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Page added on May 25, 2012

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To Tap Arctic Oil, Russia Partners With Exxon Mobil

To Tap Arctic Oil, Russia Partners With Exxon Mobil thumbnail

Russia is still the world’s largest producer of oil and gas, but growth has stalled and to get to new supplies requires going to a very difficult place — the Arctic.

“If you want to be in this business in 2020, 2025, you must think about the Arctic,” says Konstantin Simonov, head of the National Energy Security Fund in Moscow.

In the past month, Moscow has signed several deals with foreign oil companies designed to maintain Russia’s position as the top producer. The most important deal, and the most lucrative, is a partnership between Exxon Mobil and Russian oil giant Rosneft.

Exxon Mobil could eventually spend half a trillion dollars to look for and extract oil and gas in the Russian Arctic. The investment is enormous, but so are the potential rewards.

Getting To The Arctic’s Reserves

“The reserves in the Russian Arctic are vast,” says Roland Nash, chief investment strategist for Verno Investment in Moscow. “Nobody quite knows how vast, but the numbers are enormous.”

Some estimates put the oil and gas reserves in Russia’s Arctic waters at 100 billion tons. According to Simonov, the deal with Exxon Mobil is a sign that Russia knows it needs international investment and technology to get to those reserves.

“Without foreign partners, for us it will be impossible to develop this area,” Simonov says. “It’s out of [the] question.”

The deal was signed on April 18 with Russian President Vladimir Putin looking on. It gives Exxon Mobil access to oil fields in the Black Sea and provides Russia some access to Exxon Mobil’s oil deposits in Texas, Canada and the Gulf of Mexico.

At the signing, Putin said Exxon Mobil also had the option to work in Russia’s north and south, as well as in other regions. Meanwhile, the Russians will soon start work with Exxon Mobil in the U.S. and Canada.

In addition to the Exxon Mobil deal, Russia’s Rosneft recently signed smaller deals with Italian oil company Eni to go after oil in North Africa, and with Norway’s Statoil elsewhere in the Arctic.

But it hasn’t been easy for foreign oil companies to do business in Russia. BP had a similar deal with Rosneft that fell apart last year. According to Roland Nash, everyone knows about Russia’s troubled past with international oil companies.

“Signing the deal is Step 1,” Nash says. “Implementing the deal is a bigger step in some ways.”

So Russia has changed the game in favor of the oil giants. The government has eased the tax burden on Exxon Mobil and others looking for oil in the Arctic, making it a more attractive proposition.

And, according to Simonov, letting Rosneft in on energy deposits elsewhere in the world turns the Russian oil giant into an international player, helping it spread its risks. There are also potential political benefits.

“It’s like, you know, the logic of capitalism,” Simonov says. “If you are the shareholder of serious assets in Europe and the United States, maybe there will be more reason to have political dialogue also.”

Making Things Happen

The financial markets have reacted cautiously to the deal, given Russia’s checkered relations with international oil companies in the past. But Nash believes it’s a very good move by Exxon Mobil and by Russia.

“The real reason why Exxon Mobil should believe in this is because Russia really needs this investment. They recognize that without that investment, you’re not going to be able to maintain Russia as the world’s largest oil producer. You’re not going to be able to get this oil out of the ground in the Arctic,” he says. “When things are necessary in Russia, they tend to actually happen.”

But it won’t happen fast. Russia has a long-term deal with Exxon Mobil, and it’s unlikely that there will be any serious production from Russia’s soon-to-be explored Arctic waters until after 2020.


7 Comments on "To Tap Arctic Oil, Russia Partners With Exxon Mobil"

  1. BillT on Fri, 25th May 2012 2:53 pm 

    Russia just finished nationalizing their oil fields. I guess Exxon is desperate to try that again. Dump you oil stock.

