ExxonMobil Begins Kara Sea Drilling Despite Russia Sanctions - Analyst Blog

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U.S. energy behemoth ExxonMobil Corporation ( XOM ) and Rosneft - Russia's biggest oil producer - are moving together despite the ongoing Ukrainian imbroglio between Russia and the Western world. The joint venture company Karmorneftegaz has began drilling of Universitetskaya-1, the Russian Federation's northernmost well using the West Alpha rig. The West Alpha rig was provided by the Norwegian company North Atlantic Drilling which signed long-term agreements with Rosneft on Jul 30, 2014 for offshore drilling.

Russian President Vladimir Putin launched the drilling during a teleconference with the head of Rosneft Igor Sechin and head of ExxonMobil Russia Glenn Waller, who were both present in the Kara Sea. The drilling will continue for two months.

The inception of drilling gains prominence in the current environment of sanctions looming large over Russia on account of the Ukraine impasse. Rosneft was added to the list of Russian companies under U.S. sanctions last month. If Russia and Ukraine iron out their differences, the largest beneficiary would be British energy giant, BP plc ( BP ) which owns almost one-fifth stake in Rosneft and accounts for a tenth of its total market cap.

Exxon Mobil is the world's largest publicly traded oil company, engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses. Approximately four-fifth of Exxon Mobil's earnings come from its operations outside the U.S.

Exxon Mobil is one of the world's best-run integrated oil companies given its track record of superior returns on capital employed. The energy giant has long been a core holding for investors seeking a defensive name with continued dividend growth. Exxon Mobil is fairly active in its investment program. The company plans to spend about $185 billion over the next five years, up 29% from the last five-year period.

ExxonMobil's strength lies in its balanced operations, strong financial flexibility, steady improvement in efficiency and cost control. The company's efforts to build an unconventional resource portfolio both in North America and overseas are aimed at increasing production through wider exposure to large energy resources with a long reserve life and low field declines. However, we are skeptical about the company's near-term performance due to its muddled refining fortunes.

Exxon Mobil holds a Zacks Rank #3 (Hold). However, in the near term, stocks like Sunoco Logistics Partners L.P. ( SXL ) and Western Gas Equity Partners, LP ( WGP ) with a Zacks Rank #1 (Strong Buy) are expected to outperform the market.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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