With the latest round of sanctions announced Friday, the Russians will now have to abandon the joint venture project they have inked with U.S. super-major Exxon Mobil (XOM) , bringing a long-term problem for both Putin and America's largest energy company.
Getting fossil fuels out of the ground is what energy companies do, but their stock price is reliant upon two related metrics -- how much it costs to get the oil out and also whether and how quickly they can increase the amount of oil and gas they produce. What has been happening with the largest U.S. energy companies has been a mixed bag on both of these fronts in the last several years -- oil has continued to cost more and more per barrel to recover and most of the largest companies have not found it easy to grow production significantly.
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That's why the massive Russian Arctic with an estimated nine billion barrels of oil represents such an important project for Exxon -- a relatively cost effective project with tremendous possible production increases on the horizon.
Of course, the loss of the development of the Arctic will be a major blow to Russia as well. While currently the largest energy producer in the world, Russia was hoping to increase its production even further and was banking upon their Arctic project to be a major contributor.
If the dispute between Russia and the Ukraine continues and sanctions become more permanent, these lost projects will have a major impact both on the Russian economy and on the fortunes of Exxon as well.
I talk more about the costs of sanctions with Brittany Umar in the video above.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates EXXON MOBIL CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate EXXON MOBIL CORP (XOM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, good cash flow from operations, increase in net income and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins."
You can view the full analysis from the report here: XOM Ratings Report