ROGTEC Magazine - Russian Oil & Gas Technologies - News, Reviews & Articles

ROGTEC Magazine - Russian Oil & Gas Technologies - News, Reviews & Articles


Tuesday, August 30th, 2011

Rosneft and ExxonMobil have executed a Strategic Cooperation Agreement under which the companies plan to undertake joint exploration and development of hydrocarbon resources in Russia, USA and other countries throughout the world, and to commence technology and expertise sharing activities.

– $3.2 billion exploration program planned for Kara Sea and Black Sea
– Establishment of a joint Arctic Research and Design Center for Offshore Development (ARC) in St. Petersburg
– Rosneft participation in ExxonMobil projects in the US and other countries with a focus on building offshore and tight oil expertise
– Joint study of possibilities to develop Western Siberia tight oil resources
– The companies form a strategic partnership to undertake agreed joint projects in Russia and internationally.

The agreement, signed by Rosneft President Eduard Khudainatov and ExxonMobil Development Company President Neil Duffin in the presence of Russian Prime Minister Vladimir Putin, includes approximately US $3.2 billion to be spent funding exploration and development of East Prinovozemelskiy Blocks 1, 2 and 3 in the Kara Sea and the Tuapse Trough License Block in the Black Sea, some of the most promising and least explored offshore areas globally.

In the course of these projects the companies will focus on the environment and creation of the most modern safety systems with consideration to the risks of offshore operations, and global best practices.

Additionally, the Agreement provides Rosneft with an opportunity to gain equity interest in a number of exploration and operating ExxonMobil assets in North America, including offshore fields in the Gulf of Mexico, tight oil fields in Texas (USA), Canada and projects in other countries. The companies have also agreed to conduct a joint study of developing tight oil resources in Western Siberia.

Moreover Rosneft and ExxonMobil will implement a program of personnel exchange for technical and management employees which will help strengthen the relationships between the companies and provide valuable career development opportunities for personnel of both companies.

The partners will create an Arctic Research and Design Center for Offshore Developments (ARC) in St. Petersburg which will be staffed by Rosneft and ExxonMobil employees. The center will use proprietary ExxonMobil and Rosneft technology, and will develop new technology to support the joint Arctic projects, including ice-class drilling and production ships and platforms, as well as other Rosneft projects.

“We have a clear vision of Rosneft’s strategic direction – building world-class expertise in offshore operations and enhancing oil recovery. The partnership between Rosneft with its unique resource base, and the largest and most highly capitalized company in the world reflects our commitment to increasing capitalization of our business through application of best-in-class technology, innovative approach to business management, and enhancement of our human resource potential.” said Rosneft President Eduard Khudainatov, following the signing ceremony. “This venture comes as a result of many years of cooperation with ExxonMobil and brings Rosneft into large scale world-class projects, turning the Company into a global energy leader.”

“Today’s agreement with Rosneft builds on our 15-year successful relationship in the Sakhalin-1 project,” said ExxonMobil Development Company President Neil Duffin. “Our technology, innovation and project execution capabilities will complement Rosneft’s strengths and experience, especially in the area of understanding the future of Russian shelf development.”

Rex Tillerson, Chairman and CEO of ExxonMobil Corporation, who attended the ceremony, said ExxonMobil will benefit Russian energy development by working closely with Rosneft. “This large-scale partnership represents a significant strategic step by both companies”, added Mr. Tillerson. “This agreement takes our relationship to a new level and will create substantial value for both companies. The agreement will be a basis for constructive dialog with the Government of the Russian Federation on establishment of a fiscal regime for offshore operation consistent with best global practices”.

This transaction has been approved by Rosneft’s Board of Directors on August 30, 2011.


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BP Remains Committed to Partner with Russia

Friday, March 25th, 2011

BP announced today that an arbitral tribunal has ruled that the interim injunction issued to prevent BP’s proposed transaction with Rosneft, which includes Arctic exploration and a share swap transaction, from proceeding should continue.

BP will now apply for a determination whether the share swap may proceed on its own.

BP said it looks forward to finding a way to resolve its differences with its Russian partners to allow these important Russian Arctic developments to proceed in future.

BP has a long history as a leader in oil and gas exploration and the development of new technologies. BP intends to continue in that role for decades to come as the world looks to satisfy its increasing demand for secure, affordable energy supplies. BP has the scale and experience to use these new technologies to develop frontiers like the Russian Arctic.


