Russian oil giant Rosneft has just bought nearly one-third of the Norway’s North Atlantic Drilling Ltd. (NADL), which wants to do more business with the Kremlin-run oil company despite Western sanctions.
In deals first announced in May and signed over the past three months, NADL will let Rosneft use six Norwegian offshore rigs to drill for oil until 2022, and simultaneously sell the Russian company 30 percent of its shares for $0.25, for a total of $4.25 billion.
The deals went through despite two sets of sanctions imposed by the United States and the European Union on Moscow in response to its annexation of Ukraine’s Crimean peninsula and its suspected support of pro-Russian separatists in eastern Ukraine.
The sanctions didn’t prevent Rosneft and NADL from signing the agreement, but they could make it difficult for Rosneft to get access to Western loans needed to carry out the contract. But Reuters quotes a source close to the deal as saying that a key part of the transaction is an asset swap involving the rigs, limiting the amount of cash from Rosneft.
NADL evidently is so pleased with the deal that CEO Alf Ragnar Lovdal said Aug. 28 he hopes his company can do more business with Rosneft.
“I hope we can work closely with them for many years and I hope we can expand that business with them and others because I believe there is a big future in the Arctic,” Lovdal said. “There are a lot of wells to be drilled in the coming years.”
The Norwegian government didn’t join the EU and United States in imposing sanctions on Russia earlier this year, but it did enact its own in August. Still, NADL managed to sidestep the current bans by signing the contract with Rosneft a few days before Aug. 1 – the day the EU banned the export to Russia of technology needed for Arctic exploration, a specialty of the Norwegian company.
The EU may yet expand its sanctions, but Lovdal said he believes NADL’s deal with Rosneft complies with current rules. “So far it’s okay,” he said. “If there is a change [in sanctions], we have to revisit. For us, we have to work within the rules and regulations at the time [we sign a deal].”
Meanwhile, Rosneft CEO Igor Sechin says his customers shouldn’t worry about the stability of oil supplies from Russia. In an interview published Aug. 31 in the German magazine Der Spiegel, he said, “Rosneft and other Russian companies will strictly adhere to their supply contracts that are secured by loans and contractual penalties.”
Sechin said Rosneft also would adhere to the standards of the London stock exchange, where its shares are traded.
By Andy Tully of Oilprice.com
Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com