Russia Eyes Crimea’s Oil and Gas Reserves

This article was written by Oilprice.com -- the leading provider of energy news in the world. Also check out these recent articles:

According to Reuters, Crimea may nationalize oil and gas assets within its borders belonging to Ukraine, and sell them off to Russia. Crimea's Deputy Prime Minister hinted at the possibility that it would take control of Chornomorneftegaz, a Ukrainian state-owned enterprise, and then "privatize" it by selling it to Gazprom (NASDAQOTH: OGZPY  ) . "After nationalization of the company we would openly take a decision-if a large investor, like Gazprom or others emerges-to carry out (privatization)," Deputy Prime Minister Rustam Temirgaliev said.

Crimea's Russian-backed government has decided to hold a referendum on March 16 to secede from Ukraine. At the time of this writing, Russia's heavy involvement in the drive for Crimean secession makes it hard to believe that Sunday's result will be anything other than an overwhelming result in favor of breaking ties with Kiev (either greater autonomy or annexation by Russia). The next steps are much less clear, however. Secretary of State John Kerry is hoping Russia will hold off on fully annexing Crimea, leaving open the possibility of some diplomatic way of resolving the crisis.

The ongoing political standoff in Crimea has already halted Ukraine's oil and gas ambitions. Ukraine came close to inking a deal with a consortium of international oil companies that would have led to an initial $735 million investment to drill two offshore wells. The consortium led by ExxonMobil – with stakes held by Shell, Romania's OMV Petrom, and Ukraine's Nadra Ukrainy – had been particularly interested in the Skifska field in the Black Sea, which holds an estimated 200 to 250 billion cubic meters of natural gas. If it can get the field up and running, Exxon hopes to eventually produce 5 billion cubic meters per year. Exxon's consortium outbid Russian oil company Lukoil for the rights to the block.

Those plans were still in the early stages – the consortium and the Ukrainian government led by Viktor Yanukovych couldn't agree on terms. Obviously, once Yanukovych was ousted, ExxonMobil (NYSE: XOM  ) had to put those plans on hold until further notice.

Exxon's plans for Skifska may not have a future if Russia simply takes Ukraine's assets. The speaker of Crimea's parliament said on March 13 that its oilfields should be under the care of Moscow. "Russia, and Gazprom, should take care of the oil and gas production," said Vladimir Konstantinov. The new Ukrainian government in Kiev may not have much control over the situation if Crimea's government  nationalizes Chornomorneftegaz and its assets. Ukraine had been optimistic about developing its offshore oil and gas reserves, but after Sunday's referendum, those reserves may suddenly be in Crimean (or Russian) territory.

Exxon is in a bit of a pickle, as it has billions of dollars of investments in the Russia Arctic in a co-venture with Rosneft, its largest non-U.S. project. It is therefore staying pretty quiet about its position in Skifska, and will likely maintain a low-key position even after the referendum. Exxon likely doesn't see much upside in getting into a tiff with Russia over the Black Sea, especially since it hadn't even agreed on a production sharing agreement with Kiev yet. Exxon's plans for the Russian Arctic are too important.

ExxonMobil aside, If Crimea and Russia move forward with the nationalization/privatization of Ukrainian oil and gas reserves, it will heighten the conflict between Russia on the one hand, and Ukraine and the West on the other. The U.S. has promised tougher sanctions over what it argues as an illegal annexation of Crimea. Russia's annexation of Ukraine's energy resources will only add fuel to the fire.

Bad news for OPEC could be good news for investors
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

 


Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2014, at 4:42 PM, Mayvau wrote:

    Russia may well find many international oil majors staying out of the current fray. But if the new Crimea does not compensate Naftogaz for acquiring Chornomorneftegaz then most of those international majors might have second thoughts about long term dealings with the Russians.

    And the recent experiences of BP and Telenor should really make any international firm think very hard about the long term viability of any Russian partnership.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2878243, ~/Articles/ArticleHandler.aspx, 8/20/2014 1:27:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement