U.S. Denies Exxon Bid for Waiver on Russia Sanctions -- 4th Update

By Jay Solomon and Bradley Olson Features Dow Jones Newswires

President Donald Trump, whose family and political aides have faced scrutiny over their ties to Russia, rejected a bid by Exxon Mobil Corp. to sidestep U.S. sanctions against Moscow and resume an oil venture with a politically powerful Russian energy firm.

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The announcement Friday comes as the White House pushes to firm up the president's foreign-policy and domestic agenda as he nears his 100th day in office next week.

Mr. Trump's decision to block Exxon Mobil, until the end of last year headed by Secretary of State Rex Tillerson, also shows how efforts to build bridges with Russian President Vladimir Putin are proving difficult, senior U.S. officials said.

Congressional and Federal Bureau of Investigation probes into ties between Mr. Trump's aides and Russian officials continue to dominate Washington's political debate, these officials said. And Mr. Putin repeatedly has made any strengthening of ties harder by maintaining Moscow's support for Syrian President Bashar al-Assad and escalating a crackdown on the Kremlin's political opponents at home, the officials said.

The Wall Street Journal reported on Wednesday that Exxon last month renewed a push for approval of a waiver on Russian sanctions for its oil exploration venture with PAO Rosneft, the Russian energy conglomerate closely aligned with Mr. Putin, according to a person familiar with the discussion. The company had originally submitted the application in 2015.

The venture was frozen in 2014 after the Obama administration placed sanctions on Rosneft and its chief executive, Igor Sechin, in retaliation for Russia's annexation of the Crimea region of Ukraine.

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"In consultation with President Donald J. Trump, the Treasury Department will not be issuing waivers to U.S. companies, including Exxon, authorizing drilling prohibited by current Russian sanctions," Treasury Secretary Steven Mnuchin said in a statement Friday. U.S. officials said Mr. Trump made the decision after close consultations with Mr. Mnuchin, a former Goldman Sachs executive.

The Trump administration's decision likely will make it impossible for Exxon to drill in Russia's Black Sea waters before its agreement with Rosneft expires at the end of this year. Under the companies' agreement, Exxon has until 2023 to explore some of Russia's Arctic waters if sanctions are lifted, the company has said.

"We understand the statement today by Secretary Mnuchin in consultation with President Trump," said Alan Jeffers, an Exxon Mobil spokesman. "Our 2015 application for a license under the provisions outlined in the U.S. sanctions was made to enable our company to meet its contractual obligations under a joint venture agreement in Russia, where competitor companies are authorized to undertake such work under European sanctions."

News of Exxon's Treasury application drew sharp criticism in Congress over the past two days. Leading Democrats and some Republicans have said the Trump White House should be increasing sanctions on Russia for its alleged effort to interfere in last year's U.S. election, rather than loosening them. Russia has denied any interference in the election.

Lawmakers also raised concerns the Trump administration could face a conflict of interest in ruling on the Exxon application, given Mr. Tillerson's previous position as CEO, a job he held for 11 years. State Department officials said this past week that Mr. Tillerson has recused himself from any issues related to Exxon for two years.

"Given Russia's well-documented and troubling activities around the world, it is troubling Exxon Mobil would continue to press for its narrow economic advantage at the expense of our national interests," Sen. Ben Cardin of Maryland, the ranking Democrat on the Senate Foreign Relations Committee, said on Friday. "The deals they are seeking would put money in the pockets of Russian oligarchs and the Russian treasury, guaranteed to be used against America, our interests, and our allies."

Lawmakers have said they are investigating a string of contacts between Mr. Trump's aides and Russian officials during the campaign and the presidential transition. These include meetings and phone calls between his former national security adviser, Mike Flynn, and Russia's ambassador to Washington, in which U.S. sanctions on Russia were discussed. They also include meetings that Mr. Trump's son-in-law, Jared Kushner, held with the head of a state-run Russian bank that is on a U.S. sanctions list.

The administration has been in an awkward dance with the Kremlin since Mr. Trump assumed office, after his repeated calls during the campaign for warmer ties.

Earlier this month, the Pentagon launched airstrikes on a Syrian military base believed to have been involved in a chemical-weapons attack against Syrian civilians. The U.S. missiles risked hitting Russian troops that were stationed at the base, according to U.S. officials. Russia and Syria are allies.

Mr. Trump also authorized Montenegro this month to become the 29th member of the North Atlantic Treaty Organization, despite repeated protests by Russia.

Mr. Tillerson visited Moscow last week to try to forge a more united front and met with Mr. Putin for more than two hours. But the former Exxon Mobil chief left Russia saying Washington's relations with Moscow were at a "low point."

"The problem with sanctions is that they're right there at the center of what went most wrong in Russian-American relations, and that is, of course, the Ukraine crisis," said Stephen Sestanovich, a Columbia University professor and the State Department's ambassador-at-large to the former Soviet Union during the Clinton administration. "There's a low level of trust."

Exxon Mobil's failure to win approval for its Black Sea venture marks a blow for the Texas company's hopes for expansion and could aid its rivals. In 2012, Mr. Putin had said the Exxon partnership could eventually spend up to $500 billion together.

Although some of the European Union's sanctions were crafted in a similar fashion as those in the U.S., they allowed many existing agreements and plans to proceed. Because they allowed companies with contracts under execution at the time of sanctions in 2014 to continue with operations, Italian oil company Eni SpA is now actively exploring Russia's Black Sea and Barents Sea waters, according to the company.

Last year, Norway's Statoil ASA drilled two wells in the Sea of Okhotsk at depths only slightly shallower than the 150-meter limit outlined by the EU. French energy company Total SA in late 2013 launched a giant natural-gas export project in Russia's Yamal Peninsula above the Arctic circle. The country now accounts for about a fifth of Total's reserves, according to Tudor Pickering Holt & Co.

Exxon also has projects that were allowed to proceed in Russia, including further developments of its operations on Sakhalin Island in the country's Far East. Because sanctions focused on the transfer of energy technology in the Arctic, deep water or onshore drilling techniques, the Sakhalin operations were exempt.

The company has said it is exposed to as much as $1 billion in losses from its investments that have been put on hold by sanctions.

--Felicia Schwartz contributed to this article.

Write to Jay Solomon at jay.solomon@wsj.com and Bradley Olson at Bradley.Olson@wsj.com

(END) Dow Jones Newswires

April 21, 2017 21:15 ET (01:15 GMT)