ConocoPhillips Hopes Russia Can Provide Future Haven

Earnings season is in full force for some of the world’s largest public oil companies, and the news from their balance sheets is turning out to be almost as grim as the rest of the economy. Oil major ConocoPhillips yesterday disclosed nearly $32 billion in losses in a write-down that included its stake in the Russian oil firm Lukoil.

The company is also reducing new investment, as part of its effort to fall back and withstand the brunt of the recession. However, chief executive Jim Mulva made some comments during the company’s earnings conference call that indicate Russia may soon be playing host to the company. “The ministry and the authorities are certainly looking at ways in which they can help promote investment opportunities for companies like ConocoPhillips to be working in Russia,” Mulva said, adding that he’s “pretty bullish on Russia.”

At first glance, the statement may not seem to jibe with another of Mulva’s views, which is that world markets, and by extension energy, will stay depressed over the next couple years. Much of Russia’s oil is locked away in distant, hard-to-reach places. Without strong oil prices, it would be difficult to justify investing in expensive projects.

However, depending on the deal ConocoPhillips managed to strike with the Russian government, it might be able to correct for another of its deficiencies — its habit over the past few years of making acquisitions in lieu of developing resources of its own. The implication that it could be looking for its own development opportunities is supported by the company simultaneously launching a $6 billion bond offer and Mulva saying that he’s no longer interested in new acquisition opportunities.

Russia could certainly use the help. The country’s oil infrastructure is badly decayed, leading some to suggest that the country has hit peak oil and will not be able to produce more. That would be bad news for the government, which is heavily dependent on oil revenues. With oil prices down, it’s already grappling with a tumbling ruble and budgetary woes.

The best hope for Russia is that cuts by producers cause oil prices to sharply rebound as the world comes out of recession — a situation that will be helped along by Russia’s own falling production levels. However, to take advantage of a fresh rise in prices, the country will need to be on the way back to healthy production levels at the time, both from existing wells and more speculative zones like East Siberia. The best way for it to do so may be for it to offer the best deal it can to the experts — Western companies like ConocoPhillips.