Bloomberg News

Exxon Forms Rosneft Alliance for Arctic Reserves, Gulf of Mexico

August 30, 2011

Aug. 30 (Bloomberg) -- Exxon Mobil Corp. formed an alliance with OAO Rosneft, Russia’s largest oil producer, to drill from the Texas plains and Gulf of Mexico to the Arctic Ocean.

Exxon and Rosneft plan to spend an initial $3.2 billion exploring Russia’s Arctic offshore and the Black Sea, the companies said today in a statement. In turn, Rosneft may become the first major Russian oil producer to develop U.S. deposits, gaining experience in deep-water and shale oil.

Exxon replaces BP Plc as Rosneft’s partner at three blocks in the arctic Kara Sea after the U.K. explorer’s billionaire partners in the TNK-BP venture blocked that agreement this year. Prime Minister Vladimir Putin, who presided over the Exxon deal today in Sochi on Russia’s Black Sea coast, said it may generate as much as $500 billion of investments.

“Access to new resources is the life blood of oil companies,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. “Russia is one of the largest resources that’s still available. It’s like Exxon is now dating the girlfriend BP had a few months ago.”

The world’s biggest oil companies are competing for new oil and gas reserves as countries such as Saudi Arabia shut out foreign operators and the easiest-to-reach hydrocarbons are exhausted. The Kara Sea fields are about the size of the U.K. North Sea and may hold as much as 100 billion barrels of oil equivalent, according to BP.

London-based BP spokesman Mark Salt declined to comment on the deal.

Reliable Partner

Russia’s government will support the Exxon-Rosneft alliance “in every way,” Putin said. The Houston-based company will be a “reliable, strategic and good partner.”

The agreement allows Rosneft a chance to participate in Exxon’s unconventional fields in the U.S., where oil and gas are extracted by grinding rocks with sand, water and chemicals. The two companies said they’ll study similar fields in western Siberia.

Exxon Chief Executive Officer Rex Tillerson attended the signing between Neil Duffin, the company’s president for development, and Rosneft CEO Eduard Khudainatov.

“I take it as a strong statement of Russian intentions to create competitive conditions to attract investments,” Tillerson told reporters.

‘Scary’ $500 Billion

Putin said the investment need to develop all the fields involved may reach as much as $500 billion once all the associated infrastructure is built. “It’s scary to utter such huge figures,” he said.

Exxon and Rosneft on Jan. 27 signed a preliminary accord for a $1 billion exploration project in the Black Sea’s deepwater Tuapse Trough.

Royal Dutch Shell Plc, Europe’s largest oil company, may have let the opportunity slide, after Putin said in May that it would be a “comfortable partner” to replace BP in the Kara Sea. Shell, which works with state-controlled OAO Gazprom in Siberia and Sakhalin Island, agreed to further expand cooperation with the gas producer in June.

--With assistance from Brian Swint in London and Anna Shiryaevskaya in Moscow. Editors: Torrey Clark, Alex Devine

To contact the reporters on this story: Stephen Bierman in Moscow at sbierman1@bloomberg.net; Ilya Khrennikov in Sochi, Russia at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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