Exxon Mobil loses $1 billion due to sanctions against Russia

Feb 27, 2015 12:00 AM

Exxon Mobil Corporation has reported that the sanctions against Rosneft Oil Co, imposed by the US and European governments, has cost Exxon $1 billion during the fiscal year 2014.

According to a securities filing, the suspension of joint venture between Exxon Mobil and Rosneft is the reason behind Exxon’s loss. The maximum exposure faced by the oil firm is capped at $1 billion, as of December 31, 2014.

To comply with the sanctions, Exxon has “wound down” its activities which involve Russian offshore drilling in the Black Sea and Arctic regions, plus the onshore activities in Western Siberia.

The sanctions from the West target the Russian oil industry, specifically the unconventional ways of drilling and oil production. Offshore and shale drilling are covered by sanctions, while the more conventional ways are not prohibited. Sanctions were imposed on Russia due to the Ukrainian dispute. The US and European Union accused the Russian government of fuelling the conflict in Kiev, where separatists are fighting the Ukrainian government.

The sanctions prohibit American oil companies from providing oil equipment and oil drilling expertise to Russian firms, who are involved in offshore drilling or hydraulic fracturing on shale formations. Russia is heavily dependent on its oil production. Its oil industry is seen as the key driver of growth for the country’s economy. The sanctions are intended to hurt its oil industry, and to pressurize its government. Rosneft is currently led by Igor Sechin, who maintains close ties with Russian President Vladimir Putin.

On a related note, Schlumberger Limited, despite the sanctions, is looking for contractual work in Russian oil industry. The world’s largest oilfield services provider used its foreign business units to bid for contracts in Russian offshore drilling projects, located in the Arctic region, which is prohibited by the sanctions. However, it was reported that the sanctions do not apply to foreign subsidiaries of US-based businesses. Baker Hughes Incorporated has also been involved in the bidding process.

However, Schlumberger’s planned merger with the Russian Eurasia Drilling Company Limited, valued at $1.7 billion, still awaits an approval from Russian regulatory authorities.

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