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Page added on September 27, 2014

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ExxonMobil finds oil in the Russian Arctic

ExxonMobil finds oil in the Russian Arctic thumbnail

ExxonMobil and its Russian partner reportedly have found oil in an Arctic well where drilling was to have stopped today but for a US extension granted to prevent a possible environmental accident

The oil was found at Universitetskaya, a 7,700-foot well in the Kara Sea that ExxonMobil’s partner, Rosneft, believes holds about 9 billion barrels of oil. The find seems certain to create tension with the US government, which two weeks ago slapped new sanctions on Russia that forbid US companies from participating in Russian Arctic drilling. Lobbied by Exxon, the Obama administration granted the company an extension through Oct. 10 in order to allow the safe cementing and abandonment of the well.

The company proceeded with the drilling, as Quartz noted late yesterday, and it struck oil, the Financial Times wrote today. If true, the find does not necessarily mean the field contains commercial volumes of oil. That will have to be determined in further drilling, in which ExxonMobil will be able to participate only if tension between the West and Russian president Vladimir Putin subsides, and the sanctions are eased.

ExxonMobil declined to comment on the report of the oil find.

It has been clear that ExxonMobil would have time to finish drilling

Since the new sanctions were announced, ExxonMobil has said little more publicly than that Washington had extended a Sept. 26 deadline, allowing for safe withdrawal from the well. Given the sanctions, analysts cast doubt on whether the company had time to produce the well logs necessary for an initial determination as to whether Universitetskaya contained oil. If the company fell short, this drilling season would have been all but wasted, since it would not meet the objective of discovering what lay below the surface.

But on Sept. 24, Kirill Molodtsov, Russia’s deputy energy minister, said drilling will come to a halt on Oct. 10. Since ExxonMobil spudded the well Aug. 9, and drilling was to take 70 days, that meant that drilling, cementing, plugging, and abandoning the well was to finish by Oct. 18. Unless the company experienced unusual difficulty, there was little chance that eight days would prevent completion. That made it appear likely that ExxonMobil would meet its aims for the well despite the sanctions, which are directed at hobbling Russia’s next-generation oil production.

Universitetskaya is an important field not only for Russia, but for ExxonMobil. Like all of the major oil producers, the company has had a difficult time finding new reserves to replace what it drills every year. The Russian Arctic, if successful, could be a source of a large part of its production in the 2020s and beyond. As for Russia, it hopes that its Arctic underpins production for the next several decades, since oil revenue funds more than 40% of the state budget..

The sanctions are intended to threaten Russian hopes and pressure Putin into concessions on Ukraine.

In a statement yesterday, ExxonMobil told Quartz:

Given the complexity of the University-1 well and the sensitive arctic environment in the Kara Sea, ExxonMobil sought, and was granted, limited relief from the recently issued Treasury Department sanctions to enable a safe and orderly wind down of operations related to this exploration well.

The Kara Sea project and the University-1 well was the subject of our application for a slightly extended compliance period because operations were at a critical stage and additional time was required to safely wind down activity, especially given the sensitive arctic environment.

Quartz



14 Comments on "ExxonMobil finds oil in the Russian Arctic"

  1. Makati1 on Sat, 27th Sep 2014 6:11 am 

    I’m sure that Halliburton (or whatever name they are going by these days) would be happy to help Russia develop their resources, without the West’ help. Then there is the China bank that has Putin’s back.

    http://www.bloomberg.com/news/2014-09-23/moscow-s-mr-yuan-builds-china-link-as-putin-tilts-east.html

    http://www.reuters.com/article/2014/09/25/ukraine-crisis-russia-pipes-idUSL6N0RQ1SP20140925?feedType=RSS&feedName=utilitiesSector

    The more US ‘sanctions’, the stronger Russia gets and the more cracks open up in the DC/EU ‘partnership’.

  2. rockman on Sat, 27th Sep 2014 9:04 am 

    “Given the sanctions, analysts cast doubt on whether the company had time to produce the well logs necessary for an initial determination as to whether Universitetskaya contained oil.”

    Utter BS IMHO. One doesn’t have to produce oil from this well to determine if they made a discovery. Such evaluations have been the core of my efforts for the last 4 decades. I’ll skip the tech details but if curious search “well logging” on Wikipedia. Since the reservoir(s) are almost certainly conventional the evaluation would be rather straight forward.

