Political pundits were generally aghast when President Donald J. Trump appointed then-CEO of Exxon Mobil Corporation (NYSE:XOM), Rex Tillerson, to the post of Secretary of State. The prevailing wisdom that somehow this position had to be filled by someone from government, with political experience, was blown to bits.
Welcome to the Trump administration, which is defining itself by blowing up the way things are “normally done.”
Since that announcement, other news have altered my theory regarding why Tillerson was named, but only cosmetically, and I believe it is very good news for XOM shareholders over the long term.
Few people had likely heard of the joint venture between XOM and Russia’s state-owned oil exploration and production operation, Rosneft (OTCMKTS:RNFTF). Exxon created a strategic agreement to “establish the framework for joint oil exploration and production in Russia, the United States, and other countries,” according to Exxon. Ten joint ventures for projects in the Russian Arctic, Black Sea and Siberia have since been set up.
Of course, pushing this forward became difficult because the U.S. placed sanctions on Russia.
My expectation had been that Trump would lift sanctions on Russia in exchange for some kind of agreement to partner on attacking Isis, or some cosmetic withdrawal from Crimea or Ukraine. Then, Exxon could get back to work with Rosneft. Who better to negotiate this deal with Putin that the most recent CEO of Exxon Mobil?
In a shocking coincidence (yes, that’s sarcasm), Putin suddenly announced that it had sold 19.5% stake in Rosneft to a mysterious Singapore investment group, allegedly a 50-50 JV between Swiss and Qatari oil firms. Yet, nobody seems to know who funded about 25% of the purchase, and why some portion of the ownership is a Cayman Islands company belonging to an unidentified owner.
My working theory is that Trump is all about deals. Say what you will about Putin, but at the end of the day, politics is about deals. Putin will make deals. Not only is Tillerson a deal-maker, but he knows politics. He’s been all over the world, traversing all kinds of political landscapes to make deals for his global oil company! Duh!
All of these moving parts are, I believe, geared toward moving the XOM-Rosneft projects forward. I’m going to guess that something about the Russian sanctions may not apply if Russia owns less than a certain amount.
After this sale, the Russian state owns about 55%. Interestingly, BP plc (ADR) (NYSE:BP) also owns a 20% stake in Rosneft. About 5% is publicly traded. If Russian state ownership falls under 50%, and we see Rosneft’s projects start up, we’ll have our answer.
I’m also willing to bet that the mysterious buyers of this recent sale are ultimately tied directly to the Russian state or Putin himself. It just looks like it isn’t.
Now, what does this mean for Exxon Mobil stock? It’s all good. The Russian Arctic is expected to hold tons of oil, not to mention the other areas of the joint venture. One has to assume that XOM stock is going to benefit because Exxon has already deployed assets and human capital over there. It may not exactly be a matter of flipping a switch, but the projects are much farther along than trying to hunt and contract for new areas to explore.
Nor does XOM have to get involved with the bad PR that would result from wanting to drill in protected areas here in the U.S.
Thus, XOM is in the catbird seat. Russia wants the oil, also, so both countries can be less dependent on oil from the Middle East. That could also mean the countries will partner on trying to eradicate Radical Islamic terrorism. That’s never a bad thing.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
