Monday, December 12, 2016

Trump and the Russians - Cashing Out Crimea

Obama's Sanctions
 After the Illegal Russian "Annexation" of Crimea
If you look back far enough,
there's an old map somewhere which will justify anything you want to do.
If you have complete control over your domestic media,
you can force feed your citizens any version of reality which suits you.

When the Russian Federation moved troops into the Crimean peninsula, territory which was settled in international law as a part of the autonomous nation of Ukraine, all hell broke loose. Wishing to clearly communicate how seriously various western democracies considered this action, Washington and most of the members of the European Union, after the usual, painfully laborious negotiations, imposed wide ranging economic sanctions on the Russian Federation -- sanctions which also specifically targeted individual Russian Federation citizens deemed to have significant culpability in fomenting Russia's illegal invasion.
International sanctions during the Ukrainian crisis
[Excerpted. Read the original article  here/WIKI]

The Russian military intervention in Ukraine, which began in late February 2014, prompted a number of governments to apply sanctions against individuals, businesses and officials from Russia and Ukraine. Sanctions were approved by the United States, the European Union(EU) and other countries and international organisations. Russia has responded with sanctions against a number of countries, including a total ban on food imports from the EU, United States, Norway, Canada and Australia.

The sanctions have contributed to the collapse of the Russian ruble and the Russian financial crisis (2014–present). They have also caused economic damage to a number of EU countries, with the total losses estimated at €100 billion. 

While "free market loving" Republicans in the US ridiculed this response, its economic effect on the Russian Federation began to sting the oligarchs surrounding Vladimir Putin right away. Although the sanctions failed to alter the course of the Federation's international "land grabbing" habits, the pain it inflicted on these Russian billionaires did succeed in "modifying the atmospherics" among the voices supporting Putin's dream of re-establishing the old Soviet Empire piecemeal. 

As we saw with the successful sanctions program in Iran, there were no realistic expectations that we should expect these Russian Federation sanctions to "deliver" in short order. Still, as the weeks and months of the sanctions bore on, some of the most lucrative sectors of the Russian economy -- although the Federation government took great steps to obscure the fact -- gradually began to slowly putrefy from its isolation.

There IS a little history. [image]
Never famous for being "too sensitive," Putin marched boldly ahead with his empire building dreams quite steadfastly even though this trajectory of implementing these ambitions with his usual "unbending intent" had to be navigated around the wounded, wailing oligarchs who had been singled out for their own, personal part of the sanctions. His government controlled domestic media managed to sustain an image of "popular support" on the home front with glacial flow of meat handed , Russian Federation propaganda for the domestic Russian market.

Zeroing In On "Two of the Wounded
Selling crude and natural gas to the Chinese has its limits.
EXXON doesn't like being on the "other end" of Obama's sanctions.

Although many cases of this "sanction pain" could be included here, one which might stand out among the rest would be the "corporate conglomeration scheme" being hatched between EXXON and the Russian government oil giant, ROSNEFT [ROSNEFT/WIKI]. 

For years the Russian government had patiently been conducting its own form of "nationalizing" the country's domestic energy, most notably YUKOS which became a ROSNEFT property following the jailing of its old owner, billionaire Mikhail Borisovich Khodorkovsky. For some reason as soon as "Boris" was safely locked away, YUKOS stock value careened down to crisis mode, and Putin's cronies maneuvered its assets to the public market and promptly "cashed them in" to buyers all around the world of oil.

Well, with all the "dots and dittoes" of Russian production neatly tucked away in the government corporation, the next, normal step would be to "conglomerate" even farther with one of the largest oil corporations in the US. Everything would have gone along "just swimmingly" without the damned sanctions.

Exxon Faces Collateral Damage From a New Cold War

By Liam Denning

Thirty years to the day since Ronald Reagan and Mikhail Gorbachev concluded an unsuccessful summit in Reykjavik, an alarming 1980s revival has taken hold in U.S.-Russian relations. 

Apart from the threats and accusations being thrown around regarding Syria, there are missiles being deployed on NATO's doorstep, as well as Washington formally accusing the Kremlin of trying to hack the U.S. election process, something Moscow has denied. Regarding the latter spat, it's unlikely to have helped endear Moscow to the front-runner in the race for the White House -- who wasn't that stoked about President Vladimir Putin to begin with. 

All of which is a bit of a problem for all of us. It is also a problem for one oil major in particular: Exxon Mobil. 

Russia has special significance for Exxon. Early in the 2000s, former CEO Lee Raymond came close to buying a stake in Yukos only to watch its CEO Mikhail Khodorkovsky fall out with President Vladimir Putin and get arrested. 

Raymond didn't get his big Russian deal. But his successor, current CEO Rex Tillerson, did. 