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Russian Arctic Thaws with Rosneft-BP Deal

Friday, March 18th, 2011

Mark Thomas

Russia’s offshore arctic shelf has become one of the most scrutinized frontier oil and gas sectors in the world, thanks to the ground-breaking deal done between Rosneft and BP. But while most western observers have chosen to look at what the agreement means in terms of benefits for the UK oil major, for some the big question is: What’s in it for Russia’s offshore future?

The Rosneft/BP deal has injected huge interest and momentum into the potential of Russia’s Arctic offshore because the area remains one of the last great untapped resources for accessing new hydrocarbon reserves.

With several western oil majors having jockeyed for position in recent years to place themselves in line for some of Russia’s virgin Arctic exploration territory, including ExxonMobil, Total, Shell, ConocoPhillips and Statoil to name but a few, BP’s mega-deal gives it an unmatched exploratory position in Russia that will be regarded enviously by its rivals.

The UK major’s commercial motivation for the arrangement is simple – it gets access to 125,000 square kilometers of prime prospective territory in the South Kara Sea that, by Russian estimates, could contain around 35 billion barrels of oil and 10 trillion cubic feet of natural gas. “A major oil company’s growth potential in increasingly defined by its ability to penetrate national oil company turf,” said a research note from analysts Bernstein Research. BP has achieved this in spades, and it is a strategy the company is systematically employing globally as it cautiously moves on from its Deepwater Horizon nightmare in the US Gulf. For example, it revealed a partnership just weeks later with Reliance Industries that also gives it access to huge areas of frontier deepwater acreage offshore India.

But that company-threatening time that followed in the aftermath of the Horizon incident has, paradoxically, helped it cement its relationship with Russia. The Russian government appears to appreciate what BP has been through, and the fact that it has lived to tell the tale.

The operator’s experience in the Gulf of Mexico, “provided the company with one of its competitive advantages, which we will rely upon as we develop offshore,” said Igor Sechin, Russia’s Deputy Prime Minister and Chairman of Rosneft.

Prime Minister Vladimir Putin agreed, expressing the same sentiment in typically sardonic fashion by quoting the old Russian proverb: “One beaten is worth two unbeaten.”

The question remains, however: What’s in it for Russia?

From Rosneft’s perspective the company will benefit because a large majority of its existing oil production comes from declining regions in the Urals and Western Siberia. At the same time it recognises that it currently lacks both the technical know-how and available cash reserves to open up the Arctic’s potentially vast offshore riches.

BP, of course, has the upstream exploration and development technology, personnel, project management skills and available funds to help Rosneft achieve its growth aims.
It does have to first overcome Anglo-Russian joint venture TNK-BP’s initial objections, which lead to that company’s Russian shareholders blocking the deal via a London court injunction. But with TNK-BP’s management essentially angling for a possible participating role in its UK parent’s alliance with Rosneft, and TNK-BP’s Board currently in discussions about it as ROGTEC went to press, this is seen more as a matter of arbitration rather than as a deal-breaking dispute.

In offshore terms Russia remains largely untouched, with only the country’s Sakhalin region currently possessing producing fields in the Arctic. Projects are in the pipeline to come onstream over the next 5 or 6 years, most notably Gazprom’s flagship Shtokman field in the Barents Sea but significant doubts remain over their schedules.

Smaller projects will come onstream first, such as the Prirazlomnoye oil field in the Pechora Sea and the Kamennomskoye More gas field in Obskaya bay but the major part of future offshore spending predictions by observers are based on Shtokman progressing to an onstream date by 2016 or 2017. Some would say that is far too optimistic, especially with the changing nature of the global gas market caused by the emergence of cheaper shale gas opportunities around the world.

The Rosneft/BP strategic alliance, the first major equity-linked partnership between a National Oil Company and an International Oil Company, sees Rosneft take 5% of BP’s ordinary voting shares in exchange for approximately 9.5% of Rosneft’s. They will establish a joint operating company (Rosneft 66.67%/BP 33.33%).

The deal will first spark exploration activity in the South Kara Sea but few expect it to remain focused on just that area, large though it is. Initially the two companies will explore and develop three licences – EPNZ 1, 2 and 3 – on the Arctic continental shelf.

These licences off Russia’s northern coast were awarded to Rosneft last year and both companies are banking on finding substantial reserves of oil and gas, although it will take several years to find, appraise and develop initial discoveries. So the benefits may not be seen until nearer the end of this decade, in terms of booked reserves.

Of more significance to many is the agreement by the two companies to establish an Arctic technology centre in Russia that will work with leading Russian and international research institutes, design bureaus and universities “to develop technologies and engineering practices for the safe extraction of hydrocarbon resources from the Arctic shelf”. The technology centre will build on BP’s deepwater experience and learnings, with full emphasis on safety, environmental integrity and emergency spill response capability.

