Former BP CEO Warns "Sanctions Will Bite West" As US Gives Majors 14 Days To Wind Down Russian Activities

Tyler Durden's picture

For the past six months, even as Obama and the EU were laying harsher sanctions on the Kremlin, one group of companies had managed to sneak by unscathed and largely avoided being impacted by Russia's isolation by the West: the world's biggest E&P companies, as explained in detail over a month ago in "Exxon Drilling Russian Arctic Shows Sanction Lack Bite."

All that is about to change, because while sanctions until this moment had been largely intended to specifically allow energy companies to continue their status quo in Russia, as of this Friday, it is precisely the E&Ps that are being targeted, as we noted on Friday, and as Reuters follows up today, reporting that some of the world's largest companies, namely Exxon, Anglo-Dutch Royal Dutch Shell, Norway's Statoil and Italian ENI, will have to be put their Russian projects on hold:  to wit, the companies will have 14 days to wind-down activities.

From Reuters:

Projects now in jeopardy include a landmark drilling program by U.S. giant Exxon Mobil in the Russian Arctic that started in August as part of a joint venture with the Kremlin's oil champion Rosneft.

 

Now this and dozens of other projects that Rosneft and Gazprom Neft agreed with Exxon, Anglo-Dutch Royal Dutch Shell, Norway's Statoil and Italian ENI will have to be put on hold.

 

"Cutting off U.S. and E.U. sources of technology and services and goods for those projects makes it impossible, or at least extraordinarily difficult for these projects to continue...There are not ready substitutes elsewhere," a senior U.S. administration official told a briefing on Friday.

 

The companies will have 14 days to wind-down activities.

And just to make sure that there is once again major Obama administration-induced chaos, and thus yet another collapse in global trade, when it comes to the core covenant of capitalism, namely the sanctity of contracts from government intervention, Reuters cites a US official who said that "there is no contract sanctity."

Valery Nesterov from Russian state bank Sberbank, which was also sanctioned by the EU and the United States, foresaw serious complications. "What is really worrying are sanctions on tight oil. Russian companies haven't invested enough in research and technology. They were heavily relying on Western technologies and now it is simply too late," he said.

That may well be, but at the end of the day, Russia still has all the leverage in the long-run: "key among Russian tight oil reserves are the Bazhenov formations, which are located beneath existing mature west Siberian fields. They are estimated to contain as much as a trillion barrels of oil - four times the reserves of Saudi Arabia. Rosneft and Gazprom Neft are working on Bazhenov with Exxon and Shell.

"When we learnt about the first sanctions we decided to speed up work on all fronts to minimize the damage to the company," said a Rosneft source. Rosneft's chief Igor Sechin, a close ally of Putin, said earlier this month the company had approved a program to replace all Western technology in the medium-term.

But while expansion may or may not be hindered, and China certainly will have something to say about the expansion of Russian oil fields in the coming months - and bring its checkbook and smartest heads when it does - one thing that will certainly happen is that once again the West will prove too smart for its own good. 

Enter Tony Hayward, the infamous former CEO of BP (and current Chairman of Glencore) who may have been disgraced by his handling of the Macondo spill but his comments on how the Russian sanctions will play out, are spot on.

As the FT reported moments ago, "US and EU sanctions against Moscow are in danger of turning round and biting the west by constraining global oil supply and pushing up prices in coming years, the former chief executive of BP has warned."

Tony Hayward said that cutting off capital markets from Russia’s energy groups, which would eventually lead to less investment in Russian oil production, was likely to damage long-term supply. He said the US shale boom had obscured the growing risks to the world’s supply picture, but its effect would wear off, leaving the global economy dangerously exposed to potential disruptions in the flow of oil.

 

“The world has been lulled into a false sense of security because of what’s going on in the US,” Mr Hayward said in an interview with the Financial Times, referring to the shale boom that has driven a 60 per cent increase in US crude output since 2008. But he asked: “When US supply peaks, where will the new supply come from?”

