BP’s ambition to become a major player in the Russian arctic has been thwarted after ExxonMobil announced it had sealed an agreement with Rosneft for the exploration of giant offshore deepwater fields.
The Exxon-Rosneft deal, valued at $3.2 billion, will see the US supermajor assist Rosneft with the exploration of offshore fields in Russia’s Kara and Black Seas in return for options for the Russian firm to acquire interests in oil projects in Texas and the Gulf of Mexico.
The three Arctic blocks up for exploration contain reserves of 36 billion barrels, according to the Financial Times.
While BP offered a 5% stake in their company as a whole instead of options on defined production blocks, the Exxon deal bears a strong resemblance to that initially agreed with the British supermajor, down to the foundation of an Arctic research centre staffed by both companies.
Russian President Vladimir Putin, attending the signing of the Exxon-Rosneft deal, said total investment under the JV could total $200-300bn, with development and infrastructure increasing the total to $500bn, according to an FT report (Putin did not specify the currency, only the sum, and if he was talking in Roubles the total investment would be around $17.5 billion).
While the prospect of a state-backed Russian firm owning stakes in American oil fields has raised the eyebrows of American politicians, the deal is unlikely to be scuppered by regulators as Rosneft is only expected to take minority stakes in US assets, with Exxon remaining majority stakeholder and operator.
The Russian firm is keen to learn how to extract oil from deep or tight reservoirs, and has been courted by international companies unsuccessfully for months before agreeing the Exxon deal.
Meanwhile, Arctic exploration offers huge but high-risk potential for Exxon which could bring several hundred thousand barrels per day of new oil to global markets. In addition to the operational challenges of operating in deep water in below-freezing temperatures and an environmentally-sensitive environment, Rosneft’s previous conduct with Chevron and BP shows that an agreement is not necessarily a guarantee.
The ExxonMobil deal comes only three months after BP’s attempt at a deal fell through over the contention from shareholders in TNK-BP, its existing Russian venture, that a tie-in with Rosneft would amount to a breach of the TNK-BP shareholders’ agreement.
As part of the fallout from the attempted Rosneft deal, Alfa-Access-Renova, a group of Russian billionaires with a minority stake in TNK-BP, persuaded a court to order a raid on BP’s Moscow offices on 31 August, a move BP have condemned as “illegal’” telling the FT there are “no legitimate grounds for the raid.” AAR is seeking $3 billion from BP in losses from the alleged conflict of interest, which BP denies.
BP’s Russia chief Jeremy Huck was quoted by Interfax as saying the search by bailiffs was part of an attempt to put “pressure on the business of BP in Russia”. He also said the search had paralysed its Moscow office and that bailiffs might continue removing documents until the end of the week.
Affairs in Russia increase the pressure on Bob Dudley, BP’s CEO, who is already being expected to boost performance after the latest round of quarterly results shows BP falling away from Shell and ExxonMobil in profit growth, and has now seen BP effectively excluded from the world’s last untapped super-massive oil resource.
