In early March, ExxonMobil announced that it is backing out of its $500 billion Arctic exploration deal with Rosneft due to the sanctions. The corporation will book a significant loss on the joint venture, which, if sanctions are removed, might spring back to life. For now, it appears ExxonMobil has put the deal on ice, so to speak. Upon taking office, Tillerson agreed to officially stay away from ExxonMobil- related issues until December 31, 2017. After that he was free to involve himself in State Department matters affecting the globe-trotting energy corporation. But his days were numbered... Last week, Trump fired Tillerson, replacing him with CIA director Mike Pompeo, a Trump loyalist with long-term financial and political ties to oil and energy conglomerate Koch Industries. Pompeo is now in charge of overseeing the enforcement of the Russia sanctions. THE MELTING POINT For two decades, Tillerson was ExxonMobil’s point person in Russia. Led by Tillerson, ExxonMobil had signed a deal with Rosneft to pump oil in the cold far-eastern region of Sakhalin in 1996. Tillerson and Sechin became friends, even riding motorcycles together on vacations in Texas. In 2012, Tillerson and Sechin joined forces to develop the largest fossil fuel reserve on the planet: the Russian Arctic. The ice-blanketed tundra and polar ocean are opening to drilling as greenhouse gases warm the seas. Rosneft needed to hook up with an oil major with the technical skills and the financial clout to mine
the Arctic. Capitalizing the expensive joint venture was easy. With $43 billion stashed in tax-free offshore accounts at the time, ExxonMobil was its own bank. Securities filings show that ExxonMobil created a tax- free shell in the Netherlands to anchor the $500 billion partnership. Drilling rigs were fired up and exploration began. The project was paralyzed when President Barack Obama sanctioned Sechin and Rosneft in the wake of Putin’s invasion of Ukraine. Russia’s mega-disruption of the presidential election and its military support for Syrian dictator Bashar Assad have politically solidified the sanctions for the foreseeable future. Trump is unlikely to remove the sanctions in the face of Mueller’s methodical investigation, but Pompeo can maintain Tillerson’s tactic of weak enforcement. In 2016, ExxonMobil wrote down the amount of oil reserves on its books due, in part, to an inability to bring its Arctic projects online because of sanctions. And in its most recent 10-K filing with the U.S. Securities and Exchange Commission, it announced a $200 million loss of its Arctic deal with Rosneft. ExxonMobil has turned to other oil rich regions to replenish its reserve balance – trying to match Rosneft’s global reach. THE 19.5% SOLUTION Sanctions don’t seem to be stopping Putin from rolling up the opposition in Ukraine or Syria... or from trolling Facebook. But the restrictions are reshaping world oil markets. Beset by a looming budget deficit, craving foreign exchange, and choked for investment
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