They have also agreed to continue their joint technical studies in the Russian Arctic to assess hydrocarbon prospectivity in areas beyond the Kara Sea, in other words the country’s Arctic continental shelf is essentially an open playing field for them. BP’s chief executive, Bob Dudley (himself a former head of TNK-BP, and hugely experienced in dealing with the Russian authorities), said the agreement would see them “jointly explore some of the most promising parts of the Russian Arctic, one of the world’s last remaining unexplored basins”.

Rosneft’s President, Eduard Khudainatov, described it as a move that would significantly move forward his company’s – and country’s – offshore strategy.

It is a strategy that must work. Russia’s need to find and develop its offshore Arctic resources is paramount, as its existing production threatens to tail off from its maturing fields onshore.

It has been the growing awareness that it is in danger of reaching something of a cliff, in terms of its production plateau, that has pushed it into acting relatively quickly to try and access an estimated 132 billion boe of oil and gas resources lying in its Western Siberian Basin, both on and offshore. That equates to around 32% of the entire Arctic region, with around 108 Bn boe made up of gas, 20 Bn boe of natural gas liquids and 4 Bn bbl of oil.

According to industry analysts Infield Systems, no less than 95 billion boe of these reserves are gas reserves lying in Russia’s offshore Arctic region (and not including Sakhalin Island). This represents 70% of the total offshore reserves in designated Arctic and sub-Arctic regions, says the analyst. The bulk of these reserves are fields operated by Gazprom subsidiary Sevmoreneftegaz, and Rosshelf, in which Gazprom has a 56.8% stake and Rosneft a further 26.4%).

There are discoveries already out there to be developed – data shows at least seven discovered offshore gas fields in the Basin, including three in the Kara Sea and four in the Tazovskoya and Obskaya Bays to the east of the Yamal Peninsula. That’s on top of discoveries such as Rusanovskoe and Leningradskoe that alone are estimated to hold 5 trillion cubic metres of gas.

The resulting business opportunities that also lie offshore are also potentially huge.  Infield estimates in its new ‘Offshore Arctic Oil and Gas Report’ that just over US $33 billion in capital expenditure will be spent over the period 2008-2017 on pipelines/control lines, floating production units, fixed platforms and subsea infrastructure in international Arctic regions.

Of that, just over half (nearly $18 billion) of that global Arctic spend is expected to be invested offshore Russia. With projects such as Prirazlomnoye and Shtokman planned to come onstream within the next 5 years or so, Infield says it expects Russia to drive Arctic offshore oil and gas Capex until at least 2017.

The investment will also see a growing number of exploration wells throughout Russia’s offshore sectors, not only in the Barents and Kara Seas but also the Pechora, Northern Caspian, Azov, Okhotsk, Chukchi and Bering Seas as well as offshore Sakhalin.

This leads, however, into an area that will require significant focus by the oil industry and international drilling contractors, that of appropriately qualified rigs. With circa 800 offshore rigs around the world, it should be of concern to all players eyeing Arctic opportunities that only 1% of these units are currently suitable for operations in the ultra-harsh waters of the Arctic, with only eight either possessing ice-class classifications and/or having significant Arctic experience.

These include the Aker Barents and Aker Spitsbergen semisubmersibles operating in the Norwegian North Sea, and the Noble Discoverer, soon to be drilling offshore Canada and Alaska’s Arctic coastline. Of these eight drilling units four are operational in Norway, two in Egypt and New Zealand, and a further two idle in China and the US, according to Infield.

The good news is that there are six ultra-harsh Arctic capable newbuilds that are expected to be delivered before the end of this year. Features such as ice-class hulls, increased deck loads and fully winterised equipment will allow these rigs to operate in and around the Arctic, while also being fully capable of operations elsewhere in the world. Three are intended for indefinite work off Russia’s Arctic coast, while two Noble ‘Bully’ drillships are already contracted with Shell for the next 10 years, most likely for work initially offshore Alaska.

The other unit is the Arctic-dedicated Stena DrillMAX ICE. At a cost of $1.15 billion to build, it will be the most expensive drilling rig ever built.

Such a scarcity of suitable rigs for future Arctic operations will be of concern to Russia, and is likely to result in several further newbuilds being ordered for construction within the next 5 years, specifically for the country’s own offshore sector. Some observers believe Rosneft and BP may well sign long-term drilling contracts, such as Shell did with Noble Drilling for the Bully-design drillships, to ensure they have sufficient units to meet the demands of their future drilling programmes.

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