Exxon Strives to Stay On Russia's Good Side

The Wall Street Journal ^ | May 7, 2007 | GREGORY L. WHITE and JEFFREY BALL

[MinorityRepublican]

NOGLIKI, Russia -- On the beach of Sakhalin Island, some of the roughest, remotest terrain in the world, Exxon Mobil Corp. scored a major technical victory last month: It finished drilling a seven-mile-long hole, the longest between an onshore oil rig and an undersea oil field. Done in record time, the well marked a triumph in Exxon's bid to unlock one of the planet's juiciest remaining oil troves.

But the technological difficulty of Exxon's multibillion-dollar Russian odyssey pales beside a slew of political challenges. The world's largest publicly traded oil company has clashed repeatedly with Russian authorities over various details of the project -- details crucial, in Exxon's mind, to maximizing the project's profitability. The fights boil down to a basic difference in approach between the oil company and the oil-rich country. For Exxon, the motive is money. For Russia, it's a complex stew of politics and profit.

The slog by Exxon and its chief executive, Rex Tillerson, to maintain its famous efficiency in infamously inefficient Russia shows how Big Oil is adapting to a power shift in the energy world. With most of the big fossil-fuel stores in the West already tapped, oil companies have been moving to the less politically predictable countries where the most alluring fields remain. Initially, those oil-rich governments, from Russia to South America to West Africa, largely deferred to Western companies they hired to harvest their hydrocarbons. Now, emboldened by rising energy demand, those governments are increasingly calling the shots.

Angola, Algeria and Libya all have recently ratcheted up their take, raising taxes on foreign oil companies or demanding bigger ownership stakes. Venezuela's President Hugo Chávez has been particularly aggressive, demanding that Western companies give the state a 60% stake in heavy-oil projects in the country.