In a dramatic stroke of luck for the Kremlin, this morning there is hardly a person in the world who is happier than Russian president Vladimir Putin because overnight state-run run OAO Rosneft announced it has discovered what may be a treasure trove of black oil, one which could boost Russia’s coffers by hundreds of billions if not more, when a vast pool of crude was discovered in the Kara Sea region of the Arctic Ocean, showing the region has the potential to become one of the world’s most important crude-producing areas, arguably bigger than the Gulf Of Mexico. The announcement was made by Igor Sechin, Rosneft’s chief executive officer, who spent two days sailing on a Russian research ship to the drilling rig where the find was unveiled today.
Well, one person who may have been as happy as Putin is the CEO of Exxon Mobil, since the well was discovered with the help of America’s biggest energy company (and second largest by market cap after AAPL). Then again, maybe not: as Bloomberg explains “the well was drilled before the Oct. 10 deadline Exxon was granted by the U.S. government under sanctions barring American companies from working in Russia’s Arctic offshore. Rosneft and Exxon won’t be able to do more drilling, putting the exploration and development of the area on hold despite the find announced today.”
Which means instead of generating billions in E&P revenue, XOM could end up with, well, nothing. And that would be quite a shock to the US company because the unveiled Arctic field may hold about 1 billion barrels of oil and similar geology nearby means the surrounding area may hold more than the U.S. part of the Gulf or Mexico, he said.
For a sense of how big the spoils are we go to another piece by Bloomberg, which tells us that “Universitetskaya, the geological structure being drilled, is the size of the city of Moscow and large enough to contain more than 9 billion barrels, a trove worth more than $900 billion at today’s prices.”
The only way to reach the prospect is a four-day voyage from Murmansk, the largest city north of the Arctic circle. Everything will have to shipped in — workers, supplies, equipment — for a few months of drilling, then evacuated before winter renders the sea icebound. Even in the short Arctic summer, a flotilla is needed to keep drifting ice from the rig.
Sadly, said bonanza may be non-recourse to Exxon after Obama made it quite clear that all western companies will have to wind down operations in Russia or else feel the wrath of the DOJ against sanctions breakers. Which leaves XOM two options: ignore Obama’s orders (something which many have been doing of late), or throw in the towel on what may be the largest oil discovery in years.
And while the Exxon C-suite contemplates its choices, here is some more on today’s finding from Bloomberg:
“It exceeded our expectations,” Sechin said in an interview. This discovery is of “exceptional significance in showing the presence of hydrocarbons in the Arctic.”
The development of Arctic oil reserves, an undertaking that will cost hundreds of billions of dollars and take decades, is one of Putin’s grandest ambitions. As Russia’s existing fields in Siberia run dry, the country needs to develop new reserves as it vies with the U.S. to be the world’s largest oil and gas producer.
Output from the Kara Sea field could begin within five to seven years, Sechin said, adding the field discovered today would be named “Victory.”
The Kara Sea well — the most expensive in Russian history — targeted a subsea structure named Universitetskaya and its success has been seen as pivotal to that strategy. The start of drilling, which reached a depth of more than 2,000 meters (6,500 feet), was marked with a ceremony involving Putin and Sechin.
The importance of Arctic drilling was one reason that offshore oil exploration was included in the most recent round of U.S. sanctions. Exxon and Rosneft have a venture to explore millions of acres of the Arctic Ocean.
But what’s worse for Exxon is that now that the hard work is done, Rosneft may not need its Western partner much longer:
“Once the well is plugged, there will be a lot of work to do in interpreting the results and this is probably something that Rosneft can do,” Julian Lee, an oil strategist at Bloomberg First Word in London, said before today’s announcement. “Both parties are probably hoping that by the time they are ready to start the next well the sanctions will have been lifted.”
And here is why there is nothing Exxon would like more than to put all the western sanctions against Moscow in the rearview mirror: “The stakes are high for Exxon, whose $408 billion market valuation makes it the world’s largest energy producer. Russia represents the second-biggest exploration prospect worldwide. The Irving, Texas-based company holds drilling rights across 11.4 million acres in Russia, only eclipsed by its 15.1 million U.S. acres.”
