April 30th, 2012

CREF’s Ivlev and Misamore respond to Exxon-Rosneft deal

On Monday, April 16, ExxonMobil and Rosneft signed a strategic agreement that will open American domestic oil and gas fields to Russian investment. As part of the deal, Rosneft will have a 30% stake in Exxon projects in the Gulf of Mexico, western Texas and in Canada.

Earlier, the offshore exploration partnership had announced that it would invest upward of $500 billion in developing Russia’s vast energy reserves in the Arctic and Black Sea, where hydrocarbon reserves are estimated at about 85 billion barrels in oil-equivalent terms.

“Today really is a historic day,” said Rex Tillerson, CEO of Exxon Mobil, at the signing ceremony. “It marks the beginning of a new and broader relationship between our companies.” Igor Sechin, former Rosneft chairman and the architect of the deal, pointed out that the enormous potential for the U.S.-Russia cooperation could help the countries “overcome [their] over-politicized relationship.”

While the oil majors celebrated these achievements, some analysts pointed out that the deal represents Rosneft’s official legitimization of the assets stolen from Yukos and its shareholders, including hundreds of American investors.

Founder of the Committee for Russian Economic Freedom Pavel Ivlev has criticized Exxon’s decision to work with Rosneft. In his statement, quoted by the Financial Times, he said: “As it becomes a key partner to a Kremlin-run concern, Exxon can either play a formative role in pushing for much-needed rule of law protections in Russia or it will bear responsibility for abetting the Putin regime as it launders its ill-gotten gains and seeks to expand its personal wealth at the expense of the Russian people.”

Former Yukos CFO and CREF’s expert Bruce Misamore responded to the news with an op-ed in the Moscow Times. “Exxon is investing with a company whose largest assets were stolen from Yukos shareholders by the Russian government. What is ‘legitimate’ about theft? […] There is no doubt that [former Yukos] shareholders would not agree with the Kremlin’s toadies that any form of ‘legitimization’ whatsoever has occurred,” he wrote.

In a letter to the editor of the Washington Times, Misamore also noted that in September 2011, the European Court of Human Rights ruled that the tax and legal actions that led to Yukos’ forced bankruptcy were illegal. Today, former Yukos assets comprise up to three-quarters of Rosneft’s value.

According to Misamore, “The court has asked both sides to begin “just satisfaction” negotiations, which, in effect, means a price tag will be placed on Russia’s penalty. Yukos will soon submit its significant request for reparations, and the ball will then be firmly in Russia’s court.”

In other words, Exxon and other foreign investors must be very brave to be doing business with the Kremlin. They seem well aware of the risks. They should keep in mind that if justice is restored and the stolen assets are ever returned to Yukos, the reparations for its shareholders could be collected from Rosneft’s partners.

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