3-1-18 6:05 AM EST | Email Article
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)

Copyright (c) 2018 Dow Jones & Company, Inc.
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