siem pilot platform supply vessel

Exxon, Rosneft Scrap Arctic OSV Charters as Russia Sanctions Bite

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December 1, 2014

Siem Pilot, file photo courtesy Siem Offshore

By Mikael Holter

Dec. 1 (Bloomberg) — Exxon Mobil Corp. and OAO Rosneft terminated contracts for five service vessels operated by Norway’s Siem Offshore Inc. and Rem Offshore ASA as sanctions upend plans to explore the Russian Arctic.

Siem received termination notices from an Exxon and Rosneft joint venture on contracts for work next year in the Kara Sea for two of its anchor-handling tug supply vessels and a platform supply ship, the Kristiansand, Norway-based company said in a statement today. Rem had contracts for two platform-supply vessels terminated, it said in a separate statement. Both companies will receive termination fees, they said.

Rem “assumes” the cancellations are due to U.S. sanctions against Russia, Chief Executive Officer Aage Remoey said in a phone interview. “Rosneft has never indicated that they’ve been dissatisfied with the work we’ve done.”

U.S. and European Union sanctions against Russia over its involvement in Ukraine are jeopardizing Rosneft’s plans to explore Russia’s Arctic waters with western companies such as Exxon after the two made a 1 billion-barrel discovery in the Kara Sea in September. Exxon is looking for alternative assignments for the West Alpha rig that made the discovery and was supposed to return to the Kara Sea for more drilling next summer, it said last month.

Shares Decline

Siem fell as much as 11 percent in Oslo trading, and traded 5.1 percent lower at 3.75 kroner by 11.56 a.m., the lowest level since November 2005. Rem, which is based in Fosnavaag and is listed on a secondary Oslo exchange, was unchanged at 65 kroner.

Norway has followed EU sanctions against Russia although it’s not a member of the 28-nation bloc. Still, Norwegian sanctions wouldn’t have affected Rem’s contract with the Karmorneftegaz SARL joint venture because the deals were signed before sanctions were decided this year.

Siem Chief Executive Officer Terje Soerensen didn’t immediately answer calls to his office phone and mobile phone seeking comment. Rosneft’s press office didn’t immediately provide a comment.

North Atlantic Drilling Ltd., the company controlled by billionaire John Fredriksen that owns the West Alpha, has also delayed a deal it signed with Rosneft that includes $4.25 billion in contracts for offshore rigs.

Sanctions Effect

Rosneft, Russia’s biggest oil company, has said sanctions won’t prevent it from exploring the Kara Sea and other parts of the Arctic. The company will present plans for the Arctic without Exxon by the end of the year, news agency Interfax said last month.

Russia’s OAO Gazprom has rigs capable of working in the Kara Sea from April next year if needed, Deputy Energy Minister Kirill Molodtsov said in October.

Rem has signed new contracts for its two platform supply vessels with Exxon for work offshore Norway with a duration to June 1, 2015 and about Oct. 1, 2015 for the Rem Server and Rem Supporter, respectively, the company said.

The rates on the new contracts are lower than the previous deals, CEO Remoey said. He declined to provide the specific rates or to comment on the size of the termination fee for the previous contracts.

–With assistance from Elena Mazneva in Moscow.

Copyright 2014 Bloomberg.

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