ExxonMobil to Drop Russia Plans

US sanctions have forced supermajor ExxonMobil to abandon activities planned jointly with Russian state Rosneft, according to media reports March 1.

The sanctions extend to deepwater activities in Russia, meaning no drilling in the Arctic or the Black Sea. Such drilling had been on Exxon's agenda. However its regulatory US filings said that the decision was taken last year to abandon activities and it is now expected to formally withdraw this year.

ExxonMobil was last year fined $2mn for agreeing projects with Russia after sanctions were imposed in 2014, in response to Russian armed forces destabilising eastern Ukraine. The year before, the then CEO Rex Tillerson signed agreements with US-blacklisted Igor Sechin, CEO of Rosneft, that opened up the Arctic to oil drilling. That agreement led to one well in the Arctic Kara Sea which the US major then abandoned.  Tillerson last year was appointed US Secretary of State.

Wood Mackenzie’s Samuel Lussac said the decision "puts a formal end to ExxonMobil’s long-term strategy of exploring the Arctic, which led to the discovery of the giant Pobeda field in 2014. It also makes the progress at the Far East LNG project [Sakhalin-1] less likely. The after-tax loss amounts to $200mn, registered in 2017, but ExxonMobil had also spent around $700mn on the Universitetskaya well in 2014.”

He added: “This move is not a surprise in a time when US sanctions pressure keeps increasing. In practice, all Arctic offshore exploration and the Trizneft Pilot project – which focused on the Bazhenov shale oil development – were on hold since 2014. Rosneft loses a partner of choice, which could have brought financing and expertise for the development of the next wave of Russian oil supply. ExxonMobil will keep its 30% share in Sakhalin-1.”

The exploratory effort in the Arctic would have been oil-directed. But had Exxon with Rosneft progressed as far as jointly drilling in the deepwater Black Sea, then either gas or oil might have been the prize.

Outside Russian Black Sea waters, so beyond the scope of sanctions, there are a number of promising deepwater gas fields in the western Black Sea, including the Domino field offshore Romania in which Exxon and OMV-Petrom are equal 50% partners in the Neptun Deep block. OMV said last year that a decision on whether to develop that gas would be taken in 2H2018.