[steam_cannon]

Russia Says Arctic Well Drilled With Exxon Strikes Oil

...similar geology nearby means the surrounding area may hold more than the U.S. part of the Gulf or Mexico...

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.

This is an both an encouraging and discouraging article about progress Russia’s state-run OAO Rosneft and Exxon Mobil made recently with a big oil find in the Kara Sea region of the Arctic. The possible size of the field is encouraging, but also discouraging if you read all the way to the end of the article where it spells out that this oil is expected to cost more then current crude prices, not less. Since current oil prices are economically crushing, finding oil that would be priced even higher is not very encouraging. Slashdot also has a discussion on the article.

[Subjectivist]

The key question is what will it cost to produce? If it is $150.00/bbl it will be left in the ground for now. If it is $105.00/bbl that makes it much more likely it will be developed soon.

[BobInget]

Shell dropped two billion on Arctic exploration w/o a single barrel to show. Shell plans return next summer.
If announcements like XOM's arctic Joint Venture move markets one way or another, keep in mind,
#1 it will take six years for this oil to market.
#2 If any serious mishap occurs we can write off most (arctic) sea life...
#3 By 2021 political and geo climates will be as different as 1957* compared to 2014.
#3 On topic, in six years any OPEC like cartel will be dominated by Russia and Iran.. who BTW, won't be
putting "troops on the ground". All other oil crazies will.
# 4 Sales of electric civilian transportation vehicles will equal that of fossil fueled. US mass production of renewable storage will lower milage costs along with higher fossil fuel expenses.

*1957 BMC (before micro chips)

[Plantagenet]

Russia moves ahead with plans to develop new Arctic oil field---

"On Saturday, Rosneft’s CEO Igor Sechin, along with Russian President Vladimir Putin, were present at the unveiling of the northernmost oil well in the world, which is estimated to have cost over $700 million. Oil output from the field may begin in the next five to seven years, Sechin said

The Kara Sea field will be named “Pobeda” or “Victory.”

“We will continue drilling here no matter what,” Sechin said

from RT

[steam_cannon]

The key question is what will it cost to produce? If it is $150.00/bbl it will be left in the ground for now. If it is $105.00/bbl that makes it much more likely it will be developed soon.

Reading more articles, it sounds like the company is hoping for prices to remain around between $90 and $100, though I'm not seeing mention of what they expect for this project. That last sentence of the article left me wondering if they need significantly higher oil prices, but I haven't found a definitive answer to that yet. I've seen low ball projections for other arctic projects, but not many estimates for the Kara Sea oil.

A related article:

Beyond oil and reserves, Russia running on empty (Jul 31, 2014)

...Rosneft, which is preparing to start drilling in Arctic Kara Sea with ExxonMobil, declined to comment. Its capital expenditure was around 700 billion roubles for this year under an oil price of below $100 per barrel.

"The sanctions will significantly limit (Rosneft and Novatek's) financing options and could put pressure on development projects," Moody's ratings agency said in a recent report.

Gazprom Neft, Russia's No.4 oil producer, which is exploring for shale oil with Royal Dutch Shell, declined to comment, as did Lukoil.

But based on their documents and earlier comments, they all envisage oil prices at between $90 and $100 in the medium term.

Kudrin has for years warned that oil prices will fall. Some analysts say it was falling oil prices and the passing of peak production that led to the rapid meltdown of the Soviet Union a quarter century ago.

Aslund, of the Petersen Institute, said a long-term oil price drop was unlikely, but not impossible, given the geopolitical volatility, and that scenario could be catastrophic for Putin, who is facing re-election in 2018...

I have no doubt this oil will remain frozen almost forever under the Arctic, that is until the Space Masters from Kepler-186f arrive to free it from it earthly bonds.

Well, I think if we get renewables online in a major way, they will be used to mine oil. Oil and coal are great feed stocks for chemical and plastic production, I think well worth losing negative energy invested to get at. So I think eventually those resources will be mined, if we can keep civilization going one way or another with renewable energy.

