I'm beginning to wonder whether ExxonMobil (NYSE:XOM) could be destined to suffer the same fate in Russia as Royal Dutch Shell (NYSE:RDS-A) (NYSE:RDS-B) and BP (NYSE:BP) have. At this point, the ultimate direction of the company's Sakhalin-1 project appears to depend upon the mood of the nation's government and of giant natural gas producer-distributor Gazprom.
Here's what's going on: ExxonMobil has successfully developed its Sakhalin-1 project on Russia's desolate Sakhalin Island in the Pacific. For the most part, the company has managed to get on with the bureaucrats with whom it must deal, although the relationship has become progressively testier.
But it's time to sell the gas the project has yielded, and we may be seeing the first stages of the sort of Russian heavy-handedness that ultimately got Shell bounced from the Sakhalin-2 project for below-market compensation from Gazprom. Now Exxon is in talks with both Gazprom -- which supplies a huge amount of gas to Europe -- and China. But it appears that Gazprom is trying to lowball the American company, offering it about half the domestic market price for its gas.
That's business, you say. Gazprom is simply trying to cut itself a sweet deal. But you also need to know that last month Gazprom invoked the Russian government, asking it to block Exxon from selling its gas to Asia, saying that the gas was needed for Russia's domestic market.
In the final analysis, this situation is far from trivial: Sakhalin-1 reportedly has potential reserves of 2.3 billion barrels of oil and 485 billion cubic meters of natural gas. From an investment perspective, the Russian goings-on appear to make ExxonMobil that much more attractive. Here's my reasoning: Exxon was the only company to fully contest Hugo Chavez' nationalization in Venezuela, while the likes of Eni (NYSE:E) caved. And thus far it's been the only company to operate in Russia without a full-scale blow-up.
It'll take that sort of mettle going forward to counter the sort of resource nationalism that's become pervasive in many of the places where oil and gas happen to have been deposited.
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