    It can’t even be taken for granted that XOM would have run casing and tested the well if they had the opportunity. Often the initial offshore well(s) are planned as “expendable holes”: the wells are drilled, logged and abandoned. There is no facility there to produce the well. And given the high cost of putting a production facility in that environment I wouldn’t be surprised to see one or more “confirmation wells” drilled to confirm the size of the reservoir before the determination of commerciality is made. Sometimes such wells are “TA” (temporarily abandoned) so the can be re-entered and produce when the facility is in place. Given it’s such a shallow well I might guess the plan was always to P&A (plug and abandons) the well whether it found oil or not. Rather SOP on such operations.

    Given it might take another year or two to finish evaluation drilling and then 3+ years to build and set production facilities and then 2+ years to drill development wells it will likely be a minimum of 6 years before production would begin.

    IOW I doubt the current sanctions will have any significant impact on the Russians or XOM. And those few folks in DC that do understand the oil patch have probably explained the facts to the administration. IOW these announcements are just smoke and mirrors to convince the citizens that the US gov’t is inflicting serious damage on Russia for its rude behavior in the Ukraine.

    As the great Texas comedian points out: “You can’t fix stupid” LOL.

  3. Beery on Sat, 27th Sep 2014 9:49 am 

    Wait… there’s no mention of whether this is a “huge” find or a “vast” find. I need some sort of word that explains it so that I know how excited I’m supposed to get.

  4. steve on Sat, 27th Sep 2014 10:53 am 

    Rock, I went to see a talk given by a former rear admiral of the navy on climate change….what I found interesting was when he went a little off topic and talked about the melting arctic opening shipping lanes and oil production about equal to Kuwait…I thought that was very strange but it got me thinking that maybe there is secret intelligence war we don’t know about….or it is just dumb wishful thinking…..

  5. ghung on Sat, 27th Sep 2014 11:38 am 

    If I’m correct, the drill site is in here somewhere: h ttps://www.google.com/maps/@76.2146685,67.8648874,21505m/data=!3m1!1e3

    The fiords to the southwest, down the coast, are among the biggest nuclear waste dumps on the planet. Wikipedia:

    “The Soviet submarine K-27 was scuttled in Stepovogo Bay with its two reactors filled with spent nuclear fuel. At a seminar in February 2012 it was revealed that the reactors on board the submarine could re-achieve criticality and explode. The catalogue of waste dumped at sea by the Soviets, according to documents seen by Bellona, includes some 17,000 containers of radioactive waste, 19 ships containing radioactive waste, 14 nuclear reactors, including five that still contain spent nuclear fuel; 735 other pieces of radioactively contaminated heavy machinery, and the K-27 nuclear submarine with its two reactors loaded with nuclear fuel.”

    More: h ttp://bellona.org/news/nuclear-issues/radioactive-waste-and-spent-nuclear-fuel/2012-08-russia-announces-enormous-finds-of-radioactive-waste-and-nuclear-reactors-in-arctic-seas

    Making way for oil exploration

    Bellona’s Igor Kurdrik, an expert on Russian naval nuclear waste, said that, “We know that the Russians have an interest in oil exploration in this area. They therefore want to know were the radioactive waste is so they can clean it up before they beging oil recovery operations.”

    He cautiously praised the openness of the Russian report given to Norway and that Norway would be taking part in the waste charting expedition.

    Bellona thinks that Russia has passed its report to Norway as a veiled cry for help, as the exent of the problem is far too great for Moscow to handle on its own.”

  6. Davy on Sat, 27th Sep 2014 12:09 pm 

    G, good research and very scary considering the pristine nature of the Arctic.

    The beat goes on!
    ^+^

  7. dissident on Sat, 27th Sep 2014 1:42 pm 

    Bellona’s agenda driven anti-nuclear hysterics. The K-27 has two VT-1 lead-bismuth cooled unpressurized fast neutron reactors. There is zero chance for these reactors to explode. They are now in a state where the coolant is in a solid form. This is the normal behaviour for these reactors when they are shut down. They freeze solid. There is not going to be any coolant leak unless someone goes to the seabed and uses a blow torch to remove it. There is simply no analogue to the pressurized water cooled reactors at Fukushima where loss of power to the coolant pumps produced a cascade of failures leading to meltdowns and hydrogen explosions.

    This propaganda is beyond inane.

