Rosneft is securing itself substantial drilling rights on the U.S. coast as well as profiting from American technologies. The deal is highly political because Rosneft is a quasi state-owned company from a country with which the U.S. maintains a tension-filled rivalry.
Energy policy always also means security policy. The manager of Chinese oil corporation CNOOC had to learn that the hard way six years ago. On June 23, 2005 the company, controlled by the communist government in Peking, offered $18.5 billion to shareholders in order to take over a share of California’s Unicoal. That was $2 billion more than the American energy company, Chevron, was prepared to pay.
From the perspective of shareholders, this was a great deal. However, many representatives in Congress perceived the offer from China as a threat to U.S. security. The political pressure was so great that CNOOC finally withdrew its offer and Unicoal was sold to Chevron at the lower price of $16.5 billion.
How highly political the newest Exxon-Rosneft deal is becomes apparent if you compare it to the case of Unicoal. Rosneft is, like CNOOC, a quasi state-owned company from a country that is not allied with the U.S., but rather, with which it sustains a tension-filled rivalry. In spite of that, the Russian company received far-reaching rights to America’s energy reserves as part of the polar sea deal with Exxon. Essentially, Rosneft can take part in deep water drilling in the Gulf of Mexico as well as the development of the newly discovered natural gas fields on the U.S. East Coast.
For Russian managers, it presumably has less to do with energy sources themselves than with, in both cases, the technology used for their extraction, which is highly controversial. The risks of deep sea drilling were demonstrated after the explosion on the deepwater platform Horizon on April 20, 2010, which caused one of the worst oil catastrophes in history.
With natural gas, the Russians are interested in the technique of hydraulic fracturing, a process in which the layers of slate containing natural gas are forced open with water, sand and chemicals. Environmentalists in Pennsylvania, New York and other states are up in arms against this process, otherwise known as fracking. Now the Russian government could suddenly become another player on the East Coast.
Powerful, Conflict-proven Supporters
It would be a wonder if there were not misgivings in Congress about the entrance into the American energy business of a country that has not always been well disposed toward the U.S. This time, however, the largest company and one of the most influential managers of the U.S. stand behind the deal: Rex Tillerson, head of Exxon, counts not only as a powerful player, but also one who is conflict-tested. He successfully fought back against one of the biggest shareholders in his company, the Rockefeller family, when they wanted to force Exxon to use more environmental protection.
Tillerson could inject a strong argument in the fight with Congress: In Russia, politics intervene in businesses with raw materials even more ruthlessly and arbitrarily than in the U.S. Because the Russians themselves have now acquired property rights in America, Exxon has received a trump card for the argument that Russian politics could go haywire. That is also insurance for Exxon’s own investments in the Russian polar sea.
The $3.2 billion deal between Exxon and Rosneft, however, also fits President Barack Obama’s policy to “press the reset button” on U.S.-Russian relations. That is, finally leave the Cold War behind and introduce a new phase of cooperation. Two years ago Obama appointed German head of the aluminum company, Alcoa, and former Siemens manager, Klaus Kleinfeld, chairperson of the Russian-American Economic Council, to improve economic relations between the two countries. The Exxon-Rosneft project now has enormous importance to the White House as well.