http://www.bloomberg.com/news/2014-09-27/rosneft-says-exxon-arctic-well-strikes-oil.html
Ru
ssia Says Arctic Well Drilled With Exxon Strikes Oil
By Ilya Arkhipov, Stephen Bierman and Ryan Chilcote Sep 27, 2014 3:02 PM
ET
Russia, viewed by the Obama administration as hostile to U.S. interests,
has discovered what may prove to be a vast pool of oil in one of the
world’s most remote places with the help of America’s largest energy
company.
Russia’s state-run OAO Rosneft said a well drilled in the Kara Sea region
of the Arctic Ocean withExxon Mobil Corp. struck oil, showing the region
has the potential to become one of the world’s most important
crude-producing areas.
The announcement was made by Igor Sechin, Rosneft’s chief executive
officer, who spent two days sailing on a Russian research ship to the
drilling rig where the find was unveiled today. The well found about 1
billion barrels of oil and similar geology nearby means the surrounding
area may hold more than the U.S. part of the Gulf or Mexico, he said.
“It exceeded our expectations,” Sechin said in an interview. This discovery
is of “exceptional significance in showing the presence of hydrocarbons in
the Arctic.”
The discovery sharpens the dispute between Russia and the U.S. over
President Vladimir Putin’s actions in Ukraine. The well was drilled before
the Oct. 10 deadline Exxon was granted by the U.S. government under
sanctions barring American companies from working in Russia’s Arctic
offshore. Rosneft and Exxon won’t be able to do more drilling, putting the
exploration and development of the area on hold despite the find announced
today.
Source: ONGC Videsh Ltd. via Bloomberg
The oil production platform at the Sakhalin-I field in Russia, partly owned
by ONGC... Read More
“We have encountered hydrocarbons but it is premature to speculate on any
potential outcome,” Richard Keil, an Exxon spokesman in Irving, Texas, said
by telephone. “Our current focus is on completing the well and safely
winding down operations consistent with our license with the U.S.
government.”
Putin’s Ambition
The development of Arctic oil reserves, an undertaking that will cost
hundreds of billions of dollars and take decades, is one of Putin’s
grandest ambitions. As Russia’s existing fields in Siberia run dry, the
country needs to develop new reserves as it vies with the U.S. to be the
world’s largest oil and gas producer.
Output from the Kara Sea field could begin within five to seven years,
Sechin said, adding the field discovered today would be named “Victory.”
The Kara Sea well -- the most expensive in Russian history -- targeted a
subsea structure named Universitetskaya and its success has been seen as
pivotal to that strategy. The start of drilling, which reached a depth of
more than 2,000 meters (6,500 feet), was marked with a ceremony involving
Putin and Sechin.
The importance of Arctic drilling was one reason that offshore oil
exploration was included in the most recent round of U.S. sanctions. Exxon
and Rosneft have a venture to explore millions of acres of the Arctic Ocean.
Oil Strategist
“Once the well is plugged, there will be a lot of work to do in
interpreting the results and this is probably something that Rosneft can
do,” Julian Lee, an oil strategist at Bloomberg First Word in London, said
before today’s announcement. “Both parties are probably hoping that by the
time they are ready to start the next well the sanctions will have been
lifted.”
The stakes are high for Exxon, whose $408 billion market valuation makes it
the world’s largest energy producer. Russia represents the second-biggest
exploration prospect worldwide. The Irving, Texas-based company holds
drilling rights across 11.4 million acres in Russia, only eclipsed by its
15.1 million U.S. acres.
Escalating Costs
Exxon Chairman and Chief Executive Officer Rex Tillerson is counting on
Russian discoveries to reverse a trend of stalled exploration and
escalating costs to pump crude and natural gas from the ground. Production
from the company’s wells fell in 2012 and 2013 and is expected to be flat
this year.
More drilling and geological analysis will be needed before a reliable
estimate can be tallied for the size of the oil resources in the
Universitetskaya area and the Russian Arctic as a whole, said Frances
Hudson, a global thematic strategist who helps manage $305 billion at
Standard Life Investments Ltd. in Edinburgh.
Sanctions forbidding U.S. and European cooperation with Russian entities
mean that country’s nascent Arctic exploration will be stillborn because
Rosneft and its state-controlled sister companies don’t know how to drill
in cold offshore conditions alone, she said.
“Extrapolating from a small data sample is perhaps not going to give you
the best information,” Hudson said in a telephone interview. “And because
of sanctions, it looks like there’s going to be less exploration rather
than more.”
Iceberg Hazard
In addition, the expense and difficulty of operating in such a remote part
of the world, where hazards include icebergs and sub-zero temperatures,
mean that the developing discoveries may not be economic at today’s oil
prices.
The U.S. portion of the Gulf produces more than a million barrels a day and
holds reserves of almost 6 billion barrels, according to data from the
Department of Energy.
To contact the reporters on this story: Ilya Arkhipov in Moscow at
iarkhipov_at_bloomberg.net; Stephen Bierman in Moscow at
sbierman1_at_bloomberg.net; Ryan Chilcote in London atrchilcote_at_bloomberg.net
To contact the editors responsible for this story: Will Kennedy at
wkennedy3_at_bloomberg.netCarlos Caminada
Received on Sun Sep 28 2014 - 14:42:46 EDT