Putin's threats against Big Oil could backfire

Yes, US oil majors look pretty vulnerable. Still, Russia stands to lose more.

By MSN Money Partner May 1, 2014 4:33PM
© Maxim Shemetov/AP
Vladimir PutinBy Carol Matlack, Businessweek

Big Oil could become the next victim of economic warfare between Russia and the West. 

At least that's what Vladimir Putin seems to be threatening after the U.S. and European Union ratcheted up sanctions against Moscow. 

"If something like this continues," the Russian president warned on Wednesday, "then of course we will have to consider who's working and how in the Russian Federation, in the key sectors of the Russian economy, including energy."

It's true that U.S. and European oil majors look pretty vulnerable. Consider:

  • ExxonMobil (XOM) has drilling rights to some 46,000 square kilometers (almost 18,000 square miles) in Russia -- its biggest such holdings outside the U.S. It also has pledged $3 billion to finance an Arctic drilling venture with state-controlled oil company Rosneft that could contain some $900 billion worth of crude.
  • BP (BP) owns 19.75 percent of Rosneft, making it the company's second-largest shareholder after the Russian government, and its chief executive officer, Bob Dudley, sits on Rosneft's board.
  • Royal Dutch Shell (RDS/A) owns 27.5 percent of the Sakhalin-2 oil and gas project off Russia's Pacific Coast that's controlled by gas export monopoly Gazprom. Shell also has stakes in Siberian oilfields.
  • Total (TOT) of France owns 40 percent of the Kharyaga oil field in the Russian Arctic. It also owns 17 percent of Novatek, an energy exploration company in which Gennady Timchenko, a close Putin ally, is a major shareholder. (Timchenko is on the U.S. sanctions list, but Novatek isn't.)
Still, Russia stands to lose more than the Western companies if Putin lashes out with stiff sanctions, says James Henderson, a senior research fellow at Britain's Oxford Institute for Energy Studies.

Western oil majors are providing "technology, financing, levels of management expertise," he points out, and Russia needs that help to develop its own vast energy reserves.

Under Soviet rule, Russia fell far behind the West in developing technology to tap new oil fields in remote locales or squeeze hard-to-get deposits from older sites. ExxonMobil, for example, is providing fracking technology to Rosneft in Western Siberia and furnishing the technical know-how and financing for the joint Arctic venture.

Disrupting such ventures "is not in Russia’s interest," Henderson says. "It would set an appalling precedent for future investment" in the country's energy sector.

Russia really can't afford to mess this up. Revenues from oil and gas exports generate about half the government's income, and the economy is looking worse by the day.

BP may be in the most-delicate situation of any Western oil major because of its ownership stake in Rosneft. Igor Sechin, Rosneft's chief executive, has been placed on the U.S. sanctions list, even though the company has not.

But the sanctions could reduce the clout of a Rosneft board member: Dudley, as a U.S. citizen, is now barred from having direct dealings with Sechin.

Dudley told analysts and investors during a conference call Wednesday that he would continue to attend board meetings and declined further comment. A BP spokesman told Bloomberg News: "We will comply with all relevant sanctions. But we also want to make clear we remain committed to our investment in Russia."

Rather than imposing sanctions on Big Oil, Henderson warns that Russia might retaliate by targeting individual executives, just as the U.S. did with Sechin. "They could make life difficult for them, without disenfranchising them," he says.

