An unprecedented deal that gives Russia's state-controlled oil company part-ownership of U.S. oil fields is unlikely to be scuttled by political or national security concerns for a simple reason: Russia doesn't need the oil.
In the deal between ExxonMobil and Rosneft, announced Tuesday, Exxon will spend $3.2 billion to help Rosneft explore offshore oil fields in the Russian Arctic and elsewhere in Russia. In return, Rosneft will have the option to acquire parts of oil projects in Texas and the Gulf of Mexico, where Rosneft can learn drilling techniques that Exxon has perfected to tap hard-to-reach oil.
It would be the first time Russia would own parts of U.S. oil fields.
Experts say regulators and lawmakers will likely scrutinize the deal, but not block it.
That's because Rosneft almost certainly won't be offered a majority stake in U.S. fields. Although specifics have not yet been negotiated, Exxon would control the projects, and apply for drilling licenses from U.S. regulators.
And, importantly, Russia isn't thirsty for U.S. oil. It's the world's second-biggest exporter of crude. The oil produced in the U.S. by Exxon and Rosneft would stay here because America needs all the oil it produces--and much more.
Deals with foreign countries that raise security issues can be reviewed by a secretive body chaired by the Treasury Department with representatives from other agencies. The Committee on Foreign Investment in the U.S. can then block or require changes to agreements that are deemed threats to security.
This deal probably won't qualify as a threat, experts say. "It is highly doubtful they'd scuttle the deal," says Nova Daly, a consultant with the Wiley Rein law firm and a former Treasury official who oversaw the committee.
Christopher Wall, an attorney who participated in CFIUS reviews as a Commerce Department official in the George W. Bush administration, says the committee has investigated some Russian investments in U.S. coal mines but hasn't interfered in those deals.
Also, regulators haven't blocked a string of recent deals involving foreign oil and gas companies hoping to learn from U.S. companies how to access oil and natural gas trapped in shale formations. Norway's Statoil and France's Total and, most recently, China's CNOOC have invested billions in of dollars in in U.S. shale fields in several states.
China, unlike Russia, is a big oil consumer and desperate for new supplies to fuel its economy. Its recent shale deals were allowed by lawmakers because CNOOC is a minority partner in these agreements. Also, like in the Rosneft deal, oil and gas produced by the fields is needed in the U.S. It wouldn't make economic sense to ship the oil to China.
By contrast, lawmakers threatened to block CNOOC's effort to buy the American oil company Unocal Corp. in 2005. CNOOC eventually withdrew its offer.
Rep. Ed Markey, a Massachusetts Democrat on the House Natural Resources Committee, raised objections when BP agreed to a stock swap with Rosneft earlier this year. That deal would have given the company a 5-percent stake in BP.
Eben Burnham-Snyder, Markey's spokesman, said Wednesday that the congressman's office is looking into the Exxon-Rosneft deal. But he said the deal doesn't appear to involve the same ownership issues that were involved in the BP-Rosneft stock swap.
The deal is a risk for Exxon, not U.S. security, experts say.
Exploring the Arctic is going to be difficult, expensive, and will raise environmental concerns. And deals with Russian companies can be treacherous. Russia's oil and gas giants are controlled by the Russian government, and past deals have fallen prey to politics.
"Russia is notorious for signing deals and playing nice when oil prices are low or declining, but when oil prices go back up they don't play as nice," says Sarah Ladislaw, a senior fellow in the Energy and National Security Program at the Center for Strategic & International Studies in Washington.
Rosneft has been searching for a deep-pocketed partner with technical expertise to help develop oil projects in the Arctic for years. The company was said to be in talks with Shell, though the Exxon deal likely means those talks are over. Rosneft reached a deal earlier this year with BP, only to have it fall apart. BP was unable to get out of a deal it had already signed with another Russian partner.
Big oil companies such as Exxon, Chevron, BP and Shell are struggling to find new oil to replace the billions of barrels they produce every day. Most of the world's crude is owned by state oil companies in the Middle East, Africa and South America.
This is forcing investor-owned oil companies to look for and drill for oil in places that are increasingly harder to reach and more expensive to develop. They have ventured into ever deeper waters in places such as the Gulf of Mexico and off of Northern Brazil. Now they are pushing into the Arctic.
"Exxon has to go not where they want to be, but where they have to be," says Larry Goldstein, a director of the Energy Policy Research Foundation, an industry research group based in Washington.
If the Exxon-Rosneft partnership is successful the companies will bring huge new supplies of oil to the global market and push oil and gasoline prices lower than they would otherwise be--another big reason lawmakers might not try to block the deal.
"It would be good for the global supply of oil," says Fadel Gheit, an oil analyst at Oppenheimer & Co.
Still, Gheit says it will be years before the companies develop and perfect the new techniques needed to drill in the Arctic, plan the projects and begin producing oil. It is so cold there that the companies will only be able to drill about 150 days a year.
"We don't have the equipment, technology or expertise to develop this last frontier, the Arctic," Gheit says.
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