[steam_cannon]

Russia moves ahead with plans to develop new Arctic oil field---

"On Saturday, Rosneft’s CEO Igor Sechin, along with Russian President Vladimir Putin, were present at the unveiling of the northernmost oil well in the world, which is estimated to have cost over $700 million. Oil output from the field may begin in the next five to seven years, Sechin said

The Kara Sea field will be named “Pobeda” or “Victory.”

“We will continue drilling here no matter what,” Sechin said

from RT

A lot can happen in seven years and RT is kind of a propoganda machine on big issues, but I agree it does sound like they are going to start developing.

[ROCKMAN]

Given the high cost of setting production facilities in the Arctic and the fact that the well was drilled in relatively shallow water to a rather shallow depth I would expect a number of additional delineation wells will be drilled before anyone commits to a full development plan.

[Subjectivist]

Rockman, if the water is shallow enough is it better to use a jack up rig, or build an artificial island to work from?

[Subjectivist]

The key question is what will it cost to produce? If it is $150.00/bbl it will be left in the ground for now. If it is $105.00/bbl that makes it much more likely it will be developed soon.

Reading more articles, it sounds like the company is hoping for prices to remain around between $90 and $100, though I'm not seeing mention of what they expect for this project. That last sentence of the article left me wondering if they need significantly higher oil prices, but I haven't found a definitive answer to that yet. I've seen low ball projections for other arctic projects, but not many estimates for the Kara Sea oil.

A related article:

Beyond oil and reserves, Russia running on empty (Jul 31, 2014)

...Rosneft, which is preparing to start drilling in Arctic Kara Sea with ExxonMobil, declined to comment. Its capital expenditure was around 700 billion roubles for this year under an oil price of below $100 per barrel.

"The sanctions will significantly limit (Rosneft and Novatek's) financing options and could put pressure on development projects," Moody's ratings agency said in a recent report.

Gazprom Neft, Russia's No.4 oil producer, which is exploring for shale oil with Royal Dutch Shell, declined to comment, as did Lukoil.

But based on their documents and earlier comments, they all envisage oil prices at between $90 and $100 in the medium term.

Kudrin has for years warned that oil prices will fall. Some analysts say it was falling oil prices and the passing of peak production that led to the rapid meltdown of the Soviet Union a quarter century ago.

Aslund, of the Petersen Institute, said a long-term oil price drop was unlikely, but not impossible, given the geopolitical volatility, and that scenario could be catastrophic for Putin, who is facing re-election in 2018...

Interesting, thanx for the link. I would guess that if they can make money at $90.00/bbl the extraction costs plus taxes and fees is probably under $85.00 but that is just a guess on my part.

[steam_cannon]

Interesting, thanx for the link. I would guess that if they can make money at $90.00/bbl the extraction costs plus taxes and fees is probably under $85.00 but that is just a guess on my part.

I also came across a 2013 article on the Motley Fool that said some players were hoping oil costs would be more like $20 a barrel to produce which they would then sell at market rates for a nice profit. Though a few years have passed and I don't know if the big players are still so optimistic. Everyone is optimistic when pitching to stock holders...

Can Oil Majors Conquer the Arctic? October 28, 2013

Do you think you could make it out in the Arctic? Well ExxonMobil (NYSE: XOM ) and Chevron (NYSE: CVX ) think they can, and plan on spending a combined $14 billion to do so.

Iceberg valley
ExxonMobil holds a 36% stake in the Hebron project in offshore Canada, in an area known as iceberg valley, and Chevron owns a 26.7% stake. ExxonMobil announced the project back in January and won approval for Hebron in May.

ExxonMobil took control of the project back in 2008 from Chevron and currently is the operator. ExxonMobil and Chevron see 707 million barrels of recoverable heavy oil in the area with a $14 billion devolvement cost. Doing some simple math you get a cost of $19.80 per barrel, excluding future maintenance costs and operational costs.