  2. cottager on Fri, 25th May 2012 4:10 pm 

    Wow, vast fields, even enormous :O And Exxon is going to spend half a trillion? Sounds nice. Especially when you know russian common practices to nationalize some funds of foreign companies. They call it “not to stand on knees”. Means you can get rich by stealing some funds from foreign and sometimes russian companies (those, who are against regime). So good luck, keep going Exxon 😉 Just be careful. Think about 140 mill. russian population, they want to eat, and they are not exporting anything, except oil, gas and weapons. First read this

    Since Putin assumed the Russian Presidency in January 2000, there has been what amounts to a creeping re-nationalization of the Russian oil industry. In Russia, Vladimir Putin’s government has pressured Royal Dutch Shell to hand over control of one major project on Sakhalin Island, to Russia’s Gazprom in December. The founder of formerly private Yukos has also been jailed, and the company absorbed by state-owned Rosneft. Such moves strain the confidence of international oil companies in forming partnerships with Russia. Russia has taken notice of their increasing foreign oil investment improving politics with other countries, especially former states of the Soviet Union. Oil industry in Russia is one of the top producers in the world, however, the proven reserves in Russia are not as prevalent as in other areas. Furthermore, previously accessible oil fields have been lost since the Cold War. With the collapse of the USSR, Russia has lost the rich Caspian Basin off-shore and on-shore oil fields in the Central Asian states and Azerbaijan.

  3. DC on Fri, 25th May 2012 5:13 pm 

    So, who cares if the Russians nationalize there oil? Id love for my country give those stinking amerikan oilcos there walking papers too! Pay em 25 cents on the dollar and say go away. Course, our cities would likely be visited by drones and cruise missles about a week later, buut…

    Anyhow im sure it didnt take the Russians long to learn that dealing with amerikan Oilcos is the kiss of death, literally. I hope more US corps there get there syhte seized. Perhaps other countries currenty under US control will also grow a spine and nationalize too. The US, cant defeat the entire world, hell, they cant even defeat the afghans or Iraqis.

    As for the comment above about ‘loseing’ the caspian. They lost what exactly? Heavy sour, sulfer laden crude that no one wants? The caspian hasnt been a cash cow for anyone, despite what..2 decades now of talk about how awesome it is?

  4. SOS on Fri, 25th May 2012 6:27 pm 

    Of course Exxon would be developing American reserves if peak politics wasnt so intent on bringing about peak oil.

    Its a good sign Exxon Mobile is involved. They are the largest and probably the most efficient producer in the world. You would expect the best to be involved in one of the worlds gigantic untapped oil/gas reserve plays.

    No peak oil in Russia but there is peak oil in Alaska and the USA. I wonder why?

  5. DC on Fri, 25th May 2012 9:17 pm 

    I dont think you really want to know the reason the US of Oil peaked first, but here goes anyway-the real reasons(1)

    As we all know, the closests and easiest oil always gets exploited 1st. In amerikans case, places like Penn. Okhla. Texas Calif were all drained first. But for what? well, for the following:

    Lets start with amerikas cars and jets only transportation policy. Hugely wasteful and energy intensive(by design) these 2 devices can drain entire regions of oil. Give the patheic ‘efficencey’ of amerikas gas-powered anythings, the local oil only took a few decades to skim off.

    -PetroDollar recycling and hegemony

    -Subsidies…massive subsidies. Underwritten at home by average taxpayers and abroad though finanical manipulation of global markets and coercive trade and military actions.

    The US war-machine 500k barrels a day.The largest single user of energy in world, and history.

    -Suburbia, Wall-mart, disneyland. L.A. Las, Vegas, you name it. All builtt by fossil-fuels, and designed to waste fossil-fuels, (see point 1)

    Amerikan corpororations were more ‘efficent’ at exploiting FF faster than Russia was. Now note the word ‘efficent’ is a loaded term. It does mean wise, intelligent, prudent or anything like that. It just means a reckless strategy was carried out faster with fewer delays and interuptions. Being in total control of the US govt certainly helped expidite the removal of FFs from the US at maximum rate, and profit, for them not the people of the US.

    Lastly its entirely possible that Russia simply has and has always had more oil than Amerika ever did, and accident of geology, not ideology. But the fact Russia had a far more frugal standard of liveing, and was never held to ranom by amerikan-style cars-only transportation, probably has had just as much to do with delaying Russia peak as anything.

    Help ye out any?

  6. BillT on Sat, 26th May 2012 1:31 am 

    Right on DC! Greed for profit put the Us into the situation it is in today. And it is still killing what is left of America.

  7. Kenz300 on Sat, 26th May 2012 1:51 pm 

    BP tried to partner with a Russian firm. They had to walk away from their investment.

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