By Ernest Scheyder and Vladimir Soldatkin
HOUSTON/MOSCOW (Reuters) – Exxon Mobil Corp <XOM.N> will exit some joint ventures with Russia’s Rosneft <ROSN.MM>, citing Western sanctions first imposed in 2014, in a move that the Russian company said would result in serious losses for its U.S. partner.
Rosneft said it would welcome Exxon’s return to the projects in the future if the “legal possibility arises”.
The decision is an about-face for Exxon, which had opposed the sanctions over Russia’s invasion of Crimea and argued they unfairly penalized U.S. companies while allowing foreign energy rivals to operate in the country, the world’s largest oil producer.
The sanctions slowed work on a project by Exxon and Rosneft on what was hailed as a major discovery in the Kara Sea above the Arctic Circle.
Rosneft, Russia’s largest oil company, said last year that it planned to return to operations at the project in 2019.
Exxon’s exit will not affect the Sakhalin project off the eastern coast of Russia, Exxon and Rosneft spokesmen said.
Sakhalin-1 operates under a Production Sharing Agreement struck in the mid-1990s and currently produces around 200,000 barrels of oil per day.
Representatives for the U.S. Department of State and Treasury Department did not have immediate comment. The joint ventures were reached when U.S. Secretary of State Rex Tillerson was Exxon’s chief executive.
Tillerson has taken a hard line on Russia as secretary of state, in contrast to his position while at Exxon. His tougher stance appears to be an effort to reassure U.S. allies and other friendly nations of Washington’s backing amidst concerns over U.S. President Donald Trump’s relationship with Russian President Vladimir Putin.
Tillerson has said U.S. sanctions imposed for Russia’s 2014 annexation of Crimea would remain in place until Crimea is returned to Ukraine. He has accused Moscow of imposing its will on other nations by force and employing disinformation and cyber attacks to subvert Western democracies.
The State Department said on Thursday Tillerson had recused himself from issues involving Exxon, and did not discuss the withdrawal with Exxon. A spokesperson would not comment on the company citing U.S. sanctions for the withdrawal.
‘SAKHALIN-1 J/V NOT AFFECTED’
Rosneft spokesman Mikhail Leontyev said Exxon had been forced to take what he called a predictable decision, but confirmed the move would not affect the Sakhalin-1 joint venture.
“It (Exxon) will suffer serious losses as a result of this (decision),” said Leontyev.
Rosneft also said in a separate statement that it would continue with the projects without Exxon, and that work with Exxon on projects not subject to sanctions, as well as on future projects, would continue.
Exxon said it will formally start the process of withdrawing from the joint ventures this year.
In 2012, Exxon and Rosneft detailed an exploration partnership with plans to invest as much as $500 billion in developing Russia’s Arctic and Black Sea oil reserves. Further deals were signed in 2014.
Rosneft said that resources at the projects, from which Exxon decided to withdraw, total 12.3 billion tonnes of oil and gas condensate as well as 15.2 trillion cubic meters of gas.
Exxon said in a financial filing on Wednesday that it recorded a fourth quarter after-tax loss of $200 million due to the withdrawal plan.
The U.S. government also imposed sanctions on Rosneft Chief Executive Igor Sechin in 2014.
The sanctions prohibit U.S. citizens or people in the United States from dealing with those on the blacklist, such as Sechin. Rosneft itself is subject to narrower U.S. sanctions that still allow Americans to deal with the company on some transactions.
The U.S. government fined Exxon $2 million for signing the joint ventures just after sanctions were imposed in 2014, saying the company showed a “reckless disregard” for the sanctions. Exxon called the fine “capricious” and appealed it.
Still, Exxon wound down drilling in Russia’s Arctic in 2014 after the sanctions were imposed. Exxon was allowed to finish some drilling projects as the sanctions took effect.
(Reporting by Ernest Scheyder in Houston and Vladimir Soldatkin. Additional reporting by Olesya Astakhova in Moscow and Jonathan Landay in Washington; editing by Susan Thomas, Jason Neely and Jane Merriman)