Tillerson played a key role in the development of the Sakhalin-I oilfield, in which ONGC Videsh Ltd is a consortium partner.
New Delhi: While US president-elect Donald Trump’s choice for secretary of state, Rex Tillerson, may be somewhat of a question mark amongst Indian diplomatic circles, he has been a familiar, friendly face for top Indian oilmen scouting and maintaining overseas acquisition.
Trump nominated Tillerson on Tuesday after toying with a number of other candidates. The veteran oilman’s “dealmaking” skills impressed the real estate tycoon-turned-politician. But, the ExxonMobil chief executive officer’s close Russia links are already proving controversial, in the wake of accusations by the CIA of Russia influencing elections to favour Trump. Some senior Republican senators have already announced theirs “concerns”, especially over Tillerson’s 2012 Russian Order of Friendship – the highest award Moscow grants foreigners.
In February 2001, the Indian government-run ONGC Videsh Ltd, the public-sector exploration firm ONGC’s overseas arm, inked an agreement with the Russian national oil company, Rosneft, to acquire a 20% participating interest in the Sakhalin-1 offshore project located in the freezing waters of the norther Pacific. At $1.7 billion (over Rs 8000 crore), the Sakhalin deal was ONGC Videsh’s largest ever overseas investment at the time. Sakahalin-I has known reserves of approximately 2.3 million barrels and current output is 250,000 barrels per day.
It is ExxonMobil’s involvement with the Sakhalin project that has given India given a crucial, if limited link with Tillerson.
Over the years, the ExxonMobil CEO has met state-run ONGC officials, mostly in connection with the Sakhalin-1 project in Russia, which he has described as being one of his proudest achievement.
R.S. Butola, who retired as Indian Oil chairman and managing director, had met with Tillerson on the sidelines of various international oil and gas conferences around the world during his stint as head of ONGC Videsh.
“Sometimes, we met at the OPEC conference in Geneva or an event in Vietnam. Since Exxon was our partner (in Sakhalin), we would always have a meeting,” Butola told The Wire.
ExxonMobil was the operator of the Sakhalin-1 project, signing off the papers in 1996 for the remote Russian oilfield off Siberia.
In order to guarantee there were no hiccups from Moscow, Rosneft was drafted into the project. According to a 2012 book on ExxonMobil, this was apparently Rex Tillerson’s idea, who was by then the lead executive on Russia.
Tillerson formed a friendship with the Sakhalin governor and decided to rope in a state-owned Russian oil firm as a project partner, so that ExxonMobil and the Russian government would be “on the same side of the table”, as Tillerson put it later, if disputes over the project rose. [Private Empire: ExxonMobil and American Power by Steve Coll]
In 2015, Tillerson received the Petroleum Executive of the Year aware at a dinner in London. He reflected on his 30-plus years in the petroleum industry, where he specifically mentioned Sakhalin-1 as a personal triumph:
“One of the projects that I take a lot of personal pride in is the Sakhalin-1 project in sub-arctic Russia. Technologically, it is a marvel. Resources that were discovered in the 1970s had to wait for the technical and engineering solutions to commercialise them and add them to the global energy supply.
“Off the coast of Sakhalin Island, the conditions are harsh. Severe wave activity is the norm and the pack ice which can be up to five-feet thick is mobile and persists for much of the year.
“Yet, we have pioneered technologies that have allowed us to drill record-breaking horizontal wells from a land-based drilling rig to reach the oil and natural gas more than 13 kilometers away under the ocean floor. And the initial development investment decisions at Sakhalin were taken in an oil price environment that was lower than today’s.”
When India bought into the project, there were several nay-sayers. An India Today article in June 2001 raised concerns about the commercial viability of the Indian investment in the Russian project. Calling it a ‘slippery deal’, the magazine wrote: “In terms of economic rationale, the deal is simply scandalous.”
The NDA government stoutly defended the deal. In the Rajya Sabha, the NDA government said in a written reply on August 7, 2001 that “internationally reputed consultants” like JP Morgan and Gaffney, Cline & Associates had assured them of “high quality investment opportunity with attractive returns”.
Five years later, in 2006, a Russian tanker berthed at New Mangalore port with India’s first share of Sakhalin-I oil. An elaborately bottled sample was handed over ceremoniously by the Russian ambassador to Murli Deora, who was Indian petroleum minister Murli Deora at the time.
Butola, who was OVL managing director from 2004 to 2010, gave credit for India’s experience of Sakhalin-1 being a rather smooth one, on ExxonMobil’s operation of the oilfield.
“It is because of Exxon that the project, despite being a greenfield in Sakhalin where there were hardly any facilities, went off very well. They managed the Russian government and bureaucracy in a very good way. It was rather professional and exemplary,” he said. Exxon kept 30%; apart from OVL, its other partners in the international consortium were Japan’s SODECO (30%) and two Rosneft affiliates that held 20%.
The veteran oilman pointed out that Exxon had “also taken a tough stance” with the Russian government “when required”. “They worked with the Russians quite professionally and intelligently,” he said.
In Steve Coll’s book, Tillerson is portrayed as someone who played hardball with the Russians on the issue of obtaining cast-iron legal protection for the Sakhalin-1 contract. Getting not much traction at the lower level, he escalated the matter right up to the Russian president, Vladimir Putin.
Putin offered to write out an executive order saying that Sakhalin-1 could proceed, but Tillerson refused. Putin did not have enough legal authority to satisfy ExxonMobil; Tillerson said he did not want to operate by decree, but by durable laws. Tillerson “wanted to have all the t’s crossed and I’s dotted exactly according to Russian law and regulation, and if we couldn’t get it done, then we were not going to do it,” the former executive remembered. Ultimately, after Putin “blew his stack” at ExxonMobil’s affront, the Russian President agreed. [Private Empire: ExxonMobil and American Power]
Coll further notes that the “corporation and country where it sought to deepen its investments had similar personality traits”. “ExxonMobil’s executives convinced themselves that their earlier firmness had brought Putin around on Sakhalin,” he writes.
Butola explained that Sakhalin-1 was a “grandfathered project” approved by parliament in which the terms and conditions could not change. “There was fiscal stability. Exxon obviously worked hard on it. If you remember, it was the first there (in Sakhalin). There was no development there, so Russian side also need to foreign technology, foreign investment… You could see that the Russian side regarded them (Exxon) well for their ability”.
Butola met Tillerson when both were heading each other’s firms in the mid-2000s. “Since he had worked on the initial aspect of Sakhalin project, we had a good equation as a company with him,” he noted.
During those informal meetings, Butola and Tillerson used to review the Sakhalin-1 project. In turn, Butola also tried to convince the ExxonMobil CEO to look at India seriously for oil exploration ventures. “I told him that ONGC was a willing partner if Exxon wanted to enter the Indian market… Of course, Exxon could not ever come to India, the opportunities were much less in their calculation. But, my sense remained that he had a good regard for ONGC,” he said. ExxonMobil has a strong presence in India mainly in the automotive lubricant sector.