The U.S. and the European Union are poised to halt billions of dollars in oil exploration in Russia by the world's largest energy companies in sanctions that would cut deeper than previously disclosed.
The new sanctions over Ukraine would prohibit U.S. and European cooperation in searching Russia's Arctic, deep seas or shale formations for crude, according to three U.S. officials who spoke on condition of anonymity because the measures haven't been made public. If implemented, they would affect companies from Dallas to London, including Exxon Mobil Corp. and BP PLC.
U.S. and EU explorers operating in Russia would be barred under the new decrees from calling in experts and rig crews crucial to unlocking billions of barrels of crude locked in offshore Arctic or Siberian shale fields, according to the government officials.
Some of the costliest, most complex drilling forays ever attempted in Russia may be in limbo, including a $700 million well that Exxon and Russian oil giant Rosneft began to drill last month in the Kara Sea.
For Irving, Texas-based Exxon, Russia represents its biggest exploration prospect outside the U.S. Exxon owns drilling rights across 11.4 million acres of Russian land and seafloor, an area twice the size of Massachusetts. Exxon's $411.3 billion market valuation makes it the world's largest energy company; its annual sales exceed the economic output of all except 28 nations.
EU ambassadors met Wednesday and will resume deliberations today in Brussels on whether to trigger added sanctions or wait longer to see if a cease-fire holds between Ukraine and pro-Russia separatists and if Russia backs moves toward a longer-term agreement.
Once the EU implemented the new ban on sharing energy technology and services, the U.S. would follow suit with a similar package, including barring the export of U.S. gear and expertise for the specialized exploration that the Russians are unequipped to pursue on their own, the U.S. officials said.
EU governments agreed on these oil-related sanctions Monday as part of a wider package of measures intended to hobble Russia's finance, defense and energy industries, pending evaluation of the cease-fire declared in Ukraine last week, according to two European officials who also spoke on condition that they not be named.
The sanctions target reserves that wouldn't begin providing crude to global energy markets for five to 10 years and wouldn't interfere with drilling and production from conventional land-based wells and those along the shallow edges of inland seas, some of which have been pumping crude for decades.
The move would go beyond previously reported proposals to widen curbs on technologies for the oil industry by banning such cooperation, levying a heavy toll on Russia's $425 billion-a-year petroleum industry.
No companies outside the U.S. and Europe have the specialized techniques for extracting crude from deep-sea fields and shale formations.
"If true that new sanctions were to ban technology and services for Arctic, deep-sea and shale exploration, that would be a very big deal," Jason Bordoff, former energy adviser to President Barack Obama and founding director of the Center on Global Energy Policy at Columbia University in New York, said Wednesday via email. "It would significantly curtail Russia's future oil production capacity, although it is important to note that it would require close collaboration between Europe and the United States to be effective."
While the U.S. doesn't intend to allow exemptions for existing contracts that would be affected, the American officials said they weren't certain whether the EU would provide more leeway.
The stakes are high for Russian President Vladimir Putin because of his government's dependence on the energy industry to drive economic growth, with a growing reliance on U.S. and European technology and services to exploit fields that pump one of every eight barrels of crude produced worldwide every day.
Since Russia's annexation of Ukraine's Crimea Peninsula six months ago, the U.S. and European Union have imposed sanctions on Putin's inner circle of politicians and billionaires as well as on banks, energy and defense companies close to the Kremlin in an effort to force Putin to abandon efforts to divide and destabilize Ukraine.
The U.S. and EU wield a heavy economic hammer: Combined, the allies account for 39 percent of the globe's economic output, compared with Russia's 3 percent. While the economic penalties taken before this week have been significant -- including limiting Russian banks' and energy companies' ability to raise debt financing -- a ban affecting key types of oil exploration would go a significant step further toward choking Russia's future economic growth.
The ban on cooperation would close gaps in previous rounds of sanctions that left room for a unit of Bermuda-based Seadrill Ltd. to sail the West Alpha floating rig into Russian waters in late July on behalf of Exxon Mobil and Moscow's state-controlled OAO Rosneft.
The arrival of the rig, as well as the signing of six new Seadrill contracts with Rosneft on July 29, just as the last round of sanctions was imposed, angered U.S. and European officials, who said the moves flew in the face of the intention behind the economic restrictions: to freeze Arctic exploration by Russia.
A Section on 09/11/2014