MOSCOW (AP) — Exxon Mobil will end a joint venture with Russia’s state-controlled Rosneft due to U.S. and European sanctions against Moscow.
Exxon revealed in a regulatory filing that it decided to end the partnership late last year after the U.S. expanded sanctions against Russia. The company plans to begin unwinding the joint venture this year.
The retreat will result in an after-tax loss of about $200 million — spare change in comparison to Exxon’s 2017 profit of $19.7 billion.
But ending the partnership with Rosneft appeared to dash Exxon’s hopes of drilling in the potentially oil-rich Russian Arctic, and it erases some of the legacy of Secretary of State Rex Tillerson, the one-time Exxon chairman and CEO.
Tillerson signed a deal with Rosneft, Russia’s biggest oil producer, in 2011 with hopes of drilling in the difficult terrain of Russia’s Arctic waters. The partnership would combine Exxon’s technological expertise with Rosneft’s access to the area.
The deal came under strain, however, after the U.S. sanctioned Russia in 2014 over the invasion of Ukraine and annexation of the Crimean Peninsula. The sanctions did not affect existing energy deals, but they prohibited any business with Rosneft CEO Igor Sechin, an influential oligarch in Russia with whom Tillerson reportedly has had close personal ties.
Exxon applied for a waiver from the sanctions, but it has not been granted. Last year, the U.S. Treasury fined Exxon $2 million for signing new deals with Sechin in 2014. Exxon sued the U.S. government to stop the fine.
The U.S. expanded sanctions against Russia last year for allegedly interfering in the 2016 U.S. presidential election.
As America’s top diplomat since February 2017, Tillerson maintains that the sanctions will remain in place until Russia reverses course in Ukraine and gives back Crimea. Still, the Russian deal on his watch at Exxon raised questions about his ability to enforce the sanctions and persuade European countries to continue doing so.
Brian Youngberg, an analyst with Edward Jones, said the withdrawal from the Rosneft partnership would not seriously hinder the Irving, Texas, company financially nor stop it from pursuing major deals overseas.
Since the deal was announced in 2011, Youngberg said, oil prices have fallen, production from U.S. shale fields has surged, and forecasts indicate global demand for oil will grow more slowly than once thought. He questioned whether oil from the Arctic will ever be needed.
On top of Exxon’s reported loss of $200 million, the company will walk away after spending about $700 million drilling a deepwater well in Russia’s Kara Sea, Wood Mackenzie analysts estimated.
“This decision puts a formal end to Exxon Mobil’s long-term strategy of exploring the Arctic,” which had led to discovery of a major oil field in 2014, said Wood Mackenzie’s Samuel Lussac.
Rosneft, in a company release, said that it “will continue the independent development of these projects,” and that it supports Exxon Mobil’s eventual return, if the law allows that. Analysts said Rosneft might turn to BP PLC as a partner, which has a stake in Rosneft.