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Page added on April 28, 2014

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Russia hit by sanctions: How Big Oil is reacting

Business

Major oil companies with interests in Russia scrambled Monday to respond to new U.S. sanctions against Russia, as the United States on Monday imposed measures against seven Russian government officials and 17 companies linked to President Vladimir Putin in its latest action to punish Moscow for its intervention in Ukraine.

An armed man in military fatigues stands guard outside a regional administration building seized by pro-Russian separatists in the eastern Ukrainian city of Slavyansk on April 27, 2014.

Standard and Poor’s ratings agency cut the credit ratings of state-controlled Rosneft and Gazprom to BBB- from BBB on Monday, the agency said in a statement on its website.

The downgrade, to a notch above junk rating, came after the agency cut Russia’s sovereign rating on Friday, also to BBB-, the lowest investment grade category.

Anglo-Dutch oil major Shell said it will comply with all international sanctions, following the sanctions against Rosneft’s Sechin.

“Shell monitors trade controls and sanctions closely and will respond appropriately to ensure that we comply with all applicable international sanctions and related measures,” a spokesman said.

British oil major BP said it intends to remain a long-term investor in Rosneft following the U.S. decision to hit Russia with sanctions.

“We are committed to our investment in Rosneft, and we intend to remain a successful, long-term investor in Russia,” a BP spokesman said.

He added the company, which holds a 19.75 percent stake in Rosneft, is now considering what the U.S. sanctions announcement means for BP’s business.

The U.S. sanctions on Monday were followed closely by new penalties from the European Union.

A senior Russian diplomat sharply criticized the new round of sanctions, saying the measures were illegitimate and uncivilized and that restrictions on high-tech exports from the United States marked a return to Cold War practices.

“We decisively condemn the series of measures that has been announced in an attempt to put sanctions pressure on Moscow,” Deputy Foreign Minister Sergei Ryabkov said in comments posted on the ministry’s website.

For their part, senior U.S. Republican lawmakers said on Monday the latest sanctions are too mild to deter Moscow from further action in Ukraine, keeping up pressure on the Obama administration to take stronger action.

Tennessee Senator Bob Corker, the top Republican on the Senate Foreign Relations Committee, called the new sanctions “just a slap on the wrist.”

By Reuters. CNBC staff contributed to this report.

CNBC



10 Comments on "Russia hit by sanctions: How Big Oil is reacting"

  1. rockman on Mon, 28th Apr 2014 7:02 pm 

    And meetings are scheduled in a few weeks between Putin and China. A discussion between the two countries concerning the prospect of Chinese companies taking the place of Shell and ExxonMobil in developing offshore Crimea have already begun. In the meantime multi-billion joint ventures continue between the French Total and other international oils.

    So the perhaps the beginning of a serious monetary war with Russia. That should work out well for the EU. Thank goodness Russia has no way to punish the EU. That’s the downside of pushing Putin into a corner that threatens his political life: I don’t doubt for a moment that his ego wouldn’t demand he take down as much of the rest of the world with him as he could.

  2. Plantagenet on Mon, 28th Apr 2014 7:47 pm 

    The new sanctions are too weak to affect the oilcos, just like the old sanctions were too weak to affect the oilcos.

  3. Boat on Tue, 29th Apr 2014 6:55 am 

    I would assume the sanctions are thoroughly discussed with Europe. The US won’t do anything without the blessing of it’s NATO members. If Russia goes further into the Ukraine or uses Nat Gas exports to Europe to push their agenda then a much more severe response would happen like preventing oil companies from doing business with Russia. I think Europe and the US hope that won’t happen.
    Thats when you know there are serious problems when the development of oil and nat gas are affected. For now it’s wait and see and sending messages.

  4. Kenz300 on Tue, 29th Apr 2014 7:41 am 

    Oil companies need to diversify and become “energy” companies. It is time for them to embrace alternative energy sources and move away from their old business model.

  5. rockman on Tue, 29th Apr 2014 9:50 am 

    “…like preventing oil companies from doing business with Russia.” I’m pretty sure that neither the US or EU countries can prevent Chinese companies from doing business with Russia. I also wonder if Germany will make their 6,000 companies doing business with Russia? Of is the talk only focused on oil companies?

    BTW both BP and the French company Total have already told the sanctionmeisters to go screw themselves. As far as the US gov’t possibly telling ExxonMobil they can’t proceed with the Deep Water Crimea. That’s one of the opportunities Putin is going to talk to the Chinese about in a few weeks.

