russian economy more than its government has forecast, Putin’s trusted ally Sechin could begin making life more complicated for Exxon.  Sechin is not known as Darth Vader for nothing.

Reuters reported Elizabeth Rosenberg, a former sanctions adviser at Treasury and now an energy guru at the Center for a New American Security, saying ExxonMobil’s move is totally out of sync with Washington.   Oil can drive foreign policy. But it can also trump foreign policy.

“It’s a bit discordant with the message that the United States government is trying to send, having this long-planned summer drilling season go ahead right now,” Rosenberg said.

Putin said that despite sanctions, foreign firms from the U.S. and Europe still want to work with Russia.

“Commercial success is measured by effective international cooperation,” he said during the video conference call with Sechin and Waller.  ”The business community…understands this very well, and despite the difficulties of the current political situation, pragmatism and common sense still prevail.”


Kenneth Rapoza, Forbes

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