Russia’s state-run oil company said a well drilled in the Arctic Ocean with Exxon Mobil Corp. struck oil, showing the region has the potential to become one of the world’s most important crude-producing areas.
OAO Rosneft Chief Executive Officer Igor Sechin said the exploration well had found about 1 billion barrels. The number of similar geological structures nearby means the immediate area probably contains more than the US part of the Gulf of Mexico, Bloomberg quoted Sechin as saying. “It exceeded our expectations.”
The discovery, which needs to be confirmed with further tests, sharpens the dispute between Russia and the US over President Vladimir Putin’s actions in Ukraine. The well was drilled before the Oct. 10 deadline Exxon was granted by the US government under sanctions barring American companies from working in Russia’s Arctic. 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.
The importance of Arctic drilling was one reason that offshore oil exploration was included in the most recent round of US sanctions. Exxon and Rosneft have a venture to explore millions of acres of the Arctic Ocean.
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.
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 US 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.
