Massive Arctic Oil Discovery - Rosneft Elated, XOM Adheres To Sanctions

Rosneft and ExxonMobil have discovered oil in an area that may turn out to contain more hydrocarbons than the US Gulf of Mexico.

Over a month ago, Oilpro member Jeffrey Lareau reported that ExxonMobil and Rosneft had begun drilling a $700 million well in the Kara Sea in the Arctic, despite intensified measures taken by the US and EU against Russia for its actions in Ukraine.

The Universitetskaya-1 well (Russia's northernmost well) is the first of as many as 40 offshore wells Rosneft said it planned to drill in order to assess the potential of the unexplored Arctic by 2018. The well targeted the Universitetskaya- a geological formation approximately the same area as the city of Moscow.

Over the weekend, Rosneft CEO Igor Sechin announced that the Universitetskaya-1 well discovered oil. For two days, Sechin sailed on a Russian research ship to the West Alpha rig where the discovery was revealed on Saturday.

The West Alpha is a 3rd gen semisubmersible drilling rig managed by drilling contractor North Atlantic Drilling.

This MODU is rated to drill in water depths of up to 2,000 ft. The MW floater is rated to achieve a maximum total drilling depth of approximately 20,000 ft. and can accommodate about 100 crew members. Station keeping is achieved via a dynamic positioning system, and this unit was built to work in harsh environments.

Controversy swirled around the Kara Sea project even before the escalation of the Russian/Ukraine conflict, as green peace activists boarded the rig as it sat in the harbor this spring ahead of mobilization.

West Alpha targeted by Green Peace

Approximately 1 billion barrels of oil was discovered at the well, and nearby geology indicates that the surrounding region could contain more oil that the US sector of the Gulf of Mexico, Sechin said in a statement.

In an interview with Bloomberg, Sechin said, "It exceeded our expectations," and that the discovery is of "exceptional significance in showing the presence of hydrocarbons in the Arctic."

The well was drilled prior to the October 10 deadline ExxonMobil was granted by the US government per sanctions prohibiting US companies from working in Russia's Arctic offshore area. The company had been granted an extension from the US government, as the original deadline for ExxonMobil to shut down operations with its Russian partners was September 26.

Despite the discovery, Rosneft and ExxonMobil will not be able to do additional drilling, thus putting the exploration and development of the region in abeyance unless and until the US sanctions are abrogated or amended.

Between 2011 and 2013, a series of agreements between Rosneft and ExxonMobil were made in which ExxonMobil agreed to work with Rosneft in the Arctic and in West Siberia's Bazhenov shale. These agreements also yielded Rosneft receiving minority stakes in some GOM assets. It was also announced at the time that the two companies would work together in US shale.

ExxonMobil CEO Rex Tillerson & Rosneft Chief Igor Sechin in 2012

Richard Keil, and ExxonMobil spokesperson, told Bloomberg via phone, "We have encountered hydrocarbons but it is premature to speculate on any potential outcome...Our current focus is on completing the well and safely winding down operations consistent with our license with the US government."

Earlier this month, Sechin said that Rosneft planned to invest $400 billion in the Arctic over the next 15 years. He told Der Spiegel, "We expect to open a new oil province there, with reserves comparable to the developed reserves of Saudi Arabia."

On Saturday, Sechin marked the discovery as the "united victory" of "ExxonMobil, Nord Atlantic Drilling, Schlumberger, Halliburton, Weatherford, Baker, Trendsetter, FMC."

Sechin said further that the field will be called "Pobeda"- which means "Victory." The estimated resource base of the "trap" that the drilling had discovered was more than 750m barrels of high-quality light oil and 338 billion cubic meters of gas.

S: oilpro.com
Adjusted by: Luis Gomes