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Exxon Rosneft deal major setback for BP and Shell

Royal Dutch Shell PLC… declined to comment on the Exxon-Rosneft deal and had no update on the status of Shell’s talks with Rosneft. Shell CEO Peter Voser said in July that his company was in early-stage talks with Rosneft over Arctic exploration opportunities.

Exxon, Rosneft Sign Global Pact To Jointly Drill For Oil

By William Mauldin and Isabel Ordonez of DOW JONES NEWSWIRES

MOSCOW -(Dow Jones)- Exxon Mobil Corp. (XOM) and Russia’s OAO Rosneft (ROSN.RS) Tuesday announced a global partnership that would grant the Texas oil giant more access to Russia’s vast oil riches and provide Rosneft a piece of the red-hot U.S. oilpatch.

The deal, which includes $3.2 billion in exploration offshore of Russia, marks Russia’s most decisive step forward to attract international oil heavyweights since the demise of a similar venture between Rosneft and BP PLC (BP, BP.LN).

The agreement, signed in the Russian Black Sea resort of Sochi, would undertake new investment in the Kara Sea of the Russian Arctic and a Black Sea project, according to a joint statement from the two companies. It also gives Rosneft the opportunity to gain equity interest in a number of Exxon’s North America exploration projects, including the deep-water Gulf of Mexico and unconventional oil fields in Texas. The companies also agreed to conduct a joint study of developing tight oil resources in Western Siberia.

The deal was signed by Rosneft and Exxon executives in a meeting attended by Prime Minister Vladimir Putin and Exxon Chief Executive Rex Tillerson, according to the press release.

Rosneft’s global agreement with Exxon is a setback for BP, which had sought to work with the Russian state-controlled company in the Kara Sea but faced determined opposition from its partners in its Russian joint venture, TNK-BP. BP declined to comment Tuesday afternoon.

Meanwhile, the deal represents a major victory for Exxon, the world’s largest oil company by market value, as it gives it potential access to vast oil reserves at a time when oil companies have been struggling to keep their production growing. It is also a boon for Putin and his deputies, who have sought to lure a global oil giant with offshore expertise and technology in order to develop fields in the Arctic and elsewhere in order to boost Russia’s oil production, which has leveled off at about 10 million barrels a day.

Morningstar Inc. analyst Allen Good says that cross-ownership of assets between Exxon and Rosneft is a key element of the deal, as it reduces the political risk for Exxon of doing business in a country where fiscal terms could change over time.

The companies didn’t disclose details about the development plans for the area or the size of the Arctic fields, but it could take at least four years until Exxon Mobil and Rosneft start drilling and until the end of the of the decade to see first production, said Jason Gammel, an analyst with Macquarie Capital. The huge amount of oil reserves that are at stake, however, are worth the wait, he said. BP early this year said the Russia’s Arctic fields could hold as much oil and gas as the oil-rich North Sea. Rosneft estimates the Arctic fields hold 4.9 billion barrels of recoverable crude reserves, while the one in the Black Sea has reserves of 1.2 billion barrels.

“This could be really significant for Exxon in a decade,” Gammel says.

Exxon already works in the Sakhalin-1 project on Russia’s Pacific Coast and earlier this year had signed a Black Sea agreement with Rosneft. The company has had a long-standing interest in Russia, where Tillerson served as an executive in the 1990s, and it once engaged in a failed bid to acquire Russian oil giant Yukos.

Workers from Rosneft and Exxon will develop an Arctic Research and Design Center for Offshore Developments in St. Petersburg, Exxon said.

The companies will work on blocks 1, 2, and 3 of the East Prinovozemelsky project on the Arctic shelf, the same project offered earlier this year to BP in an abortive deal that had involved a share swap with Rosneft.

Exxon will get a one-third equity interest in both the Prinovozemelsky project in the Kara Sea as well as in the Tuapse Block in the Black Sea, with Rosneft holding 66.7%.

Royal Dutch Shell PLC (RDSA.LN), which has also held talks with Rosneft about Kara exploration, said it remains keen to work in Russia’s Arctic, along with opportunities it has in other Arctic areas such as Alaska, a company’s spokesman said. The company declined to comment on the Exxon-Rosneft deal and had no update on the status of Shell’s talks with Rosneft. Shell CEO Peter Voser said in July that his company was in early-stage talks with Rosneft over Arctic exploration opportunities.

Peter Hutton, analyst at RBC Capital Markets, said the Exxon deal was a major setback for BP and Shell.

“This is as much a blow to Shell as to BP,” said Hutton. “I think BP knew it was lost, that the opportunity was gone.” But the exploration opportunity in the Kara Sea remained for other companies, “in a package that was available, offered and quantifiable” he added.

Rosneft rose 1.4% to RUB224.10 rubles in Moscow. Exxon shares were off 83 cents to $73.50 in recent trading.

-By Isabel Ordonez and William Mauldin, Dow Jones Newswires; 713-547-9207; [email protected]

–James Herron in London contributed to this article.

(END) Dow Jones Newswires

August 30, 2011 14:27 ET (18:27 GMT)

Copyright (c) 2011 Dow Jones & Company, Inc.


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