ExxonMobil's Exploration Plan Threatened by Russian Sanctions

ExxonMobil is exploring for oil with Russia's Rosneft in the Arctic but this exploration under threat.

Jul 23, 2014 at 1:30PM

In its constant quest to find new oil reserves, ExxonMobil (NYSE:XOM) is going to the ends of the earth, quite literally.

Right now ExxonMobil is in the process of transporting an oil rig from Norway to the Russian arctic. The rig, named West Alpha, is owned by North Atlantic Drilling (NYSE:NADL).

According to North Atlantic Drilling's latest fleet update, the West Alpha was built during 1986 and is under contract with ExxonMobil until July 2016, with an option for Exxon to extend the rig's contract for an extra year to July 2017. Exxon is currently paying $535,000 per day for the rig. This day rate is set to hit $547,000 if the company chooses to extend the contract.

Running into problems
ExxonMobil, and its partner, Russian oil and gas giant Rosneft, are hoping to make a significant discovery within the Kara Sea. Unfortunately, the beginning of this voyage has been marred by the sanctions recently slapped on Russia, due to the country's involvement in the violence within Ukraine.

There are many problems with this voyage. The most recent set of sanctions is supposed to prevent Russian companies, Rosneft especially, from raising debt and equity from international companies. The Exxon-Rosneft deal will see Exxon and Rosneft jointly funding the development of the exploration program.

Reuters contacted ExxonMobil about the effect that the sanctions will have on the company's business. Exxon replied that:

"We are evaluating the impact of the sanctions and don't have anything further at this time."

Lots to lose
So far, only a few months into the joint venture, it would be pretty silly for ExxonMobil to make a sudden move and cancel the venture. However, if the U.S. and its allies decide to press further sanctions on Russia, this joint venture could come under threat.

Drilling is slated to start during the third quarter of this year. Right now, the rig's operators have stated that they are currently preparing to drill and will assess the situation as they progress.

There are three parties depending upon the success of this joint venture: ExxonMobil obviously, North Atlantic Drilling, and the Kremlin. Indeed, president Putin will not want to damage his goal of increasing oil revenues for Russia as oil income is becoming an increasingly important part of Russia's economy.

If the venture falls apart, all three parties stand to lose out. Actually, the Kremlin stands to lose the most as the Russian government will not only lose income from the prospective discovery, but it is also a major shareholder in Rosneft. It's estimated that the Exxon-Rosneft joint venture will see the two companies invest a total of $500 billion over several years.

The bottom line
The commencement of the Exxon-Rosneft joint venture could not come at a worse time for the two companies. Russia's actions within Ukraine and subsequent sanctions have thrown the venture and $500 billion of investment into doubt. Only time will tell if the risk will pay off.  

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers