ExxonMobil striking out
US sanctions against Russia have hit ExxonMobil harder than most and the supermajor is getting no change out of Washington in its efforts to loosen them
ExxonMobil has failed for a second time with efforts to circumnavigate US sanctions against Moscow and resume an oil venture with Kremlin-controlled oil firm Rosneft.
The US energy giant, which has had a continuous business presence in Russia for more than 20 years across upstream, downstream and chemicals operations, will now be reassessing its long-term plans for the country and its alliance with Rosneft, which is led by President Vladimir Putin's energy czar Igor Sechin.
ExxonMobil has arguably suffered more from sanctions than other Western counterparts, or even Russian oil producers. Some of the measures, introduced in response to Russian interference in the Ukraine conflict, specifically target deepwater drilling in the Black Sea, Arctic operations in the Kara Sea and the use of fracking in Siberia. Those terms have been a setback for Exxon, because drilling in those regions are pivotal to a deal it struck a few years earlier with Rosneft.
Along with ConocoPhillips, Exxon was one of the first majors to start operations in Russia. Back in 2012, Putin predicted that the Exxon-Rosneft tie-up would spend up to $500bn on collaborative projects in Russia.
Exxon first applied for a waiver in 2015, contending that it could lose its exploration rights in the Black Sea if it did not begin drilling operations by the end of 2017, under its contract with Rosneft.
President Barack Obama's administration did not act on the application, but Exxon had hoped that Donald Trump's new government would be more receptive. The company, now run by Darren Woods, renewed its efforts to have the projects approved shortly after his predecessor, Rex Tillerson was named US secretary of state in February.
Woods met with Putin, Sechin and Russian energy minister Alexander Novak in Moscow in March to speak about progressing joint projects. But hopes of a US-Russia rapprochement have been scuppered by intensifying congressional scrutiny of reports that the Kremlin influenced Trump's victory over Hilary Clinton late last year.
Steve Mnuchin, the US Treasury Secretary, put out a statement in April saying ExxonMobil would not be granted a waiver, while both Democratic and Republican politicians vented their ire. When news of ExxonMobil's proposal emerged, US Republican Senator John McCain wrote in a Twitter post: "Are they crazy?"
Exxon's holdings in the Arctic and the Black Sea total 63.6m acres. By comparison, it holds 85,000 acres linked to an offshore project on Sakhalin island in the far east of the country, which was put in motion before the sanctions.
Many members of congress now support the tightening of sanctions in response to alleged interference by Russia in the US presidential elections.
Exxon is acutely aware that it is losing out to its competitors, such as Italy's Eni and Norway's Statoil, which are able to continue exploration of Russian fields, despite EU sanctions. Moreover, Rosneft is now expected to pursue a deepwater exploration programme in the Black Sea with Eni.
There is also bi-partisan support in the US Congress to block the potential acquisition by Rosneft of Citgo, a Texas-based oil refiner. The deal hinges on the ability of Venezuela's state-run oil company to pay back a loan from Russia, after using Citgo as collateral for it.
Cash-starved Petroleos de Venezuela (PdVSA), which has owned Citgo since the 1980s, put up a 49.9% stake in the refiner in exchange for a loan from Rosneft in December last year. If PdVSA can't pay its bills on time, Rosneft will likely take control of Citgo. All Rosneft would need to do is buy a few bonds to cross the 50% ownership threshold.
A handful of lawmakers sent a bill to the US Treasury in April, warning the government that a deal "could have significant national security implications for critical energy infrastructure in the US".
Landing a key US energy asset would be a tremendous coup for Rosneft and Sechin. A former deputy prime minister, who relishes a scrap, he will be keen for the deal to go through and won't be giving up on the partnership with Exxon without a fight either.
His company is currently embroiled in litigation against Russian conglomerate Sistema, following Rosneft's acquisition of oil producer Bashneft last year. Sistema shares plunged after Rosneft filed a $1.9bn lawsuit against the company, claiming that assets had been removed from Bashneft when it was owned by Sistema. A Moscow court has declined to hear Rosneft's lawsuit, but Sechin is expected to appeal to a higher court.
Like several in Putin's inner circle, Sechin was individually sanctioned by the US, barring him from travelling to America since April 2014.
The European Union is also holding firm on its sanctions against Rosneft. The European Court of Justice, on 23 March, upheld sanctions imposed on Russia over the Ukraine conflict, including those introduced against Rosneft. The court said it believed encroaching on Rosneft's right to do business was in proportion with the severity of sanctions imposed on Russia over the Ukraine crisis.
Rosneft described the decision as "illegal, baseless and politicised".