More from Businesssweek

May 1, 2014 4:59PM
"Still, Russia stands to lose more than the Western companies if Putin lashes out with stiff sanctions, says James Henderson, a senior research fellow at Britain's Oxford Institute for Energy Studies"

No, the Reality is that the We the People suffer and the Fat Cats don't feel a thing. Ukraine isn't worth $4 plus gas just so we can enrich a few Fat Cats and make the Military Industrial Complex even Larger.
May 2, 2014 4:34AM
I'm not sure that Putin thinks like or understands American logic. This we'll get hurt, but it'll hurt you more, I don't know? The issue then becomes who is willing to pay the higher price to get what they want? That looks like a no win, no win, for everybody. BP took a big hit on The Gulf spill. Another big loss and they may not be sustainable? Exxon, as big as they are, doesn't want to get involved in anything that doesn't move their needle. Russia moved militarily and we moved economically. Is that equal? The Ukraine is really none of our concern unless we make it one.
May 1, 2014 6:05PM
Let Putin do it.  eye for an eye,  not sure why we are getting involved.   Crimea voted to go back to Russia,  last time I checked that's as democratic as it gets.  If Obama doesn't like it,  put him in the ring with Putin,  see who wins,  or put military fatigues on those kids of his and send them over there. 
May 2, 2014 8:42AM
All the more reason to move our economy away from big oil  and into more sustainable sources,.......
May 2, 2014 4:23PM
"But the funding of Civil unrest, and pro-Russian thuggery, is not what I call a country in the throes of finding it's own way or using a Democratic process..."

Heck, we can't figure out the Democratic process here much less tell anyone else in the World how to find it. The United States has sponsored Terrorist since it's inception, why would anyone think it's any Different now in the Ukraine. Let Europe worry about what's in THEIR Backyard and lets start worrying Far more about what going on in OURS.

Funding Bad Players in Ukraine isn't going to solve anything. Propping up Bought and Paid for cronies there only fuels the already Bloated Military Industrial Complex. Obama and Republicans need to focus getting us out of being the World's Police force and start dealing with the ever growing issues here at home.They can't fix things here at Home but they want you to think they can fix other folks problems. Really?
May 2, 2014 9:11AM

Frack Pootin....

Crimea is a "spit of land" that's been fought over for Decades.

Ukraine on the other hand was a Country that was freed from USSR Tyranny and Dictatorship..

What they have there now, may not be much better?

And wasn't with the previous Leadership..(more or less a Kremlin puppet).

But the funding of Civil unrest, and pro-Russian thuggery, is not what I call a country in the throes of finding it's own way or using a Democratic process...

It's nothing but inciting a Civil War...

Is it our business..? Probably not..?

But aggression in Europe or near Europe, could be;...And every time we turn a blind eye towards that direction, we normally regret it in the long run..

Unfortunately we are not alone as "decision makers" and the ties that other Euro Nations have to Russia are a major problem...One being that of Germany, and the other of energy being supplied by Russia on the Global Stage.

People have to take a much wider View of the Situation, and quit considering our President or our Country has taken a weak position on this problem, but look beyond to the other repercussions in the surrounding areas or Regions. 

May 1, 2014 6:09PM
Why all the opportunity for comments on Valdamir and not one place for comments on our fearless lying leader in months and months?
May 1, 2014 7:36PM
Putin's threats won't backfire as long as the weak-kneed Barack is POTUS.
May 1, 2014 5:45PM
"Oh - and low gas prices means less reason or incentive to develop "Green" energy dave1230."

Funny how regardless of ACTUAL supply and or consumption, Big Oil is able to manipulate prices and Gouge Consumers. Fact is, we have a Limited Supply of Fossil Fuels and Countries like China and Germany realize that Reality NOW. They are investing Huge Towards the Future while we are mostly still stuck on relying on the past. So as dumb and dumber will tell you otherwise, places like China and Germany will be the Leaders in the next Generation of Energy while we will be left far, far behind.

So many posters have not a Clue to what a Liberal nor Conservative actual is. So many posters have not a clue to how far Clean Energy has advanced. Obama isn't being Punked by Putin, he is being Punked as per usual by the Republican Party. And just like on the Tax issue, he has fell for their BS Hook, Line, and Sinker. It's pointless to prop up Fat Cat Ukrainies who really don't care about anyone but themselves. Let Europe fight over it, we have far bigger Fish to Fry.
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