By Jay Solomon and Bradley Olson
WASHINGTON -- Exxon Mobil Corp. has applied to the Treasury
Department for a waiver from U.S. sanctions on Russia in a bid to
resume its joint venture with state oil giant PAO Rosneft,
according to people familiar with the matter.
Exxon has been seeking U.S. permission to drill with Rosneft in
several areas banned by sanctions and applied in recent months for
a waiver to proceed in the Black Sea, according to these
people.
The Black Sea request is likely to be closely scrutinized by
members of Congress who are seeking to intensify sanctions on
Russia in response to what the U.S. said was its use of
cyberattacks to interfere with elections last year. Congress has
also launched an investigation into whether there were ties between
aides to Donald Trump and Russia's government during the
presidential campaign and the political transition.
Secretary of State Rex Tillerson is Exxon's former chief
executive officer and forged a close working relationship with
Rosneft and Russian President Vladimir Putin. The State Department
is among the U.S. government agencies that have a say on Exxon's
waiver application, according to current and former U.S.
officials.
Mr. Tillerson is recusing himself from any matters involving
Exxon for two years, and won't be involved with any decision made
by any government agency involving Exxon during this period, a
State Department spokesman said.
It isn't clear whether the request with the Treasury
Department's Office of Foreign Assets Control was made before Mr.
Tillerson joined the Trump administration. A spokesman for the
Treasury Department said it doesn't comment on waiver applications.
An Exxon spokesman said the company wouldn't discuss government
deliberations on sanctions.
The sanctions target operations with Rosneft involving the
transfer of technology, banning U.S. companies from deals in the
Arctic, Siberia and the Black Sea, areas that would require the
sharing of cutting-edge drilling techniques. The sanctions,
instituted after the Kremlin's annexation of the Crimea region of
Ukraine in 2014, also bar dealings with Rosneft's chief executive,
Igor Sechin, saying he "has shown utter loyalty to Vladimir Putin
-- a key component to his current standing."
Since the fall of the Soviet Union, Russia's oil resources have
been among the most sought-after prizes by U.S. and European oil
companies, and multiple U.S. presidential administrations in both
parties have worked to help them enter the country. As much as 100
billion barrels of oil remains untapped in the country, although
many Western companies have been stymied in their attempts to reach
those reserves, often by geopolitical risks.
The 2014 sanctions effectively sidelined a landmark exploration
deal Exxon, under Mr. Tillerson's leadership, had signed with
Rosneft in 2012. The deal granted Exxon access to explore in
Russia's arctic waters, the right to drill with new technology in
Siberia and the chance to explore in the deep waters of Russia's
portion of the Black Sea.
Mr. Putin said Exxon and Rosneft might invest as much as $500
billion over the life of the partnership. In 2013, the Russian
leader bestowed upon Mr. Tillerson the country's Order of
Friendship in part for his role in developing the joint
venture.
Exxon has reported it is exposed to losses from the Rosneft
ventures of up to $1 billion before taxes, although the company has
yet to recognize them on its books given its position that
sanctions could be lifted.
Exxon received a waiver in September 2014 when the sanctions
were first implemented. The company had yet to complete a well in
the Russian Arctic; Mr. Tillerson and other Exxon executives asked
the Treasury Department and senior Obama administration officials
to allow the company to complete the well, saying it wouldn't be
safe to leave before it was finished, according to people familiar
with the matter. Treasury granted an extension and the company
completed drilling in October and eventually withdrew its employees
from the project.
Exxon has been seeking U.S. permission to drill in areas
affected by sanctions since late 2015, according to a person
familiar with the matter.
In 2015 and 2016, Exxon received a license from the Treasury
Department allowing the company to undertake "limited
administrative actions" in its partnership with Rosneft, according
to company documents. Such permission would put Exxon in a position
to move more quickly if it gets the green light to drill, according
to the person familiar with the matter.
The proposal to drill in the Black Sea has been circulated in
various federal departments in recent months, several people said.
