lnp3 at panix.com
Tue Jun 10 08:53:11 MDT 2014
"An instructive example of an attempt at such a redivision, of the
struggle for redivision, is provided by the oil industry."
--V.I. Lenin, "Imperialism, the latest stage of capitalism"
NY Times, June 10 2014
For Western Oil Companies, Expanding in Russia Is a Dance Around Sanctions
By ANDREW E. KRAMER and STANLEY REED
MOSCOW — Like many chief executives of American companies, Rex W.
Tillerson of Exxon Mobil didn’t attend the major business forum in
Russia last month, at the urging of White House officials. But the
company’s exploration chief, Neil W. Duffin, did.
In a ceremony at the event, Mr. Duffin signed an agreement with Igor I.
Sechin, the head of the state-owned Rosneft, to expand its joint
ventures to drill offshore in the Arctic Ocean, to explore for shale oil
in Siberia and to cooperate on a liquefied natural gas plant in Vladivostok.
The deal came just weeks after the United States government imposed
sanctions on the personal dealings — though not the corporate activities
— of Mr. Sechin, a former military intelligence agent and longtime aide
to President Vladimir V. Putin.
Despite the push by Western governments to isolate Moscow for its
aggression in Ukraine, energy giants are deepening their relationships
with companies here by striking deals and plowing more money into the
Along with Exxon, BP of Britain and Total of France also signed
contracts at the business forum in St. Petersburg to explore for shale
oil in Russia. Exxon plans to drill its first exploratory well offshore
in the Russian sector of the Arctic Ocean this summer. Statoil of Norway
is in talks for another shale joint venture. Royal Dutch Shell’s chief
executive, Ben van Beurden, met with Mr. Putin in April and told him,
“Now is the time to expand,” referring to a liquefied natural gas plant
The companies are taking a calculated risk, given the threat of further
sanctions. But they also want to protect their long-term interests in
Russia, the world’s largest energy-exporting nation.
“They are likely to continue to engage until there is a clear policy
signal that they should stop. It is not rational to think they would act
in any other way,” said David L. Goldwyn, who served as the State
Department’s special envoy and coordinator for international energy
affairs during President Obama’s first term. “If the government wants
them to stop, it needs to say louder they should stop.”
Exxon declined to comment on the deal signed in St. Petersburg. Total
and BP have emphasized that their agreements fully comply with sanctions.
So far, the United States and the European Union have imposed only
limited sanctions, aimed largely at individual Russians and a handful of
companies. The existing sanctions don’t explicitly bar the energy giants
from operating in Russia. Though Mr. Obama authorized an executive order
on March 20 that could outlaw such deals, it has not yet been put into
effect by the Treasury Department.
The risk for energy companies is that the next stage of sanctions,
called the third phase, will be broader, cutting off dealings with major
sectors of the economy like finance, metals and energy. The United
States and its allies proposed such sanctions at a Group of 7 summit
meeting in Brussels last week, to be carried out if the violence in
Ukraine did not subside within a month.
While the companies are not violating the current rules, they are
walking a fine geopolitical line.
At the St. Petersburg gathering on May 24, the British oil giant BP
signed a $300 million preliminary agreement with Rosneft to study shale
oil deposits in the Volga Valley and Ural Mountains, west of the area
where Exxon Mobil will be working. BP’s chief executive, Robert W.
Dudley, an American citizen, attended the forum. But David Campbell,
BP’s Russia chief and a British citizen, signed the agreement with Mr.
Also at the business forum, Total signed a deal with Lukoil, another
Russian oil company, for exploring more than 1,000 square miles of
western Siberian wilderness for shale oil. “My message to Russia is
simple — it is business as usual,” Total’s chief executive, Christophe
de Margerie, told journalists there.
To keep it that way, oil companies are publicly and privately pushing
back against more sanctions by speaking out at shareholders’ meetings
and by lobbying in Washington.
“We have a responsibility to stand with our partners in a difficult
time,” Mr. Dudley of BP told an audience at the St. Petersburg forum.
Mr. Tillerson, Exxon’s chief executive, told reporters last week in
Dallas that the company was making its skepticism about sanctions clear
to the United States government. “Our views are being heard at the
highest levels,” he said.
“There has been no impact on any of our business activities in Russia to
this point, nor has there been any discernible impact on the
relationship” with Rosneft, he added.
The energy giants, in part, are wary of offending their partners in
Russia. Several big Western companies have large existing investments
and important joint ventures in Russia that they want to protect from a
government that is sometimes seen as fickle on property rights.
Exxon has a wide-ranging relationship with Rosneft, including existing
oil production off Sakhalin Island in eastern Russia. BP has a nearly 20
percent stake in the Russian company. In all, Western energy companies
have invested an estimated $35 billion in Russia.
The future opportunities could prove even more valuable.
The recent agreements signed by BP, Exxon and Total will help Russia
push its petroleum industry into the high-tech field of extracting oil
from shale. The big Western companies mostly arrived late to the shale
boom in the United States as smaller companies took the lead, and
Russia, which geologists estimate has the greatest potential for shale
outside of the United States, represents a chance to gain an early edge.
In the last few years, shale formations like the Bakken in North Dakota
and the Eagle Ford in Texas have added three million barrels a day to
the oil output of the United States.
Exxon is also gaining access to offshore drilling sites in the Russian
Arctic Ocean, while the waters off Alaska remain tied up in lawsuits and
regulation. Exxon and Rosneft plan to drill the first exploratory well
this summer in the Kara Sea, one of the shallow extensions of the Arctic
Ocean north of Russia, where there could be enormous oil and gas resources.
And Exxon is joining with Rosneft to explore the Bazhenov shale
formation in western Siberia, an area that has already produced tens of
billions of barrels of oil through conventional drilling methods — a
good sign for shale drillers, according to geologists. “Compared to
other opportunities worldwide, Russia is certainly one of the most
promising,” said John Webb, an analyst at the market research firm IHS
who specializes in Russian energy.
Rosneft welcomed the deals: Extracting oil from these types of reserves
represents a technical challenge, the statement said. “That is why
Rosneft teamed up with the best international companies like Exxon Mobil
and Statoil for the scope of exploring and producing those resources.”
The energy giants, in a sense, are betting that the Russian oil and gas
industry will not be hit by direct sanctions.
The energy industry provides financing for the Russian government and
military, making sanctions a threat to continued action in Ukraine. But
the United States and Europe must tread carefully, given the industry’s
major role in world markets.
From its swamps, tundra and wilderness, Russia pumps about the same
volume of oil as Saudi Arabia, while exporting more energy than the
desert kingdom, if oil and gas are counted together. Russia supplies
about one-third of the gas to heat homes and generate electricity in
Europe. And Russian oil and gas exports help ease energy reliance on the
politically volatile Middle East.
For that reason, many analysts think Russian energy companies like
Rosneft are simply too big to punish.
The companies are making “a hedged bet that the Russian energy sector
will escape sanctions and the Ukraine crisis will quiet down,” said
Cliff Kupchan, a Russia analyst at the Eurasia Group.
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