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ExxonMobil’s planned strategic alliance with Rosneft clearly gives the US super major a lead over it peers in exploring the Russian Arctic.  But what does the deal mean for Russia’s state oil company?

In the first place, the alliance with Exxon is an international image boost not just for Rosneft, but for Russia Inc, which suffered badly in the collapse of  a similar agreement with BP earlier this year.

The deal, that will see the two companies invest $3.2bn in exploration in the Arctic offshore and Black Sea,  is also a personal success for Igor Sechin, Russia’s deputy prime minister and oil tsar pictured above), who lost face after the oligarch partners in BP’s TNK-BP joint venture blocked the Sechin-sponored BP-Rosneft alliance.

Exxon, bigger and richer than BP and a symbol of US corporate power, is an even more prestigious partner for Rosneft than the UK major, which is still struggling to restore its reputation after the disastrous Gulf of Mexico spill last year.

Rosneft was the lame duck of the Russian oil industry until it bagged huge assets during the controversial bankruptcy of Yukos in 2003 that transformed it overnight into Russia’s biggest oil producer. Since then the company has been trying, not very successfully, to carve a role as an international major.

Exxon can help here. While BP offered to swap shares with Rosneft , Exxon has held out a less controversial carrot, pledging to help the Russian company internationalise by sharing access to oil reserves in the US and other countries. No projects have been identified yet and analysts warn that deals could take a long time to materialise. But the promise is there.

Rosneft may perhaps hope that Exxon will become an equity partner at a later date. Government  plans to offload part of its 51 per cent stake at privatizations before 2013 could provide an opportunity – although Exxon may baulk at buying shares as long as Rosneft is the target law suits related to the Yukos affair.

In the meantime, association with the world’s largest oil company by market capitalisation has given a boost to Rosneft’s standing among investors. Shares in the company have risen by 10 per cent this week.

Exxon is a world leader in Arctic exploration and is willing not only to share its expertise with Rosneft but also transfer technology to Russia. The two companies plan to invest up to  $450m in an Arctic research center in St Petersburg to develop ice class drilling platforms on Russian soil. The US company also brings extensive offshore experience to Russia which is only now beginning to develop the vast oil and gas resources on its continental shelf.

As a state company, Rosneft enjoys privileges that are the envy of its Russian peers. But even it has suffered from the destablising shifts in government tax policy such as the sudden withdrawal this year of export duty breaks at Vankor, its flagship east Siberian oil project.

Rex Tillerson, Exxon’s chairman, signalled yesterday that his company would add to pressure for improvements to the fiscal regime, saying that the government’s promise to reform oil taxation had encouraged Exxon to go ahead with the Rosneft deal.

Exxon has experienced many difficulties during its 16-year history in Russia, but unlike BP which went public during repeated conflicts with its oligarch shareholders, it has been discrete about its disputes with its partners and the authorities.

While it is important for Rosneft to make the Exxon deal work, only time will tell if Russia’s most powerful oil company can protect its US partner from rival interests in Russia over the long term.

Related reading:
Exxon/Rosneft: BP out in the cold, Lex
BP: another mauling in Moscow, beyondbrics
Rosneft: a new bride at the altar, beyondbrics
BP offices in Moscow raided, FT
FT Alphaville: Time to get your Roxxon…
Moody’s: BP-Rosneft collapse will hurt TNK-BP as much as BP, FT
Exxon shows surer tread in following BP’s path
Russia’s oil tax hike: winners and losers, beyondbrics