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Sanctions force Exxon out of joint venture with a Russian oil company

Exxon was fined $2 million last year for violating sanctions when the U.S. secretary of state still led the company.

By Daniel J. Graeber
Sanctions force Exxon out of joint venture with a Russian oil company
Exxon Mobil said it left a joint venture with Russian oil company Rosneft under sanctions pressure. The company was fined last year for actions taken when U.S. Secretary of State Rex Tillerson was its CEO. Photo by Chris Kleponis/UPI | License Photo

March 1 (UPI) -- U.S. and European sanctions on Russia meant Exxon Mobil had to leave a joint venture with Russian oil company Rosneft, the U.S. supermajor said in a filing.

Exxon said in an update to its 10-k filing to the Securities and Exchange Commission that it was complying with U.S. and European Union sanctions imposed in 2014 and expanded ones from the U.S. government last year.

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"With respect to the foregoing, the corporation and its affiliates continue to comply with all applicable laws, rules and regulations," the filing read. "In late 2017, the corporation decided to withdraw from these joint ventures."

Exxon and Rosneft formed partnerships in 2013 and 2014 to work offshore in the Russian Arctic and in the Black Sea. The U.S. company also holds acreage on Sakhalin Island. As of year-end, Exxon's net acreage through the Russian joint venture in the Black, Chukchi, Kara and Laptev Seas was 63.6 million acres.

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Exxon was fined $2 million in July for violating U.S. sanctions against Russia when U.S. Secretary of State Rex Tillerson was still the company's chief executive. The U.S. Treasury Department said Exxon engaged in a deal with Rosneft President Igor Sechin, one of the oligarchs who faced personal and business sanctions stemming from the Russian annexation of Crimea from Ukraine in 2014.

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Exxon said the sanctions against Sechin left room for "personal" business deals and only applied to "professional" conduct. Treasury officials said the executive orders made no such distinction.

Samual Lussac, a senior Russian research manager at consultant group Wood Mackenzie, said Exxon's departure puts a long-term strategy to explore the Russian Arctic, as well as Far East liquefied natural gas projects, at risk.

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"Rosneft loses a partner of choice, which could have brought financing and expertise for the development of the next wave of Russian oil supply," he told UPI.

When sanctions were imposed in 2014, a spokesman for Exxon said the company can operate freely with Russian energy company Rosneft at a Far East energy project without fear from sanctions.

The Sakhalin-1 project envisions the development of three oil and natural gas fields located in extreme sub-Arctic conditions off the coast of Sakhalin in Russia's Far East.

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Lussac said Exxon keeps its 30 percent share in Sakhalin-1. Rosneft has yet to issue a statement on Exxon's decision.

"The corporation expects it will formally initiate the withdrawal in 2018," the 10-k filing read. "The decision to withdraw resulted in an after-tax loss of [$200 million]."

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