    Now a pop quiz: name all the US oil companies currently investing in Russia

  6. rockman on Tue, 29th Apr 2014 10:44 am 

    The answer. BTW I’m sure the Chinese are praying the US gov’t forces ExxonMobil to default on its obligations on the Sakhalin Island project: huge oil potential right on China’s border. XOM has spent many years and $billions on the front end. China would be thrilled to slip in just as the big payoff is about to begin.

    An aside: I’m getting tired of hearing about sanctions against “Russia”. Unless I’ve missed it I haven’t heard of one sanction against the country or gov’t…just against a number of individuals.

    “As the heart of the Russian economy, the energy sector — led by state oil companies like Gazprom, Lukoil and Rosneft — would be a natural focus for pressure from the United States and its allies. Oil and petroleum products represent more than two-thirds of Russian export earnings, and they finance just over half of the federal budget.

    But the rub is that the interests of the Russian companies — many led by powerful allies of President Vladimir V. Putin — are increasingly entwined with those of American and European corporations, with which they share critical projects.

    Exxon Mobil, which is based in Texas and has been investing in Russia for two decades, is exploring for oil and gas in the Russian Arctic and has several joint ventures with Rosneft in and outside Russia. Most notably, the company operates and owns a minority stake in what it describes as the largest offshore oil and gas project in the country, Sakhalin 1, which Exxon Mobil says will produce 630 million barrels of oil.

    Exxon Mobil’s oil and gas production in eastern Siberia now represents less than 1.5 percent of the company’s worldwide output. But the company’s participation in Russian oil operations is important for its future, and for the Russian energy sector.

    Russia hopes Exxon Mobil can aid in shale oil development in Siberia and in offshore Arctic exploration. These new oil production sources, energy experts say, are critical if Russia hopes to maintain its output of 10 million barrels a day, which is expected to decline by a million barrels by the end of the decade.

    At a conference with Wall Street analysts on March 5, Rex Tillerson, chief executive of Exxon Mobil, said, “In terms of our view of country risk, our view of the geopolitical risk and our ability to manage that, other than things like sanctions, which have affected us before, we don’t see any new challenges out of the current situation.” Just last year, Mr. Putin gave Mr. Tillerson the Order of Friendship award as a token of Russia’s gratitude to the company.

    Other Western oil companies also face potential difficulties in Russia. BP has sold many of its Russian holdings, but it still holds a 19.6 percent stake in Rosneft, which contributed $1 billion in profit to BP in the fourth quarter of last year. Eni of Italy and Statoil of Norway also coordinate with Rosneft in Arctic exploration. Eni and other Western companies are heavily involved in plans by Gazprom to build a major gas pipeline from Russia to Europe, but that project is now in doubt, according to Eni’s chief executive, Paolo Scaroni.

    Royal Dutch Shell and Total, the French oil giant, are invested in the nascent Russian business of exporting liquefied natural gas. Several Western service companies are also involved in Russia, drilling and completing wells with the newest hydraulic fracturing technologies.

  7. Northwest Resident on Tue, 29th Apr 2014 11:52 am 

    “I’m getting tired of hearing about sanctions against “Russia”.”

    Me too, but I’m long past getting used to it. It is just political posturing, a bunch of mudslinging entertainment to distract the masses and provide cover for unstated and secretive goals. Just a bunch of lies and drama and political games being played out according to script on the international stage. Behind the theatrical curtain is where the real action is, but we are not entitled to see what is really going on, and no reporter who values his/her job and income (or life) will make any real attempt to lift that veil of secrecy. But that’s okay. Those of us who are smart and perceptive enough can make pretty good guesses as to what is actually going on.

  8. rockman on Tue, 29th Apr 2014 7:02 pm 

    Ken – I think fast food restaurants need to diversify and become “energy” companies. After all McDonalds has as many solar panel designers and wind turbine engineers working for it as ExxonMobil. I think it’s time for them to move away from the old business model and start vertical integration. Mounting turbines on the top of all those Golden Arches seems an obvious move. LOL.

  9. Nony on Tue, 29th Apr 2014 8:13 pm 

    Yergin’s book has a lot of background on some of the kleptocracy and creeping nationalization and the like of the 90s and 00s. I hadn’t followed it, so was news to me. Seems very risky based on the history alone, let alone the recent drama.

  10. Boat on Tue, 29th Apr 2014 9:32 pm 

    rockman
    Seems to me you have done a good job showing just how Russia is dependant on Europe and US companies to develop their resources to prevent a major decline.

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