Proving just how major this finding is, and how it may have tipped the balance of power that much more in Russia’s favor is the emergence of paid experts, desperate to talk down the relevance of the Russian discovery:
More drilling and geological analysis will be needed before a reliable estimate can be tallied for the size of the oil resources in the Universitetskaya area and the Russian Arctic as a whole, said Frances Hudson, a global thematic strategist who helps manage $305 billion at Standard Life Investments Ltd. in Edinburgh. Sanctions forbidding U.S. and European cooperation with Russian entities mean that country’s nascent Arctic exploration will be stillborn because Rosneft and its state-controlled sister companies don’t know how to drill in cold offshore conditions alone, she said.
“Extrapolating from a small data sample is perhaps not going to give you the best information,” Hudson said in a telephone interview. “And because of sanctions, it looks like there’s going to be less exploration rather than more.” In addition, the expense and difficulty of operating in such a remote part of the world, where hazards include icebergs and sub-zero temperatures, mean that the developing discoveries may not be economic at today’s oil prices.
Maybe. Then again perhaps the experts’ time is better suited to estimating just how much longer the US shale miracle has left before the US is once again at the mercy of offshore sellers of crude.
In any event one country is sure to have a big smile on its face: China, since today’s finding simply means that as Russia has to ultimately sell the final product to someone, that someone will almost certainly be the Middle Kingdom, which if the “Holy Gas Grail” deal is any indication, will be done at whatever terms Beijing chooses.
Statoil is stepping up its Arctic activities and will drill nine wells during a non-stop 2013 Norwegian Barents exploration campaign. The company plans to meet development challenges here by tripling its Arctic technology research budget.
Statoil’s exploration experience in the Barents is already extensive. Of the 94 exploration wells drilled in the Norwegian Barents Sea so far, Statoil has been involved in 89. Nine more Statoil-operated wells are on their way here next year.
“After our Skrugard and Havis discoveries we still see attractive opportunities here,” says Statoil Exploration executive vice president Tim Dodson.
“This is a less challenging area, as the Norwegian Barents is one of the only Arctic areas with a year-round ice-free zone. We also see the possibility of utilising knowledge gained here for Arctic prospects elsewhere later on – just like we’ve already done with Snøhvit.”
Statoil will start drilling in Nunatak in the Skrugard area in December, and will drill and complete four wells in this area over a six-month period.
“These wells are time critical, as any additional resources will make the Skrugard development even more robust,” says Dodson.
The campaign will then continue with the drilling of two-three wells in the Hoop frontier exploration area further north in the Barents in the summer of 2013. These will be the northernmost wells ever drilled in Norway.
The 2013 Barents drilling campaign finishes in the most mature province of the Barents: the Hammerfest basin. Statoil will carry out growth exploration close to the existing Snøhvit and Goliat discoveries here.
Arctic drilling unit
In addition to increasing its drilling activities, Statoil has created a technology road map to prepare for activities in even harsher Arctic areas.
- A tripling of the current Arctic research budget – from NOK 80 million (in 2012) to NOK 250 million (in 2013)
- A research cruise to north east Greenland in September
- The maturing of an Arctic drill unit concept
Some of the technology highlights include work to allow for cost-effective 3D seismic for exploration prospect evaluation in ice, and the continuing development of a tailor-made, Arctic drill unit.
The work on the future drilling unit is based on Statoil’s experience with developing specialised category rigs for the Norwegian continental shelf (NCS).
The unit will be one that can operate in a wide range of water depths across the Arctic, and will involve integrated operations in drifting ice.
Functions here are to include a management system to reduce ice impact, an optimised drilling package for faster drilling and increased rig availability, and solutions to ensure that the rig maintains its position. At present no robust solution for dynamic positioning dedicated for ice operation exists.
