Exxon Mobil Corp has cited U.S. and European sanctions against Russia in announcing that it is abandoning its joint ventures with Russian state-run oil giant Rosneft.
The move late on February 28 signaled that the largest U.S. oil company is giving up on its fight against U.S. sanctions imposed since 2014 over Russia's aggression in Ukraine.
Exxon, which was headed by U.S. Secretary of State Rex Tillerson before he joined the government, had argued that the sanctions unfairly penalize U.S. firms while allowing foreign rivals such as China's big oil companies to operate freely in Russia, which is currently the world's largest oil producer.
Exxon’s 2013 agreement with Rosneft to explore potentially lucrative Russian oil fields from the Arctic Sea to the Black Sea was Tillerson's crowning achievement during his 11 years at the company.
Russian President Vladimir Putin personally blessed the arrangement, which envisioned decades of exploration in some of Russia's richest untouched fields. The two companies planned to spend as much as $500 billion on their joint projects.
Exxon said in a securities filing on February 28 that its decision to abandon its biggest exploration region was made late last year as the U.S. expanded sanctions against Russia.
"The corporation expects it will formally initiate the withdrawal in 2018," Exxon said, adding that it recorded an after-tax loss of $200 million for the withdrawal in the fourth quarter of 2017.
The U.S. State Department, Treasury Department, and Rosneft did not immediately comment on Exxon's announcement.
While the U.S. and European sanctions against Russian oil companies were initially designed to allow existing business agreements to be carried out, Exxon found that they were increasingly hampering its projects.
The sanctions slowed work on a joint Exxon-Rosneft project hailed as a major discovery in the Kara Sea above the Arctic Circle. Rosneft said last year that it planned to resume operations on the project in 2019.
The announcement does not affect Exxon's massive Sakhalin oil and natural gas drilling project off the eastern coast of Russia, Exxon said.
Exxon for years had looked to its Russian holdings as a driver of growth both in its revenues and oil reserves. As it has slowly given up on various Russian projects, the company has struggled to find new sources of growth.
Exxon's oil output has dropped in five of the last six years. The company has made several acquisitions, including in the Permian Basin shale deposits in the U.S. states of Texas and New Mexico, while shifting its focus from Russia to offshore drilling in Guyana, Brazil, Mozambique, East Africa, and elsewhere.
The United States and the European Union first imposed economic sanctions on Russia in 2014 over its annexation of Crimea and backing of pro-Russia separatists in eastern Ukraine. The U.S. government also imposed sanctions on Rosneft Chief Executive Igor Sechin that year.
The sanctions were strengthened and codified in a U.S. law passed last year, and the U.S. government has been preparing what it says will be a new round of sanctions this year targeting wealthy and powerful Russians close to Putin.
The sanctions prohibit U.S. citizens or businesses from dealing with blacklisted individuals such as Sechin. Rosneft itself is subject to narrower U.S. sanctions that still allow Americans to deal with the company on some transactions.
The U.S. government had fined Exxon $2 million for signing its previously negotiated joint ventures with Rosneft just after sanctions were imposed in 2014, saying the company showed a "reckless disregard" for the sanctions.
Exxon had argued that the joint venture agreement predated the sanctions. It called the U.S. fine "capricious," and appealed it in the courts.
Despite its public argument against the sanctions, Exxon quietly wound down drilling projects in Russia's Arctic after the sanctions went into effect.