Rosneft claims new oilfield 'Victory' despite US sanctions

By bne IntelliNews September 29, 2014

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Less than three weeks after the US targeted Russia's Arctic oil operations with sanctions, Rosneft announced the discovery of an oilfield in an area of the Arctic that the Russian firm claims has a resource base comparable to that of Saudi Arabia.

According to the results of the drilling, Rosneft said September 27 it made an oil discovery at the East-Prinovozemelskiy-1 license area after completing drilling of the northernmost well in the world – the Universitetskaya-1 well in the Arctic.

The well was drilled by ExxonMobil in partnership with Rosneft. Rosneft has been targeted by US and EU sanctions on Russia over Russian aggression in Ukraine, with sanctions entering into force September 26.

But the US had only days before granted a postponement of sanctions until the end of October to allow ExxonMobil to conclude the drilling under ecologically safe conditions.

Igor Sechin, Rosneft CEO and close associate of Russian President Vladimir Putin, said during the ceremony dedicated to the completion of the drilling: “I can inform you about the discovery of the first oil/gas-condensate field in the new Kara sea oil province. The first oil was extracted. It is an astonishing sample of light oil, which based on the results of the analysis performed, is comparable to the Siberian Light oil,” Sechin said, according to a Rosneft press release.

“The resource base estimate of just this oil trap is 338 bcm of gas and more than 100 mln tones of oil. And this is just the estimates of this very structure. This is an outstanding result of the first exploratory drilling on a completely new offshore field,” Sechin added, thanking “our friends and partners” from ExxonMobil, Nord Atlantic Drilling, Schlumberger, Halliburton, and other Western concerns. “We would like to name this field Pobeda – Victory,” he concluded.

The find could be a source of new tension with the US government, which two weeks ago slapped new sanctions on Russia that forbid US companies from participating in Russian Arctic drilling, but then under lobbying from ExxonMobil postponed implementation of these sanctions until end of October for Arctic drilling, citing ecological concerns. Exxon spent $6m on lobbying the US government in the first half of 2014, listing Russian sanctions as one of its lobbying issues, according to its disclosures, Reuters reported.

The Universitetskaya structure is believed to hold more than 1.3bn tonnes of oil equivalent, one of 30 such structures across the East Prinovozemelskiy areas of the Kara Sea, according to Rosneft. The entire resource base of the three areas is estimated at 87bn barrels, or 13 bn tonnes of oil equivalent, with Rosneft claiming that the volume of the Kara Sea oil region is comparable to the resource base of Saudi Arabia.

However it will be a long time before the newly discovered resources come online, say experts, with the next phase of work not able to start until the ice clears in August 2015, and the start of extraction possible only in five-seven years.

Sechin was quoted by business daily Vedomosti as saying that Rosneft is not currently looking for new partners for the project, but looking for ways to continue working with existing partners despite sanctions, and ExxonMobil is expected to lobby according in Washington.

"Arctic shelf projects contain oil and gas primarily in the form of resources rather than reserves," write VTB analysts. "As these projects will initially entail capex spending, monetisation might take a lot of time."

"We therefore reiterate our cautious view on the company’s Arctic shelf activities, as they imply risks and uncertainties," VTB analysts conclude. "We believe that to proceed with Arctic development, the company would need to drill more exploratory wells, as the stated resources are not enough, in our view, to economically justify such complicated production."

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