Crimea’s Russian-backed government has decided to hold a referendum on March 16 to secede from Ukraine. At the time of this writing, Russia’s heavy involvement in the drive for Crimean secession makes it hard to believe that Sunday’s result will be anything other than an overwhelming result in favor of breaking ties with Kiev (either greater autonomy or annexation by Russia). The next steps are much less clear, however. Secretary of State John Kerry is hoping Russia will hold off on fully annexing Crimea, leaving open the possibility of some diplomatic way of resolving the crisis.
Those plans were still in the early stages – the consortium and the Ukrainian government led by Viktor Yanukovych couldn’t agree on terms. Obviously, once Yanukovych was ousted, ExxonMobil had to put those plans on hold until further notice.
Exxon’s plans for Skifska may not have a future if Russia simply takes Ukraine’s assets. The speaker of Crimea’s parliament said on March 13 that its oilfields should be under the care of Moscow. “Russia, and Gazprom, should take care of the oil and gas production,” said Vladimir Konstantinov. The new Ukrainian government in Kiev may not have much control over the situation if Crimea’s government nationalizes Chornomorneftegaz and its assets. Ukraine had been optimistic about developing its offshore oil and gas reserves, but after Sunday’s referendum, those reserves may suddenly be in Crimean (or Russian) territory.
Exxon is in a bit of a pickle, as it has billions of dollars of investments in the Russia Arctic in a co-venture with Rosneft, its largest non-U.S. project. It is therefore staying pretty quiet about its position in Skifska, and will likely maintain a low-key position even after the referendum. Exxon likely doesn’t see much upside in getting into a tiff with Russia over the Black Sea, especially since it hadn’t even agreed on a production sharing agreement with Kiev yet. Exxon’s plans for the Russian Arctic are too important.
ExxonMobil aside, If Crimea and Russia move forward with the nationalization/privatization of Ukrainian oil and gas reserves, it will heighten the conflict between Russia on the one hand, and Ukraine and the West on the other. The U.S. has promised tougher sanctions over what it argues as an illegal annexation of Crimea. Russia’s annexation of Ukraine’s energy resources will only add fuel to the fire.
By Nicholas Cunningham of Oilprice.com