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What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

Russia Adds 9 Billion Barrels To Reserves?

Jeffrey C. Borneman | September 27, 2014

While the US refuses to even explore for domestic Energy forcing companies to rely on horizontal drilling and fracking to stimulate America's production renaissance, Russia has won the first round in claiming Arctic oil. 

The Financial Times reports this morning that Igor Sechin, Rosneft’s Chief Executive Officer described the find as “our united victory” and was quick to thank the many companies involved saying: “It was achieved thanks to our friends and partners from ExxonMobil, Nord Atlantic Drilling, Schlumberger, Halliburton, Weatherford, Baker, Trendsetter (and) FMC.”

Investors will want to know how big the Arctic find truly is. Is the find large enough to effect a shift in the 'balance of power'? According to Sechin, " ... a vast pool of crude was discovered in the Kara Sea region of the Arctic Ocean, showing the region has the potential to become one of the world’s most important crude-producing areas, arguably bigger than the Gulf Of Mexico," and added, "the geological structure being drilled, is the size of the city of Moscow and large enough to contain more than 9 billion barrels, a trove worth more than $900 billion at today’s prices."

So yes, the find is a game-changer for Russia and by extension, its biggest client: China. The irony is our own ExxonMobil (XOM) may, because of the Russian sanctions imposed by our administration, be barred from any financial gain.

"Exxon’s strategic alliance with Rosneft had been seen as one of the US major’s most promising prospects for future growth. Rosneft said the two companies had planned to spend more than $3.2bn together on exploration in the Kara and Black seas." This is all now on hold until either sanctions are lifted or XOM decides to ignore punitive measures, fulfill its contract commitments and face the wrath (and penalties) of the US Department of Justice.

Investor takeway: A key premise of the MDEF™ Investing strategy is that Energy prices will not be allowed to fall regardless of the number of large 'finds.' As discussed here, Energy resources have become the de facto backing of the USD and controlled Inflation the preferred elixir to lift the economies of both the US and Europe - cannot happen in a falling Energy environment. Witness the US bombing of Syrian oil refineries earlier this week.

So while we cheer Russia's find, we fear for our domestic companies balance sheets but must wait to see how Russia plans to leverage its new wealth in servicing its DEMAND for Defense. 

If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

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