  8. dissident on Sat, 27th Sep 2014 1:44 pm 

    Nice to see Exxon deprived of a chance to develop this find. Ultimately it is the US and EU consumer that is impacted. Russia pumps 10 million barrels per day and uses 3 million.

  9. Keith_McClary on Sat, 27th Sep 2014 1:48 pm 

    rockman wrote:
    “IOW I doubt the current sanctions will have any significant impact on the Russians or XOM. And those few folks in DC that do understand the oil patch have probably explained the facts to the administration. IOW these announcements are just smoke and mirrors to convince the citizens that the US gov’t is inflicting serious damage on Russia for its rude behavior in the Ukraine.”

    Most countries require foreign companies to comply with their domestic laws, not take orders from foreign powers (eg., US laws against companies boycotting Israel). If Russia is pushed too hard with these sanctions it could get tough on the companies.

  10. rockman on Sat, 27th Sep 2014 2:30 pm 

    Steve – The basic rule about exploration geology: the less hard data available the larger the potential can be speculated…by anyone. Now jump the Gulf of Mexico shelf…one of the most prolific hydrocarbon basins on the planet: a gazillion bits of hard. And when was the last time you heard anyone speculating about significant oil potential out there let alone “huge” untapped?

    Years ago they spent over $300 million to drill a single well of the coast of the north slope that had
    “huge oil potential”. Huge because they has almost no data. Drilled a well and discovered that not only did the well not discover any oil reserves the geochem analysis indicated this region had not gone through the maturation cycle that would have generated any oil. So not only a dry hole but converted the potential from huge to zero. All it took was 40 or 50 pounds of shale cuttings to be analyzed to wipe out all the speculation.

  11. rockman on Sat, 27th Sep 2014 2:37 pm 

    Keith – True. We’ll probably never see the details but most foreign concession require a minimum amount of capex spent and drilling be done on some time line. Failing to meet that schedule could result in huge penalties including the loss of the concession. But even if XOM is under such obligations they probably still have at least a year or two before they have jeopardy. Offshore time lines can easily run into 5+ years just for the initial evaluation phase. And maybe 10 years to begin production.

  12. alokin on Sat, 27th Sep 2014 5:16 pm 

    http://www.zerohedge.com/news/2014-09-27/russia-discovers-massive-arctic-oil-field-which-may-be-larger-gulf-mexico
    here they say it’s a huge oil field

  13. GregT on Sun, 28th Sep 2014 2:03 am 

    alokin,

    I believe that the word used in the article was ‘massive’, which would be somewhat larger than huge. Further investigation is required, however.

    “Universitetskaya, the geological structure being drilled, is the size of the city of Moscow and large enough to contain more than 9 billion barrels”

    Large enough to contain? This tells us that the area MIGHT contain ‘more than 9 billion barrels’ of oil. It doesn’t mean that it does, and in all likelihood it does not.

    9 billion barrels sounds like a lot, but in reality it isn’t. The world currently consumes around 85 million barrels of oil per day. 9 billion barrels equates to a 15 week supply for the world. Hardly anything to get excited about, unless it is you that is making a profit.

  14. rockman on Sun, 28th Sep 2014 8:49 am 

    alokin – Thanks for the link. But no really useful info there. For instance “huge” is a meaningless term when it comes to volumetrics. The link does offer this:

    “For a sense of how big the spoils are we go to another piece by Bloomberg, which tells us that “Universitetskaya, 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.”

    Some clarity: a “structure” is not a field. It a geological feature typically denoting the shape of the subsurface geology. Any structure might be “huge” but that doesn’t mean a “reservoir” extends across the entire area of that “structure”. I’ve drilled many reservoirs that extended across just a very small portion of the structure they exist upon.

    Bottom line: they found some oil. How much? ExxonMobil has an estimate for sure. But how accurate do they believe their estimate might be? Probably a wide range at this point. Might take several more wells (over maybe another couple of years) to develop enough confidence to decide to set a platform to develop the field. Even though the hype masters are using words like “huge” or “9 billion barrels of oil” it’s entirely feasible that XOM doesn’t yet believe they have enough proven reserves to justify development.

    The amount of oil the discovery holds won’t be the sole factor to determine if it’s produced. The economics will. And given the high cost of operating in the Arctic it would take much larger reserves to develop then even if it were in the expensive Deep Water GOM.

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