Tillerson had spent time in the 1990s overseeing a flagship Exxon project in Russia. And he flew there in 2011 to meet with Putin and announce a strategic partnership with Rosneft, the national oil company that absorbed Yukos' main assets after Khodorkovsky was thrown in jail. 

The two companies were to jointly develop potentially massive oil reserves in Russia's Arctic waters, the Black Sea, and Siberian unconventional resources. Putin spoke of investments from the deal eventually reaching perhaps $500 billion -- a big number even for Exxon. No sooner had the venture struck oil beneath the Kara Sea, though, than Exxon was forced to down tools as U.S. sanctions over the Ukraine crisis kicked in. 

Exxon is no stranger to dealing with inconveniences like sanctions, nationalizations, and wars. But if Russia remains frozen out by sanctions for years, then Exxon may need a plan B for 2020 and beyond. 

Ostensibly Exxon is awash with drilling opportunities. At the end of 2015, it had proved reserves of almost 25 billion barrels of oil equivalent but claimed overall resources of 91 billion. 

When you produce around 4 million barrels of oil equivalent a day, though, it is a constant struggle to find that next big pool of resources to offset declines in old fields with fresh ones for years to come. That struggle gets even harder when oil and gas prices collapse and you have to cut investment to help protect a sacrosanct dividend. 

Even when oil and gas prices were high, Exxon kept missing ambitious production growth targets. Overall production last year was actually lower than in 2006, Tillerson's first year as CEO; output of higher-value oil has dropped by roughly a fifth.

In addition, Exxon's reserves replacement ratio plunged below 100 percent last year. Granted, much of that reflected the impact of lower natural gas prices causing Exxon to de-book some U.S. reserves. Still, this was a reminder that Exxon had mistimed another big deal aimed at refilling its tank -- namely 2010's $35 billion acquisition of shale gas driller, XTO Energy. 

And, looking at Exxon's cumulative record on replacing reserves, it's clear these metrics have been slipping in recent years. Since 2006, reserve replacement including acquisitions has been 129 percent (not including the effect of disposals). Organic reserve replacement, though, has been 101 percent.

[Excerpted - read the original article  here - BLOOMBERG]

What Exxon, like any major, really seeks are very large, oil-focused prospects that play to its strengths, where reserves can be booked periodically to top up the tank and high upfront costs can be defrayed over decades of production. In other words, exactly what Russia potentially offered. 

Whether focusing on such mega-projects is a good way to go is debatable, but for now that is Exxon's way. And the company's judgment on this score has notably been called into question this year. For example, as Wolfe Research analyst Paul Sankey has pointed out, the cut to Exxon's triple-A credit rating by Standard & Poor's was directly linked to concerns around the huge spending required to replace its reserves. 

If relations between the U.S. and Russia keep worsening and sanctions stay in place -- or even get sharpened -- then that puts a big question mark over where Exxon's next wave of production will come from and how profitable it will be. 

The obvious solution, as it has been in the past, is for Exxon to make another big acquisition, most likely in a less politically fraught, but still huge, resource such as U.S. shale (Texas' Permian basin, say, although that's looking crowded already).

One upshot of the worsening stand-off in Syria, and elsewhere, could be that those persistent rumors around Exxon buying the likes of Anadarko Petroleum, Apache or Occidental finally become more than just talk.

For some totally mysterious reason the US State Department seemed reluctant to "get on board" with this massive merger plan while Obama's sanctions, punishment for Russian Federation behavior in the annexation of Crimea, were still in place and beginning to show some results. Although it looked like Putin was remaining quite stubborn with respect to his ambition to own Crimea, there seemed to be a flicker of a growing possibility that his equally illegal ambitions to also own Eastern Ukraine might be softening.

However, for EXXON, ROSNEFT and Putin, the real question was "What could be done about this irritating, lingering, State Department 'problem?'

Sorry, Big Oil, It Looks Like This Is Just Going
 To Be "One Of Those Things"
Darned State Department. Darn sanctions.
Oooops. Did you forget about the election?
What a difference a few months can make!

With the Trump "electoral victory" now well in hand, these "deal breaking frustrations" with the big ROSNEFT - EXXON "marriage" seem to have blown away like a "Russian North Sea Winter Time Breeze." Since the President-elect is wasting absolutely none of his "working hours" worrying about the good of the country, he's found himself enjoying an unexpected amount of free time -- time which can now be dedicated to getting the EXXON - ROSNEFT train wreck back on the tracks!

Plus, suddenly being President should help, too. And, perhaps most important of all, being a new President also includes picking a new Secretary of State. After all, these problems with the big ROSNEFT deal seem to be coming from the State Department and all those damned sanctions. Although The Donald is not particularly concerned about the "running America stuff," he is understandably attracted to the giant pile of profit which might spring forth from "friending it up" with Putin and the Russian oil heavies at ROSNEFT.

