December 12, 2016 / 11:38 AM / 8 months ago

UPDATE 2-Russia sees Exxon boss, tipped to be Secretary of State, as an old friend

* Exxon CEO Tillerson has long ties to Russia

* He worked closely with Russian oil tsar Sechin

* Sanctions tested Tillerson's relations with Russia (Recasts, updates throughout)

By Denis Pinchuk and Olesya Astakhova

MOSCOW, Dec 12 (Reuters) - Soon after the United States imposed sanctions on Moscow in 2014, Russian oil tsar Igor Sechin told a Reuters reporter he would miss three things: exploring U.S. culture, the chance to show his children American landscapes, and riding motor-bikes with Exxon Mobil chief executive Rex Tillerson.

Tillerson is now front-runner to be Secretary of State in the cabinet of U.S. President-elect Donald Trump, and Russian officials are relishing the prospect of having someone with long-standing ties to Russia as the chief U.S. diplomat.

Those same ties -- Tillerson has met Russian President Vladimir Putin several times and even received a medal from him -- are causing disquiet among some policymakers in Washington, who see the relationships as a potential liability.

Few people in Moscow expect that the bitter rifts with Washington, over Syria, Ukraine, and NATO's presence in eastern Europe, will be healed overnight with Tillerson at the State Department.

But his emergence as front-runner for the job was seen in Moscow as confirmation the Trump administration would put aside old enmity and do deals with the Kremlin.

Trump is expected to name Tillerson, a 64-year-old Texan, as Secretary of State, a source familiar with the situation said on Saturday. Tillerson would join other figures with Russia ties already in the Trump cabinet.

"The choice of Tillerson is a sensation," said Alexei Pushkov, a pro-Kremlin lawmaker in the upper house of the Russian parliament. "This is a businessmen, by definition a pragmatist, who also has lots of experience working with Russia."

"Judging by the appointments to the key posts in the administration, Trump wants to see a decisive and strong America, but does not see reasons for conflicts with Russia," Pushkov wrote on Twitter.

Kremlin spokesman Dmitry Peskov was cautious on Tillerson's cabinet prospects, saying the appointment had not been confirmed. But he praised his personal qualities.

"As part of his duties as head of one of the biggest oil companies, he had contacts with our representatives," Peskov, said on a conference call with reporters. "He carries out his duties in a highly professional way."

Asked about how close Tillerson is to Putin, Peskov said: "They had working meetings. Indeed, the president received Mr. Tillerson several times."

CLOSE COOPERATION

Though he and Putin know each other, the most important relationship Tillerson forged in Russia is with Sechin, one of Putin's closest lieutenants.

Tillerson started coming into regular contact with Russian officials when, in January 1998, he was made vice president of an Exxon unit involved in exploration projects in Russia and the former Soviet Union.

The flagship project was the Sakhalin 1 offshore project in the Pacific Ocean. Exxon was the operator and Rosneft, the Russian state oil giant headed by Sechin, was a major shareholder.

"He knows this whole sphere excellently," said an oil executive close to Rosneft and Exxon, who spoke on condition of anonymity. "He was involved in the negotiations and the implementation of Sakhalin 1.. From the start. And he knows the peculiarities of the Russian mind-set very well."

In 2012, Rosneft and Exxon deepened their cooperation, signing an agreement on joint development of oil fields in Western Siberia. Putin, Tillerson and Sechin came together for the signing ceremony.

Later the same year Zeljko Runje, who until then had been vice president of Exxon's Russian operations, moved to Rosneft to take up the post of vice president and member of the management board.

Their next big joint project was launched in June 2013, when they set up a joint venture to explore for oil in the Kara Sea, in the Arctic, and in the Black Sea. Sechin and Tillerson both attended the signing ceremony.

In the same month, Putin awarded Tillerson the Order of Friendship, a Russian state honour. The citation said it was for his "significant contribution to strengthening cooperation in the energy sector."

TIES TESTED

Then the Ukraine conflict intervened in 2014, testing Tillerson's relations with his Russian partners.

After Russia annexed Ukraine's Crimea region and backed separatist rebels in eastern Ukraine, the United States started several rounds of sanctions.

Tillerson, like other U.S. energy CEOs under pressure from the White House, stayed away from an annual investors' meeting with Putin in St Petersburg in June. He sent a senior Exxon executive in his place.

By August 2014, Exxon was poised to start drilling on the Kara Sea's Universitetskaya exploratory well but an imminent fresh round of sanctions could have halted work.

According to two offshore drilling sources familiar with the Kara Sea project, Tillerson and his team went into crisis mode. They managed to sign the contract to supply a drilling rig just before one round of sanctions was imposed, giving them some legal breathing space.

The Exxon managers then pushed through the drilling programme in two months before a further round of sanctions eventually knocked it off course, the sources said. They found large reserves of crude.

An Exxon representative was not immediately available for comment.

Soon after, obstacles arising from the sanctions forced Exxon to suspend its cooperation with Rosneft in the Kara Sea. The project has since been idling. But Exxon's Russian partners remember its effort to get the well drilled.

"I think his appointment is favourable for Russia," one of the two sources said about Tillerson being lined up for Secretary of State. (Additional reporting by Maria Tsvetkova in MOSCOW and Ernest Scheyder in HOUSTON; Writing by Christian Lowe; Editing by Philippa Fletcher)

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