But why worry: after all surely nobody in the Obama administration can possibly conceive that the 8000+ producing wells in the Bakken shale alone, up from 1000 in 2008, could possibly go dry at some/any point in the future...

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Joenobody12's picture

The decision-making structure of the government of both the US and EU are heavily influenced by Israel lobbies. 

 

http://www.globalresearch.ca/pro-israel-lobby-ensures-israeli-terrorist-...

 

Urban Redneck's picture

If the western O&G majors cannot deliver on their exploration commitments, their existing production shares will be at risk. Time for S&P to rebalance and preserve some semblance of 2000.

JohninMK's picture

A view from the Russian side. They know all the ins and outs of 'sanction busting'. Time to go short on Schlumberger and other oilfield equipment suppliers?

Updated 1:20 a.m. Moscow Time

MOSCOW, September 15 (RIA Novosti) - Sectoral sanctions imposed on Russia by the European Union and the United States fail to inflict a severe damage on Gazprom Neft, according to Vadim Yakovlev, deputy chairman of the Management Board and first deputy CEO.

"As for the previously implemented sanctions, there is no real damage to our company. There are no cases when we would have to suspend some of our projects, and there are no situations, in which our operations would have to halt. Yes, there are certain difficulties. Our suppliers are forced to apply for authorization documents. It creates certain delays, and there are a small number of cases when the delivery of non-crucial equipment has been refused. Usually, we have managed to find alternative ways," he said.

Speaking of the new round of sanctions introduced on September 12, Yakovlev said that the company's main partners did not feel a big impact of those.

"Judging by talks with our main partners, they do not feel the influence [of sanctions]. What our partners do is they also choose the path of localization, meaning the services are provided by Russian staff of oilfield companies," he added.

The first deputy CEO also noted that the sanctions have given Gazprom Neft a reason to work on import substitution.

"In terms of our work and our future, we intend to work on import substitution, localization. It concerns our current requirements, as well as our future projects," Yakovlev said

Peter Pan's picture

One more point. Had someone like deGaulle continued to be around when he died, who would continue to insist on gold as payment, the parasitic and evil military expansion as well as money printing of the US over the last 50 years would never have manifested themselves.

Unfortunately the world has allowed the US to turn into a self righteous monster.

sudzee's picture

Peak Extortion.

Fuku Ben's picture

The chart alone could have been posted without comment

It looks like a massive wave about to come crashing down

ThisTimeIsDifferent's picture

"US and EU sanctions against Moscow are in danger of turning round and biting the west by constraining global oil supply and pushing up prices in coming years, the former chief executive of BP has warned."

Less USD demand from BRICS trading requires higher oil prices so that Saudi oil trading compensates the shortfall.

Also more trade barriers in general are beneficial because they push up inflation which is what we need to deleverage.

Nothing to see here, please move on.

 

 

q99x2's picture

Global security alert. Shut down Goldman Sachs or die M'Fers.

bid the soldiers shoot's picture

Interesting graph and table.

The table tells us from January 2010 to July 2014, the range of daily oil production per well was between 122 bbls per day and 144 bbls perday.

And since January 2013 it hasn't been over 140 bbls per day once.  As the older wells (6 to 8 years old) dry up, they bring down the average for all wells.

Isn't there's a whiff of desperation about drilling oil wells that produce but 135 bbls per day?

M. King Hubbert described "Peak Oil" as looking like a bell curve with a very gradual decline on the right side.

The graph seen here looks like a chart of 'peak oil' of the Bakken Shale Formation.

You may remove your heads from the sand now.  Refreshments will be served.

 

MrPalladium's picture

"Isn't there's a whiff of desperation about drilling oil wells that produce but 135 bbls per day?"

Bingo!!

bid the soldiers shoot's picture

I am of the belief that these 'so called' wells of the Bakken aren't even wells. They are pools of oil in 'shale' or 'tight oil' formations that have formed over the eons (or longer) through geothermal activity in the erath's crust.

