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Lowell Tuttle
Since you probably cannot read this without a Houston Chronicle subscription, here is a editorial from today. I am trying to follow Russian petroleum imports and their necessity. This, of course, is more related to exploration and long term projects, but at some point the export/import marketing is connected.
Russia is not a good business partner
Companies should learn from Exxon Mobil, which lost chance for profit in waiting to divest.
Melissa Phillip / Staff photographer
Exxon Mobil CEO Darren Woods has led the company out of Russia. But the move could have been made much earlier — and more profitably.
For the past 25 years, Exxon Mobil has pursued oil and gas exploration in Russia, spending and earning billions of dollars even as concerns mounted over Russian President Vladmir Putin’s increasing war-like footing.
The company was fined $2 million in 2017 after its subsidiaries continued to do business with Russian oligarchs against whom the U.S. government had levied sanctions following Russian’s 2014 invasion of Ukraine’s Crimean Peninsula. A federal judge eventually set aside the fine, but not before the Treasury Department concluded that Exxon had “caused significant harm” to the sanctions program. “Exxon Mobil demonstrated reckless disregard for U.S. sanctions requirements,” the Treasury said.
The year before the invasion, Exxon’s then-CEO Rex Tillerson was awarded Russia’s Order of Friendship in recognition of the company’s partnership with Rosneft, the state-controlled oil producer, to drill in the nation’s Arctic waters and in parts of Siberia. Exxon quit the Rosneft collaboration in 2018, absorbing a $200 million loss, but has remained active in other ventures there.
Four years later, Exxon’s leaders probably have some regrets about not pulling out entirely. This week, the Irving-based oil giant joined two European oil majors, BP and Shell, in announcing plans to sever ties with Russia after Putin authorized a full-scale invasion of Ukraine. The decision to withdraw will bring real pain to the companies and their shareholders, particularly BP, which stands to lose its $14 billion stake, compared with $4 billion for Exxon and $3 billion for Shell.
We applaud Exxon’s leaders, as well as those at BP and Shell, for joining the growing number of Western companies divesting from Russia and denouncing its aggression.
“Exxon Mobil supports the people of Ukraine as they seek to defend their freedom and determine their own future as a nation,” the company said. “We deplore Russia’s military action that violates the territorial integrity of Ukraine and endangers its people.”
Isolating Putin is not only the right thing to do, but the only thing they could do under such dire circumstances. Maintaining their business partnerships in the face of a world swiftly uniting against Russia’s combative posture would have been untenable over time, as demonstrated by similar decisions from companies such as Ford, General Motors, Volkswagen, Visa and MasterCard to stop doing business there.
But this experience offers some lessons for multinational companies in an increasingly volatile geopolitical landscape. Many do business in risky environments — China, for example — and as such, accept the trade-offs that come with those partnerships. In some cases, this means turning a blind eye to antidemocratic measures, human rights violations and outright oppression. In the light of the changes wrought this week in the wake of Putin’s extraordinary aggression, those trade-offs may need fresh analyses.
The world has changed nearly overnight. Putin’s nuclear threat this week was a stark reminder that the stakes for the confrontation in Ukraine could extend across the globe, and raises the risk of the mutually-assured destruction we’ve spent more than 75 years avoiding. The nuclear fears may ease, but the world left in the wake of Putin’s saber-rattling rhetoric since invading will continue to be too dangerous a place for giant corporations to ignore the risks of doing business with unstable, autocratic countries.
At the very least, multinational corporations must develop exit plans, so that sudden exits like the ones we’re seeing this week from Russia can be made with minimal disruption to the lives of their shareholders and employees, both those in the United States and overseas.
Big Oil companies have been grappling with this conundrum for years, none more than Exxon. The company’s Sakhalin-1 venture — a group of oil and gas fields it operates off the coast of Sakhalin Island in Russia’s Far East — is a jewel in Exxon’s international portfolio, producing more than 1 billion barrels of oil and about 1 billion cubic feet of natural gas since it took over operations in 2005. The partnership was a recognition of shared interests: Russia needed Exxon’s technology to drill in some of the harshest conditions of the world; Exxon wanted exclusivity over a valuable chunk of land. Yet when Putin made the decision to annex Crimea in 2014, rather than create distance, Exxon instead dug in its heels. It refused to bow to the federal government’s pressure to stop doing business with Russia, and eventually lost a significant amount of money.
By contrast, ConocoPhillips saw the writing on the wall. The Houston-based company had a joint venture with Rosneft in northwestern Russia that produced 4 million barrels of oil a day. In 2015, the company sold its 50 percent stake in the project, officially ending a 25-year partnership and making a windfall in the process.
While Exxon made a bold decision in unwinding a project on the scale of Sakhalin-1, its window for reaping profits similar to ConocoPhillips has slammed shut. Russian state news agencies reported Tuesday that Western companies would be prevented from selling Russian assets. Even if Exxon is eventually able to sell its 30 percent stake in Sakhalin-1, finding a buyer with the financial resources and technical expertise to take over the project will be challenging. How and if the company can even get its roughly 1,000-person workforce out of the country remains to be seen. Exxon reportedly sent a plane to Sakhalin Island to retrieve staff, though it’s unclear how many have been evacuated.
Big Oil’s exit from Russia underscores a cold reality: Putin’s erratic leadership and disregard for rule of law makes the country a lousy business partner. Its invasion of Ukraine has only emphasized just how lousy.
Lowell comment...a billion barrels of oil and a billion feet of gas, as well as 1000 employees...not to mention future stakes in the fields there...Russia's going to be like Venezuela to some extent...
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Levi