While heavy crude trades at a steep discount to WTI due to transportation bottlenecks in Western Canada's oil sands, it is right next to the 300,000 bpd refinery in St. Johns, New Brunswick.

This just so happens to be Canada's largest refiner, so even though Canada's heavy crude trades around $60-$75 ExxonMobil and Chevron will be able to get better prices due to the close proximity. Prices are low due to lack of pipeline infrastructure, but as more capacity is built up expect the spread between WTI and Canadian heavy crude to shrink.

The project
The Hebron project has 1.2 million barrels of storage capacity built into it and is going to start producing 150,000 bpd in 2017. At $70 a barrel ExxonMobil and Chevron will be able to cover the cost of construction within 1,867 days, or five years and one month.

Keep in mind that in four years there is a high possibility that the WTI spread will shrink and heavy oil prices will go up, making this an even more profitable project. At $100 a barrel, the project will have paid for itself in just three years and two months.

Going beyond the cost of production, the current amount of reserves allows for ~13 years of production at 150,000 bpd. There is a good chance that the amount of reserves could be revised upwards, as it already has been revised upwards from previous estimates. Hebron will offer ExxonMobil and Chevron stable cash flow for years if they follow through with their plans.

More than one company is looking toward the Arctic for growth. Rosneft is trying to brave the Kara Sea in Russia, and has turned to ExxonMobil for help.

Russia
ExxonMobil and Rosneft back in June announced the Arctic Research Center, which will be jointly funded by both parties. ExxonMobil will provide $450 million to help fund and build the center, and Rosneft will provide $250 million. The research from this center will enable oil majors all around the world (especially ExxonMobil) to tap into more oil fields in the Arctic and extract enormous amounts of crude.

The purpose of the center is to be able to tap into the Kara Sea's 37 billion barrels of recoverable oil, and in 2014 ExxonMobil and Rosneft plan on drilling their first exploratory well in the region. If the well turns up good results the amount of recoverable oil could increase.

Arctic potential
The United States Geological Survey sees ~412 billion barrels of recoverable oil in the region, with ~90 billion barrels of crude oil. This is why oil majors are willing to go out in the freezing cold, build up rigs that can withstand icebergs, and deal with horrible weather conditions; they want to find billions of barrels of crude.

[steam_cannon]

Interesting, thanx for the link. I would guess that if they can make money at $90.00/bbl the extraction costs plus taxes and fees is probably under $85.00 but that is just a guess on my part.

I also came across a 2013 article on the Motley Fool that said some players were hoping oil costs would be more like $20 a barrel to produce which they would then sell at market rates for a nice profit. Though a few years have passed and I don't know if the big players are still so optimistic. Everyone is optimistic when pitching to stock holders. And I believe this article below was a pitch for arctic oil rig equipment investments, so take with a iceberg of salt...

Can Oil Majors Conquer the Arctic? October 28, 2013

Do you think you could make it out in the Arctic? Well ExxonMobil (NYSE: XOM ) and Chevron (NYSE: CVX ) think they can, and plan on spending a combined $14 billion to do so.

Iceberg valley
ExxonMobil holds a 36% stake in the Hebron project in offshore Canada, in an area known as iceberg valley, and Chevron owns a 26.7% stake. ExxonMobil announced the project back in January and won approval for Hebron in May.

ExxonMobil took control of the project back in 2008 from Chevron and currently is the operator. ExxonMobil and Chevron see 707 million barrels of recoverable heavy oil in the area with a $14 billion devolvement cost. Doing some simple math you get a cost of $19.80 per barrel, excluding future maintenance costs and operational costs.

While heavy crude trades at a steep discount to WTI due to transportation bottlenecks in Western Canada's oil sands, it is right next to the 300,000 bpd refinery in St. Johns, New Brunswick.

This just so happens to be Canada's largest refiner, so even though Canada's heavy crude trades around $60-$75 ExxonMobil and Chevron will be able to get better prices due to the close proximity. Prices are low due to lack of pipeline infrastructure, but as more capacity is built up expect the spread between WTI and Canadian heavy crude to shrink.

