It is interesting to read all of the recent commentary criticizing the global oil and gas companies for continuing their ongoing dialogue with Russia (meaning President Putin and his close allies) about future investments in Russia to tap into the country's vast hydrocarbon resource base.
Let's look at some simple facts:
1. A dearth of credible energy investment projects globally;
2. Declining rates of global oil and gas production and anemic reserve replacement rates by the so-called "Super Majors"; and
3. The expected demand growth in the emerging ("BRICs") and newly emerging economies ("MINTs") of the World.
So, is it really unusual to continue this constructive dialogue with Russia knowing full well what is at stake in the energy arena, as well as knowing that the "teeth" behind the US/EU sanctions are relatively weak? Or, should these international oil companies, or IOCs, take a back seat to the continuing trend of resource nationalization that has been quite evident over the past five to six years?
I believe these companies are completely right to continue these constructive dialogues with Russia to secure future oil and gas exploration and development projects rather than face the risk of losing these opportunities to national oil companies, or NOCs. These companies (also meaning Boards of Directors) have an obligation to their shareholders to invest in upstream opportunities that secure sustainable future resources despite the potential risk of further economic sanctions. Quite frankly, we are talking about long-lived oil and gas projects that clearly will extend beyond any reasonable time period of this current geopolitical crisis; therefore, it is imperative that these IOCs maintain their constructive dialogues with their Russian counterparts to secure the rights to participate in the future development of these vast resources both in the Arctic region as well as the potential to extract shale oil in Western Siberia.
Having worked in the oil and gas industry in various capacities for over 30 years I have always taken a pragmatic approach to issues confronting the industry whether it is political, social, or environmental, and the trends over the past several decades clearly favor those companies that take a long-term strategic view. Many of the projects being discussed in Russia are long term in nature and require vast amounts of investment capital to realize. Moreover, the vast amounts of money already spent by these IOCs to secure their current positions in Russia favors a more pragmatic approach to this current geopolitical situation versus the simple question of "in" or "out" based on the present lack of diplomacy and failed attempts to sanction Russia.
Russia is and will continue to be a crucial player in the global oil and gas industry, and the country's current pivot to the East is one more example of its growing role in supplying consuming nations with ample supplies of both crude oil and natural gas. As the industry continues to venture further into the Arctic zone it also becomes crucial that the IOCs stake out their respective positions with Russian energy companies because of the significant hydrocarbon resources that border Russia.
According to the US Geological Survey ("USGS"), the Arctic region contains approximately 20% of the World's undiscovered oil resources and approximately 30% of the World's undiscovered natural gas resources, and according to estimates from the USGS, Russia contains approximately 75% and 90% of those resources, respectively.
Without question, senior executives at these IOCs fully understand what is at risk and have made the right strategic decision, in my opinion, to maintain a constructive dialogue with Russia despite the threat of future economic sanctions. Let's stop the criticism.