Despite Sanctions, Russia's Oil Industry Powers On
Exxon Mobil Corp. (XOM) is suffering from sanctions on Russia. The same can't be said for other big Western energy companies, or for Russia's oil production.The sanctions, put in place by the U.S. and European Union in 2014 after Russia's annexation of the Crimea region of Ukraine, were meant to limit Russia's pursuit of new technology for extracting more crude oil and natural gas.The measures specifically targeted deepwater drilling planned in the Black Sea, Arctic operations and the use of fracking technology in Siberia.
The terms were a blow to Exxon because drilling in those areas was at the heart of a landmark deal the company struck a few years before to partner with state oil firm PAO Rosneft. The company sought a waiver from U.S. sanctions to drill in the Black Sea, but was rejected last month by the Trump administration.
At the same time, some of the company's European rivals are moving ahead with projects in Russia, many under partnerships begun before the sanctions. BP PLC (BP) was allowed to keep its nearly 20% stake in Rosneft, which contributed $590 million to its net earnings in 2016.
Italy's Eni SpA (E) is preparing to drill a Black Sea well later this year as part of a partnership with Rosneft, and also plans to explore the Arctic waters of Russia's Barents Sea. The company has proceeded because the EU allowed partnerships in place at the time of sanctions to continue, Eni has said.
The U.S. didn't grant exemptions for existing partnerships, as Exxon's experience showed. An EU spokeswoman said that while some differences exist between how sanctions have been applied by different countries, these have been limited and don't undermine the overall impact of the restrictions.