Exxon is arguing that it deserves a waiver there because its
exploration rights in the Black Sea will expire if it doesn't act
by this year, under its deal with Rosneft, and because some of its
top foreign competitors aren't similarly restricted.
American companies often seek waivers from sanctions, citing
humanitarian, trade or operational issues, according to former U.S.
officials. Companies operating in countries that are heavily
sanctioned may seek waivers to conduct specific banking
transactions or equipment purchases, for example.
The Obama administration granted sanctions waivers to high-tech
companies operating in both Iran and Syria, arguing that
facilitating the flow of information could help open up the
repressive regimes in Damascus and Tehran.
It is unusual for a company to seek a waiver based purely on
future business prospects, the officials said.
Exxon opposed how the Obama administration applied sanctions on
a number of its projects, according to people familiar with the
matter, in part because the European Union granted waivers to its
competitors to continue operating, including Norway's Statoil ASA,
which has a waiver for arctic drilling in the Barents Sea, and
Italy's Eni SpA for arctic drilling in the in Barents and Black
seas.
"Exxon is worried it could get boxed out of the Black Sea by the
Italians," said a person briefed on the company's waiver
application. Eni has been aggressively exploring the region in
cooperation with Russia in recent years.
Exxon is seeking a waiver akin to those that have been granted
by the EU to its rivals, according to people familiar with the
matter.
Rosneft is at the center of Russian plans to drill in the Arctic
to tap huge but as yet unexplored reserves of oil, which are
critical to the country's economy. Russia relies on oil and gas for
around 40% of its budget revenues. Mr. Sechin last year presided
over the sale of a 19.5% stake in Rosneft, a move that brought
much-needed cash into state coffers.
The Black Sea may hold 30 billion barrels of oil, according to
estimates from Russia, Turkey and Romania. Although a number of the
biggest Western oil companies are seeking opportunities there, it
remains a frontier area where few deep water wells have been
drilled, an indication that explorers may find far less, or more,
than hoped as more work is done, according to industry
analysts.
Exxon needs an oil discovery in the Black Sea by the end of this
year to obtain a Russian government license to drill under the
terms of the deal Rosneft. Unless Exxon receives approval soon,
there might not be enough time to safely drill an exploratory well
to be able to develop any discoveries, said oil industry
experts.
Exxon has continued in recent years to drill and seek to expand
its access around Sakhalin Island in Russia's Far East, an area to
which sanctions don't apply.
Mr. Tillerson, before he became secretary of state, said on a
number of occasions that Exxon opposes sanctions when they aren't
applied in a uniform way. But he testified during his confirmation
hearings that neither he nor his former company ever lobbied
against U.S. sanctions on Russia.
As secretary of state, Mr. Tillerson, following through on his
pledge to recuse himself from potential Exxon-related matters,
stayed out of State Department deliberations on the permit for the
Keystone XL project, a proposed pipeline that would carry oil from
Canada into the U.S.
Due to the sanctions, other major components of the
Exxon-Rosneft agreement were put on hold in 2014, shortly before
Rosneft revealed that the first well the two companies drilled
together in the arctic waters of the Kara Sea may hold as much as
750 million barrels of oil.
The Black Sea has become a major area of interest for many of
the world's biggest oil companies. Exxon has drilled there off the
coast of Romania and holds a license for an area in Ukrainian
waters. Royal Dutch Shell PLC has also drilled in the Black Sea off
the coast of Turkey.
--James Marson in Moscow contributed to this article.
Write to Jay Solomon at jay.solomon@wsj.com and Bradley Olson at
Bradley.Olson@wsj.com
(END) Dow Jones Newswires
April 19, 2017 13:06 ET (17:06 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Exxon Mobil (NYSE:XOM)
Historical Stock Chart
From Feb 2024 to Mar 2024
Exxon Mobil (NYSE:XOM)
Historical Stock Chart
From Mar 2023 to Mar 2024