In Russia, Finding Oil Was the Easy Part

Photographer: Alexander Zemlianichenko Jr./Bloomberg

The logo of OAO Rosneft sits on a plaque outside the company's headquarters in Moscow. Close

The logo of OAO Rosneft sits on a plaque outside the company's headquarters in Moscow.

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Photographer: Alexander Zemlianichenko Jr./Bloomberg

The logo of OAO Rosneft sits on a plaque outside the company's headquarters in Moscow.

Cross-posted from the Bloomberg.com daily newsletter "The Market Now." Click here to subscribe.

The great natural wealth of Russia has long been a magnet for Western businesses that see the pot of gold over the rainbow and figure that somehow they’ll find the path there. That hasn’t always gone so well.

BP Plc today looks closer to extricating itself from its complicated and contentious Russian joint venture . The TNK-BP venture, which accounts for a quarter of BP’s global production, has seen a series of clashes between BP and its Russian partners. In 2008 Bob Dudley, now BP’s chief executive, was forced to resign as head of TNK-BP and leave Russia. 

BP’s billionaire partners are said to be close to a deal to sell their half of the joint venture to Russia’s state-run oil company, OAO Rosneft, for $28 billion. That would likely pave the way for BP to sell its half of the joint venture as well. Such a deal would consolidate power in the hands of Rosneft, and relieve BP of an ill-fated effort it was not in a position to run.

Two takeaways for Western energy companies here: One is that even if it’s harder to actually get out of the ground, the oil wealth closer to home may be the easier to cash in on. Thus today’s Exxon-Mobil Corp. deal to buy Calgary-based Celtic Exploration Inc., adding to Exxon Mobil’s holdings of fields where oil and gas can be extracted by hydraulic fracturing, or ‘fracking.’

The other is that no matter how attractive the asset, it’s not worth a lot if you don’t really own it. An extreme example of that comes in a story from Egypt today. There the ownership of companies handed over in a controversial and corruption-plagued privatization, in some cases as long as twenty years ago, is still in dispute.The upside here may be for Western ‘energy independence’ (a recurrent topic in last night’s presidential debate). Western governments have encouraged energy companies to look for resources closer to home. Arguably, though, no government has been quite as viscerally persuasive on this as Vladimir Putin’s.

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