Exxon Abandons Russian Projects Brokered by Tillerson--Update
March 01 2018 - 6:20AM
Dow Jones News
By Michael Amon
Exxon Mobil Corp. is ending ambitious Arctic projects with
Russia's state-controlled energy giant PAO Rosneft because of
international sanctions on Moscow, abandoning signature
achievements of its former chief executive, Secretary of State Rex
Tillerson.
Exxon said it decided last year to withdraw after the U.S.
government imposed new sanctions on Moscow for its alleged
interference in the 2016 presidential election. Those penalties
came on top of U.S. and European sanctions on Russia over its
actions in Ukraine.
The withdrawal, for now, marks the end of Exxon's hopes of
drilling in Russia's Arctic ocean oil fields, considered one of the
world's great unexplored oil and gas basins. Exxon drilled one
exploration well that it said produced promising results, but had
to halt work because of sanctions. Exxon had hoped drilling could
restart in the future, either with the blessing of the Trump
administration or the eventual lifting of sanctions.
Rosneft didn't immediately respond to a request for comment.
The Kremlin had hoped that he deals would unlock significant new
resources that could help Russia maintain its position as the
world's largest crude producer. Russia's federal budget relies on
oil and gas sales for around one-third of its revenues. Without
technology from partners such as Exxon, Russia will struggle to
access those resources, analysts say, although it has plenty of
other onshore fields to maintain production.
In 2011 Mr. Tillerson clinched the Arctic partnership from under
the nose of rival BP PLC, whose attempt to strike a similar deal
was thwarted by a challenge from its other Russian partners in its
TNK-BP joint venture. Rosneft later sealed a deal with BP and those
partners, a group of tycoons, to take over TNK-BP, handing the
British company a near-20% stake in Rosneft. BP has since signed
deals with Rosneft to explore onshore gas and oil deposits.
Mr. Tillerson later received the Order of Friendship, the
highest honor Russia can bestow on a foreigner.
Other Western majors have also pressed ahead in Russia, although
many have cut back on plans due to sanctions that have also blocked
attempts to produce shale oil. France's Total SA partnered with a
firm part-owned by a longtime acquaintance of Mr. Putin to launch a
$27-billion Arctic gas project last year. Italy's ENI SpA said
drilling on a joint project with Rosneft in the Black Sea was
continuing but it was monitoring the legal situation related to
U.S. sanctions. Exxon is still heavily invested in Russia via an
oil project off the Pacific island of Sakhalin.
Russia and Rosneft, meanwhile, have in recent years increasingly
looked to China for financing and partnerships. CEFC China Energy
Co. took a 14.2% stake in Rosneft last year; China National
Petroleum Corp. and a Chinese state investment fund hold stakes in
the Arctic gas project.
Exxon's involvement in Russia drew condemnation from the U.S.
government, as Exxon continued to try to pursue its partnership
despite the crisis over Moscow's involvement in Ukraine, including
its annexation of Crimea.
The U.S. Treasury Department last year imposed a $2 million fine
on Exxon for what it called a "reckless disregard" of American
sanctions on Russia while Mr. Tillerson was chief executive. The
deals were signed by a Putin confidant, Rosneft Chief Executive
Igor Sechin, who was targeted by sanctions.
Exxon called the fine "outrageous," saying it was contrary to
guidance given by the Obama administration. The company has
challenged the fine in federal court.
President Donald Trump also dealt Exxon's Russian ambitions a
blow last year, declining to waive sanctions for the company's
Rosneft ventures.
Exxon announced the end of the joint ventures in a regulatory
filing late Wednesday. It said it would formally begin to withdraw
from the Rosneft joint ventures this year, taking a $200 million
loss on them after taxes.
Write to Michael Amon at michael.amon@wsj.com
(END) Dow Jones Newswires
March 01, 2018 06:05 ET (11:05 GMT)
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