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ConocoPhillips sells stake in Rosneft joint venture

Five years ago, U.S. oil major ConocoPhillips (ticker: COP) sold its single largest asset in Russia, a stake in Lukoil (ticker: LKOH), for $9.5 billion.

Last week COP announced that it has sold its 50% stake in the Polar Lights joint venture with Russian state-owned oil company Rosneft (ticker: RNFTF), its last project in Russia. The recent sale ends ConocoPhillips’ quarter century stint in Russia.

ConocoPhillips was one of the first Western companies to invest in Russia following the fall of the Soviet Union, with the registration for its Polar Lights JV made in 1992. Disappointing returns, along with political difficulties associated with operating in Russia, led COP to divest Russian projects.

Initial production on the Polar Lights project was approximately 14 MMBO per year, but has since declined to 8,200 MBOPD, reports Reuters. The Polar Lights Production represents just 0.5% of COP’s 1.5 MMBOEPD in total production reported this year.

ConocoPhillips and other U.S. oil companies are increasingly facing difficult times as oil prices remain near historic lows, and credit ratings could be lowered. COP, along with most other oil and gas companies, cut its budget for a second year in a row for 2016, expecting that it will spend $7.7 billion next year.

Rosneft also sold its stake in the project last week in a deal valued at $150-$200 million, reports Financial Times.

Tehran and Moscow look to further cooperation

Following news last week that Iran had contracted Russia’s Red Barricades shipyard to construct offshore platforms “for decades,” according to the shipyard’s director Alexander Ilyichev, and that Iranian company Naseem Bahr Kish would take a controlling stake in the Solyanka port in Russia, Tehran and Moscow announced further cooperation in natural gas.

The National Iranian Gas Company (NIGC) and Russia’s state-owned gas monopoly Gazprom (ticker: OGZPY) announced plans for joint engineering, operation, commercial and research projects, according to Iranian news agency Shana.

“It is evident that the world needs gas and that Iran and Russia can use such a rich capacity to pursue their joint objectives in this field,” said NIGC Managing Director Hamid-Reza Araqi following a meeting with Gazprom Deputy Chairman Alexander Medvedev.

Shana Russians and Iranians at NIGC Gazprom Meeting

The pivot to the (middle) east

Increased cooperation between Russia and Iran comes as part of Russia’s plan to pivot away from its traditional markets in Western Europe. Moscow has increasingly looked to China as a customer and source of financial backing since the implementation of sanctions in the U.S. and Western Europe following the annexation of Crimea, but relations are from perfect between China and Russia.

“The problem is [Asia has] seen Russia coming, and they understand that Russia really needs to sell its gas, meaning [Asia] can drive a very hard bargain” Dr. James Henderson of the Oxford Institute for Energy Studies told Oil & Gas 360®. “It would be great if [Russia made a successful pivot to Asia]. It would be very useful, but I think what Russia is going to find is that they are going to have a much smaller pivot to Asia over the next ten years, which will leave them very dependent on their Western exports.”

Dr. Derek Scissors, a China expert at George Washington University, said that while Russia is a significant partner to China in terms of energy trade, Russia makes things seem better than they are in reality.

“The Russians are in contention this year to be the second largest supplier this year behind the Saudis for the Chinese in oil, so I don’t mean to say that China and Russia don’t have a significant energy relationship, because they do, but a lot of things the Russians say about their relationship with China are just out-and-out lies.

“I don’t think it would surprise anyone if none of those contracts came to fruition. The Russians are always hoping for pricing the Chinese don’t want to give them, especially in the current environment, said Scissors. “No one should be surprised if none of the gas shipments materialize. In fact, the largest supplier of LPG to China is the U.S., so we’re much more competitive on price to China than the Russians are, in that sector at least. “

As the outlook with China becomes increasingly pessimistic, Russia could be looking to diversify its options by looking for partners in the Middle East. Tehran seems to be a much more willing partner as the country looks to attract some $280 billion to completely revitalize its oil and gas industry.

Russia offers Iran a $5 billion loan as debt reaches $100 billion

Russia’s Minister of Industry and Trade Denis Manturov said last week that Russia may grant a public loan to Iran worth $5 billion next year pending the implementation of the deal’s “formalities.”

“I think in case we manage to settle all formalities in the first quarter of 2016, [the loans] may be implemented next year,” said Manturov.

The loan is part of larger cooperation between Russia and Iran that Russian President Vladimir Putin and his Iranian counterpart Hassan Rouhani announced in November, reports TASS.

“We plan to enliven industrial cooperation,” said Putin. The Russian president added that the two sides have selected 35 priority projects in the areas of energy, construction, sea terminals and railways to focus on as they expand their cooperation.

Other Western companies trying to keep foothold in Russia

Despite ConocoPhillips’ decision to exit Russia after a quarter of a century, and Russia’s pivot away from Western markets, some Western companies are continuing to keep operations in Russia. In June, BP (ticker: BP) agreed to pay $750 million for a stake in a Rosneft project. Others, such as ExxonMobil (ticker: XOM), appear to be waiting for political conditions to change, reports FT.

Matthew Sagers, senior director of Russia & Caspian Energy at IHS, summed up the attitude of these companies as: “Don’t bet the company, don’t take a big risk, but don’t take your finger out of Russia.”

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