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article imageWestern-based multinationals may suffer from sanctions on Russia

By Ken Hanly     Jul 30, 2014 in Business
Moscow - Western multinational energy companies already have $35 billion invested in Russian oil development. New sanctions on Russia by the US and EU may put that investment at some risk.
The new sanctions ban the export of hi-tech oil equipment needed in the extraction of oil from the Arctic deep sea and shale extraction project. This will cause problems for joint projects with Russian companies. U.S. President Barack Obama told reporters:“Because we’re closely coordinating our actions with Europe, the sanctions we’re announcing today will have an even bigger bite. Russia’s energy, financial and defense sectors are feeling the pain.”
The new stage three sanctions will not cut present Russian production — which now is 10.55 million barrels per day — but the sanctions certainly could impact future development projects as Obama claimed when he revealed the new sanctions.
The gas sector is not yet targeted. Russia is estimated to have about $7.5 trillion in oil and gas resources. Many of those resources at present can only be developed through the use of western technology. The sanctions will have "bite" but they will bite Western-based companies such as BP and ExxonMobil as well as the Russians. BP alone has an almost twenty per cent stake in the Russian state oil company Rosneft . Up to now BP claimed that it was "business as usual" with Russia but the new sanctions may change that. BP already sources one third of its oil production in Russia. As one investment site claims: Some of the world’s biggest energy companies could see billions in revenue disappear amid new sanctions that shut them off from the Russian energy frontier.
A statement from BP claims: "Any future erosion of our relationship with Rosneft, or the impact of further economic sanctions, could adversely impact our business and strategic objectives in Russia, the level of our income, production and reserves, our investment in Rosneft and our reputation." Just this June Rosneft signed an agreement to supply the UK-based BP with as much as 12 million tons of oil and oil products over a period of 5 years. There is to be a prepayment of a minimum of $1.5 billion.
Companies such as Halliburton, Schlumberger, and other western companies provide oil field equipment for Russian development and will be hurt by the new sanctions: Oilfield service companies Halliburton, Baker Hughes Inc. (BHI) and Weatherford International Plc each generate 4 percent to 5 percent of their global sales from Russia, while Schlumberger gets 5 percent to 6 percent, according to RBC Capital Markets. The increased sanctions aren’t expected to drive the service companies out of Russia, Kurt Hallead, an analyst at RBC Capital Markets in Austin, said in a phone interview.
ExxonMobil has been in Russia for over 20 years now. In partnership with Rosneft it has a $500 billion exploration of an oil field in western Siberia and a huge $15 billion liquefied natural gas project in the Russian far east. If Exxon were forced to quit Russia it could pull out up to $1 billion in funds from the offshore Arctic and fracking projects in Siberia.
Total, France's oil major also has huge operations in Russia and owns about 18 per cent of Novatek the second largest gas producer in Russia. Novatek is leader of the $27 billion Yamal liquefied natural gas (LNG) project along with China's CNPC. Stock prices of western companies impacted by the sanctions fell after the sanctions were announced.
More about BP, Exxon mobil, Rosneft
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