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Sanctions on Rosneft Head Muddy Waters for Oil Firms -- Update

By Selina Williams LONDON--The U.S. Monday added Igor Sechin, a Putin ally and head of state-controlled oil giant Rosneft, to its sanctions list, complicating the delicate dance U.S. and European energy giants have had to engage in amid the standoff between the West and Moscow. The most exposed company is U.K. oil company BP PLC, which has a 19.75% stake in Rosneft. Last year, it sold its stake in its previous Russian joint venture for $11.8 billion in cash plus shares in the state-controlled oil giant. Mr. Sechin owns 0.13% of Rosneft, making him the company's third-largest shareholder after the Russian state and BP. BP also gained a seat on Rosneft's nine-member board, currently held by BP Chief Executive Bob Dudley. Under the terms of the U.S. sanctions, BP wouldn't be barred from dealing with Rosneft, though Mr Dudley, an American citizen, would be unable to have direct business dealings with Mr. Sechin. "U.S. persons cannot do business with sanctioned people or entities," a U.S. treasury spokeswoman said. BP said Monday that it remained committed to its investment and intended to be "a successful, long-term investor in Russia." "We are considering today's announcement to see specifically what this may mean for BP. We will, of course, comply with all relevant sanctions, " the company said. Mr. Dudley said earlier this month that BP would continue to seek ways of developing its business in Russia even as tensions grow over the crisis in Ukraine. Its share of Rosneft's proven reserves already amounts to 5 billion barrels of oil and 9 trillion cubic feet of gas, while Rosneft contributed $2.2 billion to BP's earnings last year. BP's shares fell 1.0% on Monday, while Rosneft's shares fell 1.7% in Moscow. Mr. Sechin himself seemed unperturbed by the sanctions. "I view Washington's latest steps as a high assessment of the effectiveness of our [Rosneft's] work and assure our shareholders and partners, including American ones, that this effectiveness won't be reduced and our cooperation won't suffer but will develop dynamically," he said in a statement. While BP is the largest foreign investor in Russia's oil sector, other major oil companies have increased their exposure there in recent years. Hunting for oil in Russia is one of the most promising global prospects for Exxon Mobil Corp. The company struck a deal with Rosneft in 2011, signed in the presence of Russian President Vladimir Putin, to explore Russia's Arctic seas and shale in western Siberia, which could hold billions of barrels of crude. The agreement has been expanded to include the Black Sea and a swath of the Arctic bigger than Texas. Exxon will foot most of the more than $3.2 billion in exploration costs and a majority of the costs for a $450 million Arctic research facility in St. Petersburg. Exxon doesn't disclose how much oil and gas it pumps in Russia, but analysts at Raymond James estimate the oil behemoth's operations there accounted for 6% of its production last year. That output is set to rise this year with an expansion to its project on Sakhalin Island, Russia's largest offshore oil and gas facility. Rosneft's board on Monday approved the development of two Arctic fields, Russian media reported. Last year, Rosneft said it acquired a 30% interest in 20 blocks leased by Exxon in the Gulf of Mexico's deep waters, though Exxon remained the active partner. An Exxon spokesman declined to comment Monday on the sanctions against Mr. Sechin. In March, Exxon Chief Executive Rex Tillerson said the company's progress in Russia was on track but could be affected by government action. "Other than things like sanctions, which have affected us before, we do not see any new challenges out of the current situation," he said at the company's annual meeting for analysts in New York. Royal Dutch Shell PLC has a small stake in a Caspian oil pipeline in a joint venture with Rosneft. And Norwegian oil company Statoil ASA has joint projects with Rosneft in the Russian part of the Barents Sea and the Sea of Okhotsk. Its chief executive, Helge Lund, met with Mr. Sechin in Norway as recently as March 31. Besides major oil companies, commodities trading giants Glencore Xstrata PLC, Vitol Group and Trafigura Beheer BV all have close ties with Rosneft. Last year, the three firms all agreed long-term oil supply deals with Rosneft that included billions of dollars in prepayments to the Russian state-owned company. In addition, Glencore Xstrata lent Rosneft $500 million. A Glencore spokesman declined to comment on what impact, if any, personal sanctions against Mr. Sechin would have on their business. A Trafigura spokeswoman said the company was monitoring the situation but did "not believe this move has any impact on our existing business with Rosneft." A spokeswoman for Vitol said the company "always complies with all sanctions." Alexis Flynn, Sarah Kent and Daniel Gilbert contributed to this article. Write to Selina Williams at selina.williams@wsj.com Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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