Dividends and Exxon exits Russia after Russia terminates its interests in oil project

At one time Standard Oil control by John D Rockefeller controlled the oil markets of the world. It was the biggest, it had interests in oil drilling, oil and gas pipelines, refineries, and where ever in the world where oil could be found Standard was there. Eventually, the company was broken up to 7 different companies and over the years, Standard Oil became Exxon which is headquarter in Houston, Texas. Exxon continued to have operations around the world although in many countries it is a joint venture with the government or government favored company.

As the world knows, Russia is a major oil and gas producer and was selling 40% of Europe’s needs. Russia also provides China with oil and gas, which is why China remains friendly with Russia. When Russia invaded the Ukraine, Europe and America put sanctions on Russia and forced many companies to stop doing operations in Russia. It takes time to stop operations, unless the company is willing to take millions or billions in write downs of its operations. Exxon has been in Russia for decades and over the years have invested heavily in bringing oil for the Siberia. The winters are long, the summers short and the land is often more bog or waterlogged, but there is lots of oil.

In an article by Sabrina Valle of Reuters, Exxon announced it is out of Russia because President Putin expropriated its properties after 7 months of discussions over an orderly transfer of its 30% stake in an oil project. The 30% stake was valued at $4 billion. Exxon’s partners in the oil field were Rosneft, India’s ONGC and Japan’s SODECO.

Exxon took a $3.4 billion write down in April and a $600 million write-down in the 3rd quarter. On October 7, President Putin seized Exxon’s shares and transferred them to a government-controlled company. The other partners under the order can increase their ownership stake.

Linking to dividend paying stocks, companies that operate outside of the US will run into countries that operate differently. There are remedies when a government expropriates which include courts and lawyers and government pressure, but they take time and sometimes it means new leadership in the country. (in Cuba, companies whose properties were expropriated are still waiting, but companies can wait a long time). The companies will move on to other venues in the world for their operations or they have flexibility.

There are more questions than answers, till the next time – to raising questions.

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