The project
The Hebron project has 1.2 million barrels of storage capacity built into it and is going to start producing 150,000 bpd in 2017. At $70 a barrel ExxonMobil and Chevron will be able to cover the cost of construction within 1,867 days, or five years and one month.

Keep in mind that in four years there is a high possibility that the WTI spread will shrink and heavy oil prices will go up, making this an even more profitable project. At $100 a barrel, the project will have paid for itself in just three years and two months.

Going beyond the cost of production, the current amount of reserves allows for ~13 years of production at 150,000 bpd. There is a good chance that the amount of reserves could be revised upwards, as it already has been revised upwards from previous estimates. Hebron will offer ExxonMobil and Chevron stable cash flow for years if they follow through with their plans.

More than one company is looking toward the Arctic for growth. Rosneft is trying to brave the Kara Sea in Russia, and has turned to ExxonMobil for help.

Russia
ExxonMobil and Rosneft back in June announced the Arctic Research Center, which will be jointly funded by both parties. ExxonMobil will provide $450 million to help fund and build the center, and Rosneft will provide $250 million. The research from this center will enable oil majors all around the world (especially ExxonMobil) to tap into more oil fields in the Arctic and extract enormous amounts of crude.

The purpose of the center is to be able to tap into the Kara Sea's 37 billion barrels of recoverable oil, and in 2014 ExxonMobil and Rosneft plan on drilling their first exploratory well in the region. If the well turns up good results the amount of recoverable oil could increase.

Arctic potential
The United States Geological Survey sees ~412 billion barrels of recoverable oil in the region, with ~90 billion barrels of crude oil. This is why oil majors are willing to go out in the freezing cold, build up rigs that can withstand icebergs, and deal with horrible weather conditions; they want to find billions of barrels of crude...

[radon1]

Presumably, most of their costs will be fixed costs. This means that the costs per barrel will be a function of the total recoverable barrels, to a great extent. Assuming that the Kara sea deposit holds 9 bln barrels as some of their guesswork suggests, 85 USD of costs per barrel will be like ~700 bln of capital investments into the development of the deposit. Not too many countries have GDPs greater than that. Looks way off mark.

[ROCKMAN]

radon - Tricky wording in that article. It didn't say the discovery had 9 billion bbls of oil. It said the "structure" is large enough to contains 9 billion bbls. A completely unsupportable claim given very little of the structure has been tested. As far as it costing $X/bbl to develop what oil is out there I've seen nothing to support any estimate of the cost: it might be considerably less...or more. Until someone comes up with a production facility design no one can estimate the cost. But given the shallow depth of the discover the drilling cost will be much less then the cost to drill in the Deep Water GOM

[ROCKMAN]

Folks need to realize that this isn’t a Deep Water discover nor a very deep well. The water depth is about 300’. Nor was the well drilled to 25,000’+ like a typical DW GOM well: less than 8,000’. The well only took 6 weeks to drill unlike some DW GOM that can take 6 to 10 months to drill. This was not a terribly expensive well. The big capex will be spent on building a production facility that can handle the winter ice. But that engineering has been around for a while: search the web for details of the Hibernia Field off the coast of Canada. I have no idea what a production facility will cost out there. But I suspect some folks are greatly overestimating the total project cost. And if the 720 million bbl estimate of recoverable oil is close to accurate IMHO the field will be very economic to develop despite the expensive arena they are playing in.

“According to preliminary results, the resource base of the first hydrocarbons trap discovered through the drilling is estimated to hold 338 billion cubic meters of gas and over 730 million barrels of crude," Rosneft's CEO Igor Sechin said in a statement. "This is light crude comparable to the Siberian Light blend, according to the initial tests," he added.

