President Vladimir Putin may not be doing his Fonz impersonation much longer if Exxon pulls out of Russia (photo courtesy: kremlin.ru)

Sanctions against Russia following the Putin government's incursion into Ukraine have so far barely made a dent in the operations of Big Oil companies ExxonMobil (XOM -2.78%) and BP (BP -0.38%). Sure, not being able to have direct communications with certain executives at Russian Rosneft and Novatek energy majors may be a nuisance, but it's hardly enough to give up on the massive oil fields that have yet to be tapped. However, one sanction that the United States has considered might make them reconsider this position. Let's look at why this could change the direction of these major companies. 

Keeping the keys to Russia's treasure chest
One of the most pressing questions that came up in the recent earnings conference calls at Big Oil companies was how much tensions over Ukraine would affect their development plans in Russia. The general response was "not much." Royal Dutch Shell (RDS.A) (RDS.B) probably had the most apprehensive view of operations in Russia, but that only meant the company was putting expansion plans there on hold while it pursues existing operations. 

The reason these companies have not been pulling out of Russia en masse is that the sanctions enacted so far aren't strong enough to make a difference. Visa restrictions and curbs on meeting with certain representatives of Russian energy companies can't truly affect the hundreds of billions of dollars that Exxon and BP have tied up in Russia. 

But the United States could inflict significant long-term pain on Russia in one area: technology. Today, 85% of Russia's oil production comes from two major fields, both of which are are considered to be in decline. There is more than enough oil left in Russia to replace this asset, but it's found in harder-to access locations like shale and harsh-environment offshore regions.

According to the U.S. Energy Information Administration, the Bazhenov shale formation in western Siberia alone is estimated to hold 74 billion barrels of economically recoverable oil, and Ernst & Young estimated that more than 200 billion barrels of oil can be found in the Russian territorial waters in the Arctic Circle. 

Source: US Energy Information Administration.

Accessing any or all of these resources, though, will require massive technology upgrades from what is available in Russia today. In fact, the United States today has a near-monopoly on shale drilling technology. Since technology bans would only apply to high-tech equipment that would likely be used for new projects, the hope is that they would jeopardize the future of Russian oil and gas development. 

Discouraging development
Without access to adequate technology for these projects, it doesn't make much sense for Big Oil players to be as heavily invested in the region, and it might make management teams more hesitant to invest in these projects.

For example, Exxon's joint venture with Rosneft in the Kara and Black seas is for exploration blocks almost equivalent in size to the entire state of West Virginia, but the Black Sea license is only good through 2017, while the Kara Sea license expires three years after that. The longer these sanctions are in place, the more difficult it will be for Exxon to make a discovery before those licenses expire. The Arctic project alone is expected to generate an absurd $900 billion in revenue over the life of the prospective fields. It would be extremely difficult to replace that if restrictions were to delay exploration of the field and that exploration license were to expire.

Exxon isn't the only company with much at stake. With Shell looking to sell a large portion of its assets in order to boost returns for shareholders, its development of the Bazhenov shale with joint venture partner Gazprom, along with the Sakhalin Island project with Exxon and Rosneft, will become an increasingly important piece of its production portfolio. In the long term, BP could be most impacted by this situation. While it is also looking to sell some major assets to boost shareholder returns, it still has a 19.75% stake in Rosneft after its acquisition of TNK-BP. So any project in which Rosneft is involved will have an impact on the bottom line at BP.

What a Fool believes
What does this all mean for investors in Big Oil companies? Over the next year or so, not much. These proposed sanctions would have little effect on current production or company operations, so there is no real reason to hastily exit from these companies if you are a shareholder today. If these sanctions were to persist for several years, though, there may be some red flags.

Needing to walk away from these projects -- while unlikely -- would make it even more challenging for these companies to find cheap sources of production. They would likely need to turn to even more challenging projects, which would be expected to produce lower returns similar to those we have seen over the past several years from Big Oil companies.