Market Overview

Strained U.S.-Russia Relationship Is A Problem For Exxon Mobil

Strained U.S.-Russia Relationship Is A Problem For Exxon Mobil

The relationship between the United States and Russia appears to have taken a turn for the worse as of late, and one American company, Exxon Mobil Corporation (NYSE: XOM) is likely to find itself in a difficult position.

According to Gadfly's Liam Denning, Exxon's current CEO Rex Tillerson spent time in Russia during the 1990s overseeing a flagship Exxon project in Russia. More recently he met with Russia's president Vladimir Putin in 2011 to announce a strategic partnership with the country's national oil company, Rosneft.

The venture was successful at first and struck oil beneath the Kara Sea, but Exxon's hands were partially tied as U.S. sanctions against Russia over the Ukraine crisis kicked in.

Related Link: Russia Wants To Freeze OIl Output ... At Its Historical High Level

A 2014 Bloomberg report noted the Kara Sea region of the Arctic Ocean could contain around 1 billion barrels of oil.

If U.S.-Russia relationships continue to worsen, then Exxon "may need a plan B for 2020 and beyond." Specifically, sanctions could place a "big question mark" over where it will find its next wave of production and how profitable it could be.

When a company like Exxon produces around 4 million barrels of oil equivalent a day, it is difficult to find untapped resources which helps offset declines in old fields.

Finally, Denning suggested that the "obvious solution" would be for Exxon to make another large acquisition, and rumors of Exxon buying Anadarko Petroleum Corporation (NYSE: APC), Apache Corporation (NYSE: APA) or Occidental Petroleum Corporation (NYSE: OXY) could "finally become more than just talk."

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