The partners completed the drilling "in record-breaking time -- in one and a half months -- in compliance with all the technological and ecological standards and requirements," Rosneft said. It was initially expected that the drilling would continue for around two months, during the ice-free season that lasts from August through mid-October. {FYI: BS….I could have drilled that well in the GOM in 2 to 3 weeks.} "This is our united victory, it was achieved thanks to our friends and partners from ExxonMobil, Nord Atlantic Drilling, Schlumberger, Halliburton, Weatherford, Baker, Trendsetter, FMC," he said. "We would like to name this field Pobeda (Victory)."

As a result of the drilling, "a significant volume of new geological data is received, its (further) interpretation would allow to evaluate more precisely the resource base of the discovered field," Sechin said. Rosneft owns 66.67% in the project, with ExxonMobil owning the remaining 33%. The agreement provides for joint work at three East Prinovozemelsky blocks in the Kara Sea, where some 30 structures were found. The combined resource base of the three blocks is estimated at 87 billion barrels {wild ass BS guess IMHO} or 13 billion mt of oil equivalent, according to Rosneft. Rosneft said that prior to the start of operations in the Kara Sea, the West Alpha drilling rig, operated and owned by the Nord Atlantic Drilling, was heavily upgraded, which, among other things, was needed to guarantee ecological safety.

[ROCKMAN]

sub - They went with a semi to drill the well instead of a jackup rig. Not sure why. Might be difficult sea floor conditions. I doubt an ice island. More likely a production platform resting on the seafloor alla Hibernia Field.

Interesting old report on Hibernia Field: notice about the same reserve estimate as the new Arctic discovery: "So just how expensive is $14 billion (Hibernia Field production facility)? Well Exxon says the prize at Hebron is roughly 700 million barrels. That means development costs will be on the order of $20 per barrel."

[Keith_McClary]

The big capex will be spent on building a production facility that can handle the winter ice. But that engineering has been around for a while: search the web for details of the Hibernia Field off the coast of Canada.

Icebergs that require intervention are tackled proactively while they are still 20 km or more away from the platform. The platform support vessels encircle the iceberg with a long cable or rope - much like a giant lasso - and tow the iceberg into a different trajectory. It is not necessary to tow the iceberg very far, as even a slight nudge to an iceberg at that distance will change its course considerably over a 20 km drift.
http://www.hibernia.ca/ice.html

Towing Icebergs

This is quite different from the problems with Arctic sea ice in the Kara Sea.

[steam_cannon]

Wow great analysis RockMan!

Maybe Tanada could/should retitle this thread

From:

Only High Price Oil Expected from Large Arctic Discovery

To:

Oil Expected from Large Arctic Discovery

Seriously, I'm going to suggest it.

[ROCKMAN]

Keith - Great pic...thanks. But that makes an interesting point: during much of the winter the production facility won't have to deal with bergs since the ice pack will be in place. Of course, engineering the structure to withstand that stress won't be simple either. And even with the spring thaw I wonder how many, if any, bergs they'll have to deal with? Another thought comes to mind: I wonder if subsea completions with well heads 300' below the ice pack are being considered? Eventually the production has to reach the surface and the shoreline is a good bit from the field. But many of the DW GOM subsea wells flow many miles before they reach the production facilities. I suspect it will be a while before they tell us exactly how they plan to develop the field.

But 700 million bbls of oil in 300' of water and only buried less than 8,000' makes for a cheap and very easily developed field...if it weren't above the Arctic Circle.

[ROCKMAN]

I haven't been able to find a map with scale showing exactly where the discovery sits. But much of the Kara Sea is bordered by land masses that seem rather close. I'm wondering if subsea wells connect by long umbilicals might be an option. If so it might significantly reduce costs and speed up developments. As seen below subsea completion have become more common in the Deep Water GOM. But instead of being in 5,000'+ water the discover is only in 300'. A lot cheaper/easier:

"The company also spends significant time on flow assurance, which is one of the big challenges with long subsea tiebacks, he says. LLOG’s Grand Canyon 448 field is connected with a 34-mile umbilical—the second longest oil subsea tieback in the world.