ExxonMobil to stop drilling in Kara Sea as sanctions bite

By bne IntelliNews September 22, 2014

bne -

US energy giant ExxonMobil, partner of Russian state-owned oil company Rosneft, will cease  drilling operations in Russia's  Kara Sea in the Arctic circle, as US sanctions placed on Russia over alleged aggression in Ukraine start to bite. The US company, which operates a joint venture with Rosneft, will complete the drilling of its first well before mothballing operations.

“The US finance ministry, understanding the difficulties of work on the well University 1 and the ecological situation in the Kara Sea gave ExxonMobil and other contractors permission to close down operations in a safe and responsible manner,” said a ExxonMobil company representative. 

Karmorneftegaz, a joint venture between Rosneft and ExxonMobil, only started drilling University 1, Russia's most northerly well, on August 9, and was scheduled to have finished drilling by October, according to information on Rosneft's website. The ice-free window for drilling lasts from August to mid-October, with the Norwegian drilling rig due to return to European waters afterwards.

Itar-Tass quotes Rosneft vice-president Larisa Lakanda as saying that Karmorneftegaz would manage to complete drilling the first well, before sanctions would force Exxonmobil to pull out. Rosneft says it is satisfied that ExxonMobil will finished drilling the well as planned.

US and EU sanctions introduced at the end of July in response to alleged Russian aggression in Ukraine restrict export to Russia of technology for deep water drilling, Arctic drilling and shale gas drilling. In early September, the US prohibited US companies from providing oil field services in Russia for deep water, shale and Arctic projects, including for existing projects. US firms affected by the sanctions would have to cease work by September 26, prior to the deadline postponement made by the US finance ministry.

Rosneft will now need to look for another drilling partner, possibly China National Offshore Oil Corp. (CNOOC), according to sources quoted by business daily Vedomosti. But US restrictions on raising finance on international markets will add further difficulties to capital intensive Arctic drilling operations.

The joint Exxon and Rosneft drilling at the University 1 licence east of Novaya Zemlya, a $600m operation using the West Alpha rig supplied by Norway's Seadrill, was billed as the first step in a long-term Exxon, Rosneft partnership for oil exploration offshore in the Russian Arctic. Planned joint drilling operations for several licences in the Kara Sea were said to be worth a total of $3.2bn, with the Kara Sea oil fields said to be bigger than those in the Mexican Gulf.

Drilling in the Kara Sea was launched on August 11. Russian president Vladimir Putin told Rosneft’s CEO Igor Sechin at the time: ”This [operation] has become possible thanks to the joint efforts of Rosneft and Exxon Mobil. Our experiences show that it is practically impossible, or at least very difficult, to develop these kind of projects alone,” Putin said.

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