Fortunately, Donald already had their phone number. Also fortunately, there just happened to be someone "waiting in the wings" to set the State Department back onto a profitable new course. Here are a couple of [excerpted] articles which will help "complete the picture" for these wonderful coincidences.

Article 1: from Vanity Fair


December 10, 2016
[Excerpted. Read the original article  here - VANITY FAIR]

Exxon Mobile C.E.O. Rex Tillerson, an oil industry veteran with deep ties to Russia, is likely to be nominated as Donald Trump’s secretary of state, according to multiple news reports over the weekend. Trump’s pick could still change, sources say, but is expected to be announced within the coming days after Tillerson met with the president-elect twice in the past week. “Whether I choose him or not for ‘State’- Rex Tillerson, the Chairman & CEO of ExxonMobil, is a world class player and dealmaker. Stay tuned!” Trump tweeted Sunday morning.

While Tillerson is well-respected as a business leader with experience making deal around the world, his close relationship with Russia could mean a difficult Senate confirmation process. The 64-year-old executive has known President Vladimir Putin for decades, and was awarded the Russian Order of Friendship in 2013, shortly before Russia’s invasion and subsequent annexation of Crimea. The United States responded by imposing economic sanctions on Russia that arrested a massive $300 billion deal in 2011 between Exxon and the state-controlled Russian oil giant Rosneft to drill under the Arctic Ocean. Tillerson has been a vocal opponent of the sanctions, which have reportedly cost his company some $1 billion in losses. “I don’t know what Mr. Tillerson’s relationship with Vladimir Putin was,” Republican senator John McCain said Saturday in an interview with Fox News. “But I’ll tell you it is a matter of concern to me.” A Democratic Senate aide also told Politico that “the Putin relationship will be a major focus” in confirmation hearings. “Tillerson and the company opposed sanctions efforts on Russia, he has received an award from Putin, and has done extensive oil business generally in the country.”

Article 2: from CNN Money

Behind the deep ties between Exxon's Rex Tillerson and Russia
by Matt Egan, Julia Horowitz and Chris Isidore @CNNMoneyInvest
December 11, 2016
[Excerpted. Read the original article here - CNN]

Tillerson himself seemed hopeful that the Exxon deal could lead to even closer ties between the two countries. "It cannot be anything but helpful to broadening the relationship between the American people and the Russian people," Tillerson said at the time.

Putin later awarded Tillerson the Order of Friendship, which is given to foreign citizens for "special merits in strengthening peace, friendship, cooperation and mutual understanding between peoples." It is also awarded for those who make a "great contribution" to "large-scale economic projects" in Russia.

In 2014, Exxon was hit hard by a round of U.S. and European Union sanctions that targeted Russia for its intervention in Ukraine. Exxon said it could have lost up to $1 billion due to the sanctions, according to regulatory filings.

Exxon would likely stand to gain if sanctions are lifted on Russia by the new administration.

"We are very anxious to get back to work there," Tillerson told industry analysts in March when asked if Exxon would be interested in restarting its venture with Rosneft in Russia.

Tillerson noted that it would take time to resume operations, especially in the Arctic, because "we had to dismantle all of the capability and the infrastructure" due to sanctions.

Tillerson said he's "thankful" the Russians haven't done anything to "make the situation worse." To the contrary, Tillerson said Russia has "done things to help us hang on to the rights we have" in the wake of the sanctions.

Go Ahead and Stab Ukraine in the Back.
They should be used to it by now.
Sometimes it can be messy undoing something honorable
 that's been done in the past.

President-elect Trump's brand new Secretary of State will start lifting the sanctions on the Russian Federation as soon as he's sworn into office. MeanMesa expects that all those old "hard feelings" about Putin's illegal invasion of a sovereign country will almost instantly become nothing more than a fleeting memory of "the bad old days."

Russian soldier on Crimea border.
It remains to be seen if this wonderful feeling will also include a "wink and a smile" to inform the Russian President that the US State Department is now totally on board with the small, additional matter of his also annexing East Ukraine, that is, the US State Department will be "open for business."

Hey, when there's this kind of cash on the table, anything goes. A nice, new oil corporation carefully crafted together from "this and that," EXXON and ROSNEFT with total assets worth $500 Bn should have more than enough loose "bucks" floating around -- here and there -- to allow all the "players" scratch their way a bit closer to their dream of perpetual dynastic wealth.

No one can be all that sure about what will be left of Ukraine after Vladimir runs it through his super power meat grinder and re-injects what's left into his dreamy Soviet-style new, Russian Federation Empire. However, once it's all said and done, the surviving Ukrainians will know better than to ever trust the US to be their friend again.

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