(Adds background on Duffin in 12th paragraph, Chevron comment in last paragraph.)
Aug. 30 (Bloomberg) -- Exxon Mobil Corp. has replaced BP Plc in a partnership with Russia’s OAO Rosneft to drill in the Arctic, one of the last untapped oil frontiers in the world.
In exchange for access to potentially billions of barrels of crude in the Arctic Ocean, Exxon will grant Rosneft stakes in Texas shale fields and deep-water projects in the Gulf of Mexico, the companies said today in a statement.
Exxon and Rosneft plan to spend an initial $3.2 billion exploring Russia’s Arctic offshore and the Black Sea. In turn, Rosneft may become the first major Russian oil producer to develop U.S. deposits, gaining experience in deep-water and shale oil.
Russia is seeking access to more international technology to help it exploit complex crude deposits in increasingly harsh environments as traditional resources, such as western Siberian fields, are declining. The Exxon agreement will help Rosneft meet Putin’s challenge that Russian producers maintain the country’s world-leading output of 10 million barrels a day for at least a decade.
Russia’s government will support the Exxon-Rosneft alliance “in every way,” said Prime Minister Vladimir Putin, who presided over the deal today in Sochi on Russia’s Black Sea coast.
Exxon beat out its biggest international oil rivals to win a piece of the Russian Arctic. Exxon replaces BP Plc as Rosneft’s partner in the Arctic Kara Sea after the U.K. explorer’s billionaire partners in the TNK-BP Holding venture blocked the agreement this year.
“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.”
Royal Dutch Shell Plc and Chevron Corp. also have said they wanted to explore partnerships with Rosneft in the Arctic.
The world’s biggest oil companies are competing for new reserves as crude-rich countries shut out foreign operators and the easiest-to-reach hydrocarbons are exhausted.
Mark Salt, spokesman for London-based BP, declined to comment on the agreement.
100 Billion Barrels
The three blocks in the Kara Sea fields that are part of this agreement 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.
Exxon Chief Executive Officer Rex Tillerson attended the signing with Neil Duffin, the company’s president for development, and Rosneft CEO Eduard Khudainatov. Duffin oversaw Exxon’s deepwater Angolan projects, such as Kizomba, which have been big some of the company’s biggest producers in the past decade.
“I take it as a strong statement of Russian intentions to create competitive conditions to attract investments,” Tillerson told reporters.
The agreement allows Rosneft a chance to participate in Exxon’s unconventional fields in the U.S., where oil and gas are extracted by cracking open rocks with sand, water and chemicals. The two companies said they’ll study the potential for similar fields in western Siberia.
As one of the largest oil companies in the world, Exxon brings experience and deep pockets to the alliance, said Brian Youngberg, an analyst at Edward Jones in St. Louis who has a “hold” on Exxon shares and owns none.
“To partner up with a AAA-rated energy company makes sense for Rosneft as they seek to diversify outside of Russia,” Youngberg said. Credit agencies rate Exxon AAA, their highest grade.
Putin said the investment needed to develop all the fields involved and associated infrastructure may reach as much as $500 billion.
“It’s scary to utter such huge figures,” he said. Exxon, based in Irving, Texas, will be a “reliable, strategic and good partner,” 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.
Shell, Europe’s largest oil company, was described by Putin in May as a potential “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.
Chevron pulled out as Rosneft’s partner in the Val Shatskogo exploration project in Russia’s Black Sea this year. Chevron is “looking to partner with Rosneft on other opportunities in the Arctic or elsewhere in Russia,” said Kurt Glaubitz, a company spokesman.
--With assistance from Edward Klump in Houston, Brian Swint in London, Anna Shiryaevskaya in Moscow and Susan Warren and Mike Lee in Dallas. Editors: Susan Warren, Tina Davis
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