MOSCOW: Exxon has turned into a collateral victim of the U.S. economic sanctions against Russia. So while supermajor BP’s chief executive Bob Dudley said earlier this week that he was “a little saddened” with the way the Deepwater Horizon movie has painted his company, Exxon’s Rex Tillerson has perhaps an even greater reason to be a little saddened. Exxon, the world’s biggest oil and gas company by value, entered Russia in the 1990s and has enjoyed a long and fruitful presence there. This presence was set to expand further with Exxon’s plans to take part in the exploration and exploitation of the country’s Arctic shelf. Unfortunately for Exxon, the U.S. and the EU hit Russia with sanctions over the annexation of Crimea and its support for Eastern Ukrainian rebels.
The sanctions forced Exxon to shelve its Arctic plans, and it started to lose money from revenues generated by its ongoing Russian projects, such as the flagship project Sakhalin-1 and a number of joint ventures with Russia’s Rosneft. It also lost future revenues. The Arctic venture alone was valued at $500 billion in total investments. What made the project particularly appealing for Exxon was that Rosneft’s CEO, Igor Sechin, had promised to exempt the company from export duties and property tax.
It was all going so well before the White House ordered Exxon to basically drop everything and go home, banning the export of any technical know-how and equipment in the area of drilling for oil and gas, including shale technology. As of early 2015, seven months after the sanctions were launched, Exxon had suffered losses amounting to about $1 billion from its Russian operations. That may not look like a whole lot of money for a company that reported second-quarter profits of $1.7 billion this year. The problem lies in the future, at least according to some observers such as financial columnist Liam Denning.
