March 6, 2017    4 minute read

Will ExxonMobil and Rosneft Finally Be Able to Tie the Knot?

Ready to Put a Ring on It?    March 6, 2017    4 minute read

Will ExxonMobil and Rosneft Finally Be Able to Tie the Knot?

Back in 2012, ExxonMobil and Rosneft struck a deal for a joint venture worth around $500bn. The venture revolves around developing reserves in the Arctic Kara Sea, the Black Sea and some onshore assets in Siberia, all of which are said to be very oil rich. A US Geological Survey estimates that there could be around 400 billion barrels of oil equivalents in the wider Arctic region.

Exxon’s holdings in Russia’s Arctic waters and the Black Sea total around 63 million acres. They hold a 33% stake in the Arctic Kara Sea and the Black Sea joint ventures, and a 30% stake in the Sakhalin project (their main Russian venture). There are estimated to be over 80 billion barrels of oil lying in the joint venture’s three blocks of the Kara Sea.

Exxon Mobil is the world’s largest private oil company with a market cap of around $350bn. According to Forbes, last year they produced 4.10 million barrels of oil a day, behind only Gazprom (8.38 million) and Rosneft (5.07 million).

The deal is hugely significant for both companies, as Exxon continues to cement itself as the largest private oil company, while Rosneft tries to reassert and reestablish itself after Russian instability and sanctions.

The Sanctions

The deal, which had looked so promising, was jeopardised in 2014 when Russia invaded Crimea. In the aftermath, the sanctions against Russia put the deal on hold. The situation in Syria and Russia’s escalating involvement in the conflict only served to perpetuate the distance between America and Russia, or more accurately between Obama and Putin.

With Hillary Clinton seen as the favourite to win November’s election, tensions with Russia did not appear to be on the mend. The deal was dead in the water until November 8th, 2016.

Trump and Tillerson

It is fair to say that one would probably struggle to dream up a more promising situation for both companies as they try to get the deal back on track. Trump is far more willing to work with Putin then any of the other serious presidential candidates were, especially Hillary Clinton. He has publicly talked about removing sanctions against Russia. He seems to be an admirer of Putin, something Obama was certainly not.

As if Trump getting elected was not already promising enough for the deal, he then nominated Rex Tillerson, the former CEO of ExxonMobil to be his Secretary of State. Tillerson has extensive ties with Russia, having even received the Russian Order of Friendship award (the highest honour awarded to foreign citizens) in 2013.

He has been involved in various deals between the two oil giants over the last two decades – first in 1999 and later in 2011. The deal in 2011, worth $3.2bn, gave Exxon permission to develop offshore oil fields in the Russian Arctic, while Rosneft was given stakes in a number of US-based projects. The deal was a success up to that point but fell through following the sanctions, which prompted Tillerson to condemn them, saying that they caused “broad collateral damage”.

Recently, General Flynn (one of Trump’s senior security advisors) was fired for discussing the removal of sanctions against Russia before Trump had taken office. There, of course, remains controversy over whether Trump knew about the conversation, which can arguably be indicative of the approach the new administration is likely to take.

Conclusion

It remains to be seen whether the sanctions will stay in place, but certainly, if they are lifted, then this deal could be back on the table. There is currently an FBI investigation into potential Russian hacking activities, and various members of Congress and the Senate are opposed to lifting the sanctions, but with a Russian-friendly administration who knows what can happen.

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