Exxon Gains Access To Massive Arctic Reserves With Russian Pact
Exxon Mobil (NYSE:XOM) and its Russian Partner Rosneft signed a deal that would allow the American oil major wider access to Russia’s massive oil fields in return for a minority stake for Rosneft in some of Exxon’s projects in North America. [1] The agreement will provide Exxon access to oil reserves in Kara Sea, off the Siberian coast and also other areas in the Black Sea. Estimates suggest that the Kara Sea prospect may hold more than 37 billion barrels of oil, [2] which is the major attraction for Exxon to enter Russia’s uncertain business environment. Rosneft had earlier made attempts to strike a similar deal with BP (NYSE:BP) earlier. Conflicts between BP and its Russian subsidiary TNK-BP resulted in the cancellation of the deal.
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The Russian government has taken multiple steps in the recent past to attract foreign capital and expertise to develop the massive reserves it holds in the inhospitable Arctic regions of the country. With many of the country’s fields maturing, Russia is exploring options to develop these remote reserves to maintain its 10 million barrels of oil (MBOD) output. [2] The Joined Venture (JV) between Rosneft and Exxon will invest around $3.2 billion to develop the reserves in the Kara Sea and the Black Sea.Exploratory drilling is expected to begin in 2014.
Exxon has made it a precondition to the deal that it is subjected to a fair long term taxation regime. Competitors such as BP have experienced complications in the functioning of their business in Russia, but have also benefited from strong production from the country.
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According to the deal, Rosneft’s American subsidiary Neftegaz Holding America Ltd. will gain a 30% stake in Exxon’s La Escalera Ranch project in Texas. The company will also have an option to buy a 30% stake in around 20 of the company’s projects in the Gulf of Mexico and also gain stake in projects in Canada. [1] Analysts view this as a deepening of the interest of Russian players in unconventionals exploration in North America.
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- Exxon Sets Russian Projects, WSJ [↩] [↩]
- Exxon and Russia’s Oil Company in Deal for Joint Projects, NY Times [↩] [↩]