By Jay Solomon and Bradley Olson
WASHINGTON -- Exxon Mobil Corp. has applied to the Treasury
Department for a waiver from U.S. sanctions on Russia in a bid to
resume its joint venture with state oil giant PAO Rosneft,
according to people familiar with the matter.
Exxon has been seeking U.S. permission to drill with Rosneft in
several areas banned by sanctions and renewed a push for approval
in March, shortly after its most recent chief executive, Rex
Tillerson, became secretary of state on Feb. 1, according to one of
these people. The company originally applied for a waiver to gain
access to the Black Sea in July 2015 but its application wasn't
approved, the person said.
The waiver request is likely to be closely scrutinized by
members of Congress who are seeking to intensify sanctions on
Russia in response to what the U.S. said was its use of
cyberattacks to interfere with elections last year. Congress has
also launched an investigation into whether there were ties between
aides to Donald Trump and Russia's government during the
presidential campaign and the political transition.
Mr. Tillerson during his time at Exxon forged a close working
relationship with Russian President Vladimir Putin and with
Rosneft, a company that is critical to Russia's oil-reliant
economy.
The State Department is among the U.S. government agencies that
have a say on Exxon's waiver application, which was made to the
Treasury Department's Office of Foreign Assets Control, according
to current and former U.S. officials.
Mr. Tillerson is recusing himself from any matters involving
Exxon for two years, and won't be involved with any decision made
by any government agency involving Exxon during this period, a
State Department spokesman said.
Before he became secretary of state, Mr. Tillerson said Exxon
opposes sanctions when they aren't applied in a uniform way. He
testified during his confirmation hearings that neither he nor his
former company ever lobbied against U.S. sanctions on Russia.
A spokesman for the Treasury Department said it doesn't comment
on waiver applications. An Exxon spokesman said the company
wouldn't discuss government deliberations on sanctions.
Russia's oil resources have long been among the most
sought-after prizes by U.S. and European oil companies, and
multiple U.S. presidential administrations in both parties have
worked to help them enter the country. As much as 100 billion
barrels of oil is believed to remain untapped in the country, but
many Western companies have been stymied in their attempts to reach
those reserves, often by geopolitical risks.
The sanctions affecting Rosneft ban U.S. companies from deals in
the Arctic, Siberia and the Black Sea, areas that would require the
sharing of cutting-edge drilling techniques. The sanctions,
instituted after Russia annexed the Crimea region of Ukraine in
2014, also bar dealings with Rosneft's chief executive, Igor
Sechin, saying he "has shown utter loyalty to Vladimir Putin -- a
key component to his current standing."
The sanctions effectively sidelined a landmark exploration deal
Exxon, under Mr. Tillerson's leadership, had signed with Rosneft in
2012. The deal granted Exxon access to explore in Russia's Arctic
waters, the right to drill with new technology in Siberia and the
chance to explore in the deep waters of Russia's portion of the
Black Sea.
Mr. Putin said Exxon and Rosneft might invest as much as $500
billion over the life of the partnership. In 2013, the Russian
leader bestowed upon Mr. Tillerson the country's Order of
Friendship in part for his role in developing the joint
venture.
Exxon has reported it is exposed to losses from the Rosneft
ventures of up to $1 billion before taxes, although the company has
yet to recognize them on its books given its position that
sanctions could be lifted.
Exxon received a U.S. waiver in September 2014, when the
sanctions were first implemented and the company was working on a
well in the Russian Arctic.
Mr. Tillerson and other Exxon executives asked the Treasury
Department and senior Obama administration officials to allow the
company to complete the well, saying it wouldn't be safe to leave
before it was finished, according to people familiar with the
matter. Treasury granted an extension, and the company completed
drilling in October and eventually withdrew its employees from the
project.
Exxon has disclosed that in 2015 and 2016 the company received a
license from the Treasury Department allowing the company to
undertake "limited administrative actions" in its partnership with
Rosneft, according to company documents. Such permission would put
Exxon in a position to move more quickly if it gets the green light
to drill, according to the person familiar with the matter.
Exxon's proposal to drill in the Black Sea has been circulated
in various federal departments in recent months, several people
said. Exxon is arguing that it deserves a waiver there because
under its deal with Rosneft its exploration rights in the Black Sea
will expire if it doesn't act, and because some of its top foreign
competitors aren't similarly restricted.
It is unusual for a company to seek a waiver based purely on
future business prospects, according to former U.S. officials.
American companies often seek waivers from sanctions citing
humanitarian, trade or operational issues, the officials said.
Senator John McCain (R-Ariz.), the chairman of the Senate Armed
Services Committee and a supporter of a bill that would limit
President Donald Trump's ability to waive or weaken U.S. sanctions
on Russia, tweeted in response to news of Exxon's waiver request,
"Are they crazy? @WSJ: "Exxon Seeks U.S. Waiver to Resume #Russia
Oil Venture."
Rep. Adam Schiff, the senior Democrat on the House Intelligence
Committee investigating Russia's role in the 2016 U.S. presidential
election, called on the Treasury to turn down Exxon's request.
"The Treasury Department should reject any waiver from sanctions
which would allow Exxon Mobil or any other company to resume
business with prohibited Russian entities," Mr. Schiff said in a
statement. "Until Russia abides by the Minsk accords and ends its
illegal occupation of Crimea, the only changes to sanctions should
be their intensification, not their dilution."
Exxon opposed how the Obama administration applied sanctions on
a number of its projects, according to people familiar with the
matter, in part because the European Union, which has its own
sanctions, granted waivers to its competitors to continue
operating. Norway's Statoil ASA has a waiver for Arctic drilling in
the Barents Sea. Italy's Eni SpA is allowed to operate in the
Barents and Black seas, and has been aggressively exploring in
cooperation with Russia.
"Exxon is worried it could get boxed out of the Black Sea by the
Italians," said a person briefed on the company's waiver
application.
The Black Sea may hold 30 billion barrels of oil, according to
estimates from Russia, Turkey and Romania. Exxon has drilled there
off the coast of Romania and holds a license for an area in
Ukrainian waters.
Although a number of the biggest Western oil companies are
seeking opportunities in the Black Sea, it remains a frontier area
where few deep-water wells have been drilled, meaning estimates
could change as more work is done, according to industry
analysts.
Under the terms of its deal with Rosneft, Exxon needs an oil
discovery in the Black Sea by the end of this year to obtain a
Russian government license to drill. Unless Exxon receives approval
soon, there might not be enough time to safely drill an exploratory
well to be able to develop any discoveries, said oil industry
experts.
Exxon has continued in recent years to drill and seek to expand
its access around Sakhalin Island in Russia's Far East, an area to
which sanctions don't apply.
As secretary of state, Mr. Tillerson, following through on his
pledge to recuse himself from potential Exxon-related matters,
stayed out of State Department deliberations on the permit for the
Keystone XL project, a proposed pipeline that would carry oil from
Canada into the U.S.
Due to the sanctions, other major components of the
Exxon-Rosneft agreement were put on hold in 2014, shortly before
Rosneft revealed that the first well the two companies drilled
together in the arctic waters of the Kara Sea may hold as much as
750 million barrels of oil.
--James Marson in Moscow contributed to this article.
Write to Jay Solomon at jay.solomon@wsj.com and Bradley Olson at
Bradley.Olson@wsj.com
(END) Dow Jones Newswires
April 20, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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