Oil giant Exxon Mobil has secured a contract with Russia’s state oil company, Rosneft, to explore the floor of the Arctic Ocean for oil. At a surprise signing ceremony in Sochi, site of the coming Winter Olympics, Vladimir Putin stated, “The scale of the investment is very large. It’s scary to utter such huge figures.” While he mentioned $500 billion, experts believe tens of billions is a more likely level of investment.
The deal resembles one that BP almost secured earlier this year. The BP arrangement, though, offered Rosneft a stock swap. Exxon’s arrangement trades assets to Rosneft – including some deepwater sites in the Gulf of Mexico and some land assets in Texas.
Andrew Kramer writing in the New York Times reports, “Under the new agreement, the state-owned Rosneft could become a part-owner of drilling operations in the United States. Those operations could include two of the industry’s most contentious oil extraction methods — drilling for oil in the deep waters of the Gulf of Mexico and using the so-called hydraulic fracturing, or fracking, technique on land. The Russians want to learn about both types of drilling for use at home.”
Up until now, Exxon has confined its activities in Russia to a production sharing deal covering the Sakhalin Islands. An American firm securing this contract is a feather in the Obama’ administration’s cap. However, Rosneft’s activities in the US may lead to objections from rivals and the environmental lobby. Exxon’s future in the Arctic will be affected by any such impediments.
Indeed, the current Russian business climate suggests that no deal is ever final. Royal Dutch Shell’s experience with Gazprom back in 2006, when the former was forced to sell its 50% stake in a Sakhalin offshore development to the latter, remains a cautionary tale for western investors and businesses.
The political dimension here will loom large for a long time.
