ExxonMobil: untapped oil and gas reserves in the Black Sea lure the oil major to Russia

Share |

2 February 2011, Oil, Gas

oilandgasobserver archive

ExxonMobil has signed an agreement with the Russian state oil company Rosneft to jointly explore and develop oil and gas resources in the Black Sea's Tuapse Trough. The area, covering 11,200 square kilometers, lies in deep waters in the northeast section of the Black Sea, offshore the Krasnodar region in Southern Russia, and is near to the major Russian oil export terminal at Novorossiysk. This is ExxonMobil's second largest venture in Russia after the path-breaking Sakhalin-I project (also in collaboration with Rosneft) about a decade ago.

Rosneft estimates that the area could contain 7.3 billion barrels of oil equivalent of untapped oil and gas resources - about the same as the total proved reserves of Norway. The deal requires ExxonMobil to invest $1bn in the exploration stage, during which, the venture would stand at 50:50. The venture split would then be revised to 66:33 in favor of Rosneft at the development stage. The agreement also gives the two companies an option to extend the partnership at a later stage, namely in the development of regional transportation infrastructure, possible exports from Novorossiysk, and/or crude oil sales to Rosneft's nearby Tuapse refinery. There is also the possibility of further collaboration in research and development for deepwater exploration.

The deal is significant for both companies, as it gives ExxonMobil a slice of the vast riches of Russian oil and gas deposits, while Rosneft benefits from a much needed cash injection and technical assistance, particularly ExxonMobil's cutting-edge deepwater technology and project management skills. A large-scale development of the entire Black Sea basin could be in the offing in future.

Inviting international oil companies to engage in offshore exploration signals Russia's intent to compensate for the decline in production from its Soviet-era onshore fields. According to Datamonitor's Global Oil and Gas Analyzer, Russia's offshore production is expected to increase to about 15% of total oil production by 2020 from less than 5% today, and Russian companies may look to engage in many more such mutually beneficial partnerships in the future. Although this could signal the start of a new optimistic era, observers will always be wary due to the history of changes to the regulatory framework and sometimes bitter legal wrangles.

Source: Datamonitor

More Oil Commentary

More Gas Commentary

Recent commentary