ExxonMobil takes over from BP in Russia's Arctic

30th August 2011, Comments 0 comments

Russia's oil champion Rosneft and ExxonMobil on Tuesday clinched a global deal worth up to half-a-trillion dollars that will see the US supermajor take BP's place in pioneering Arctic exploration work.

The strategic cooperation agreement's signature was overseen personally by Prime Minister Vladimir Putin -- Russia's effective leader who also gave his personal blessing to the failed BP venture.

The deal will cement the ties of one of the world's largest companies to Russia and grant Rosneft its long-sought access to the North American market.

It should also finally see real funds invested in the development of far northern fields that Rosneft owns but is unable to tap without outside technological assistance and financial help.

"Today's event will of course be positively received by the international energy markets because new horizons will be opened," Putin said as he unveiled the deal in the southern city of Sochi.

Television footage showed the accord being signed by Rosneft chief executive Eduard Khudaynatov and ExxonMobil Development Company president Neil Duffin in the presence of a smiling Putin.

"This large-scale partnership represents a significant strategic step by both companies," said ExxonMobil chief executive Rex Tillerson.

"This agreement takes our relationship to a new level and will create substantial value for both companies."

ExxonMobil is a Russian veteran that first became involved in the Sakhalin-1 energy project in the Pacific in 1996 and has since navigated rapid changes in Kremlin politics to win lucrative oil deals in the Black Sea.

The US firm said Tuesday's deal will see some $3.2 billion invested in Rosneft's Kara Sea section of the Arctic and Russia's part of the Black Sea.

"This means that ExxonMobil will replace BP," the Vedomosti business daily remarked on its website.

Former Rosneft boss and current cabinet member Igor Sechin said the Russian firm would get access to at least six US projects as part of the tie-up.

"This share will be proportionate to the one Exxon receive while working on the Russian market," Russian news agencies quoted Sechin as saying.

Russia's energy czar said the pact will be implemented over several decades and result in joint direct investment of $200-300 billion.

"The total economic impact that includes oil flows can be estimated at $300-$500 billion," Sechin said.

Rosneft has long set its sights on becoming the world's largest oil firm by reserves and production -- a goal it would have met under one of the versions of the BP deal discussed shortly before its failure in May.

The Kremlin-run firm had been hoping that any agreement on the Arctic would include a share swap option that would give Russia broader access to Western financial markets.

None emerged from its talks and the deal announced by the two sides Tuesday only mentioned Rosneft taking an "equity interest in a number of ExxonMobil's exploration opportunities in North America."

"We do not need a share swap at this stage," Sechin stressed. "Rosneft is still getting the chance to enter ExxonMobil's international projects."

Rosneft shares traded up by as much as 3.0 percent on the Moscow market on Tuesday and closed the day up about 1.4 percent. Rumours of the deal had the company's shares up 10 percent in morning trade in London.

The underperforming company quickly turned into Russia's largest oil firm in the past five years after snapping up assets held by the jailed tycoon Mikhail Khodorkovsky in controversial sales of his Yukos assets.

But it has struggled to break into overseas markets -- until it began dangling the prospect of Arctic oil cooperation to hesitant Western partners.

Rosneft chief Khudaynatov said the deal helped turn his "company into a global energy leader."

"This agreement is no way a copy of the one we worked on with BP," Sechin added. "We have entered an entirely new level of cooperation."

© 2011 AFP

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