Despite Moscow’s shrugging off Western sanctions as ‘foolishness’, there’s growing evidence that the restrictions imposed over Russia’s alleged role in the Ukraine crisis may be working, at least in terms of bad publicity.

 

Global investors are unlikely to be wooed by news that the world’s oil majors are pulling out of Russia due to sanctions.

 

The international media are adding fuel to the fire by spreading it and sprinkling with sharp analysis.

 

INVESTOR'S BUSINESS DAILY published a piece entitled ‘Royal Dutch Shell Plugs Oil Activity With Gazprom’ where it explored the impact of oil giant Royal Dutch Shell reportedly halting its shale oil effort with Russia's Gazprom Neft.

 

The daily projects long-term costs for the Russian energy sector, “as Western companies had the expertise to help extract oil and gas from difficult locations.”

 

Gazprom Neft appears to have confirmed that Shell withdrew from a joint project over the sanctions. The parties established a joint venture for the exploration and development of liquids-rich shales (LRS) in Khanty Mansiysk District (Western Siberia). Gazprom Neft has promised to continue the works but whether or not it can really make the project a success, is unclear.

 

The Financial Times which covered this and other related stories extensively wrote that this forced separation has undermined the government’s efforts to attract western expertise by offering tax breaks for shale oil projects, which came into effect a year ago. “Western majors rushed to take advantage, with Exxon, Shell, BP, Total and Statoil all signing shale joint ventures. Russian shale deposits, including the Bazhenov, where the Gazprom Neft-Shell joint venture was working, are enormous, estimated by the US Department of Energy as the largest in the world at 75bn barrels,” addes the FT.

 

It comes on the heels of ExxonMobil’s announcement that it was suspending all 10 of its joint ventures with Russia’s state oil company Rosneft.

 

Early in August 2014, Rosneft trumpeted the launch of exploratory drilling of Universitetskaya-1, Russia’s northernmost well, a joint project with the US oil giant.

 

“The start of exploratory drilling in the Kara Sea is the most important event of the year for the global oil and gas industry. As a result of this work we are planning to discover a new Kara Sea oil province. Developing of the Arctic offshore will have a strong positive effect on the Russian economy as a whole,” Igor Sechin, the head of Rosneft, was then quoted by the company’s official website.

 

However, after the new sanctions by the US and the EU media reports began to emerge implying that ExxonMobil would be forced to pull out of the project.

 

That’s exactly what happened after the first well was successfully drilled and the first samples were recovered for tests.

 

But while Gazprom Neft and Rosneft are largely state-owned corporations, private companies might be more vulnerable. Lukoil is now scratching their heads over France’s Total decision to leave a JV set up to explore shale oil in western Siberia. “The Lukoil joint venture is definitely stopped,” Mr de Margerie was quoted by the FT as saying.

 

With the oil prices and output of oil fields falling, the blow of sanctions might be painful indeed, especially in the longer run.

 

Sources: http://www.ft.com http://news.investors.com