This is why they're drilled horizontally (not to be confused with slant drilling) using pipes with holes in them.

These 'so called' wells dry out in 6 to 8 years and, at 135 barrels a day don't appear to be under any pressure, except for what normally occurs at 3 or 4 thousand feet. 

 

Victor999's picture

I think you might be misinterpreting the graph.  What the graph seems to say is that during the periood you mention that there were between 7000-8000 wells, EACH delivering an average of between 4000-4500 bbl/day.  I am open to correction on this.....

bid the soldiers shoot's picture

The graph seems to say that even as the number of producing wells increases, the gross production of all wells has plateaued 

It's kind of of "peak oily" and indicative of how short lived these tight oil wells are.

The table tells us the same thing.

https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf

there were between 7000-8000 wells, EACH delivering an average of between 4000-4500 bbl/day. 

I may be wrong,Victor, but I think these larger numbers are not bbls per day, rather bbls per year.

If I'm wrong please let me know.

 

unionbroker's picture

i pridict some major oil co. will make the big move this is the oportunity of the century 

litemine's picture

That would be Sooooo anti-American.................where can I invest?

litemine's picture

So a vote against the Banking Elite will be to invest in Russia.....after all the banksters/Congress  do what they want so can't I? I also buy Physical Gold , that is a bet against the $US. Right?

honestann's picture

All the western companies need to do is this.  Have some cronie form a Russian company, have the key employees (who know how to implement the new technology) quit their jobs at the western companies, then become contractors (not employees) to the new standin companies.

Then once all this "Russia is enemy" nonsense blows over (or blows up into nuclear war), the temporary Russian company sells their assets back to the western company on the basis and terms agreed at the beginning.

So simple.

emersonreturn's picture

honestann,

 

yes, you may be right.  during the early oil plays in alberta, landmen would quit their company and claim the site themselves.  if this happens in the kara sea, i don't think the temp russian company will sell their assets back to the west but remain happily ensconced in the new world.

StychoKiller's picture

Hmm, lessee here:  Pay a tax rate of 12% to Russia, or 35% to USA -- no need for calculators or even slide rules here!

Canucklehead's picture

Nobody cares what Tony Hayward says. Nobody cares what Tony Hayward thinks.

This is unfolding as it should. Watch for economic conditions to improve in the other members of CIS as Western investment spills over into their economies.

NATO is set to expand East... of the Ukraine.

Youri Carma's picture

Sanctions are an act of war.

potato's picture

This is seriously funny. Project managers will now make $400,000 in Russia instead of $200,000 in Texas. Drillers too. The Chinese will come with their stolen blueprints. You can't stop technology!

The cronies will now get higher bribes. Everyone wins!

Jano's picture

It is preferable to western jewes-and-their pretorians to invest the money into a shale gas fracking, where they incur everyyear a loss instead of investing into russian resources. Greed. And stupidity.

onmail's picture

HomObamma wants :

Mushroom clouds all over Russia,
Capture Russian Oilfields

Enjoy.

Joenobody12's picture

No,Russia alerady let in the US company Exxon to drill in the arctic virgin territory. They want to play ball but Obumpma has no ball and no brain so he does what the zionist told him.

RazvanM's picture

The oil flows from the Producers to the Consumers. If the Consumers are winding down the oil consumption, the Producers will have intense problems. Then the oil price will start getting lower and the Producers will see a second wave of problems. This is the reverse of Putin using, for more than 10 years, the energy leverage for political purposes in Europe.

If these Producers are able to live long enough with these problems (usually we are talking about autoritarian regimes, keeping in power by payments to the majority of a dependent population from oil profits), then the Consumer will be hit hard too by the decrease in economic activity. But the main problem for Putin now is to keep its power with a population that is getting poorer, an oligarchy that sees its travel plans abroad getting cut and an army having less resources and seeing war loses in Ukraine.

PS. Anyone who thinks that China is a solution to Russia problems should go see a head doctor.