“When we see a technology need, we try to fill the gap ourselves. We have now directed our strategic focus towards developing technology for exploration and production in ice. A new dedicated unit has been established to solve these challenges,” says Statoil Technology, Projects and Drilling executive vice president Margareth Øvrum.
Capacity is key
“We’ve secured a five-year contract for Seadrill‘s West Hercules drilling rig. The rig is currently being prepared for Arctic conditions, and can be used to drill consecutively in the region for years to come,” Dodson says.
Broad exploration experience in the Barents Sea and available rig capacity make Statoil well prepared for the 22nd licence round on the NCS. Applications are due in early December, while the awarding of new licences will take place in spring 2013. Seventy-two blocks in the Barents will be on offer.
“The Skrugard discovery has reignited interest in the Barents. A number of major companies that had left the area will be looking to make their way back in. The competition will be fierce, but we’ve built up a strong track record here, and our application will reflect this,” Dodson says.
- Chinese icebreaker continues Arctic voyage (shippingtribune.com)
- Shell’s drilling rig begins two-week trek to Arctic sea (fuelfix.com)
The world has finite hydrocarbon resources and conventional oil reserves are particularly in short supply. Furthermore, conventional oil resources from the Middle East are very much under threat of disruption as embargoes on Iranian oil exports come into full effect at the end of June 2012.
However, new reservoirs of oil are increasingly being discovered in deep waters and ultra deep waters across the world. These new discoveries are providing a respite to declining production from conventional sources of oil and gas, and reducing risks in upstream oil production from the Middle East. Visiongain calculated that capital expenditure in the subsea production & processing systems infrastructure will total $8.89bn in 2012.
Exploration and production companies are investing heavily in offshore development projects. Most offshore projects in water depths beyond 200-300 metres benefit from subsea production and processing systems to lift hydrocarbons to the surface. As a greater share of oil and gas is supplied from deeper water depths, investment in subsea production and processing systems will inevitably grow larger over the next ten years.
Subsea systems not only enable operating companies to optimize production from offshore fields, they also increase the total amount of recoverable hydrocarbons over the life of the well. For example, with pressure boosting systems, total oil recovery rates are significantly increased. Some deepwater oil and gas reservoirs would not have been fully exploited without the aid of subsea systems.
By the early 1970s the world had few commercial oil and gas facilities producing from deepwater reservoirs because challenges such as high temperature and high pressure were too restrictive. Over the years, however, more advanced multiphase pumps, subsea oil/gas/water/sand separation units and wellhead systems have evolved to overcome the difficulties, enabling companies to produce hydrocarbons from the most challenging environments.
Subsea production and processing systems are advancing further to enable companies to produce from very sensitive and harsh environments such as the Arctic and high temperature, high pressure (HTHP) reservoirs. Subsea systems will not be affected by surface ice formations unlike floating platforms and can provide more controlled production from HTHP wells. Therefore, subsea systems minimize environmental risks associated with production from the Arctic region and in deepwater offshore areas.
The Subsea Production & Processing Systems Market 2012-2022 report provides valuable insight into the future developments of this growing market and will benefit those already in the subsea production & processing market as well as those looking to enter this market.
- Successful final commissioning of Expro’s AX-S subsea well intervention innovation (mb50.wordpress.com)
- Enhanced recovery through subsea compression at Gullfaks (mb50.wordpress.com)
- McDermott Wins Siakap North – Petai Subsea Contract in Malaysia (mb50.wordpress.com)
- Happy Dragon Ships 8 Manifolds to Goliat Field Offshore Norway (mb50.wordpress.com)
- Eidesvik Orders Large Subsea Vessel from Kleven (Norway) (mb50.wordpress.com)
- GC Rieber Shipping Orders Subsea Vessel from Ulstein (Norway) (mb50.wordpress.com)
Posted by Doug Bandow
Every few years, the Law of the Sea Treaty rears its head as a one-size-fits-all solution to a host of current maritime problems. This time, Secretary of Defense Leon Panetta and General Martin Dempsey, chairman of the Join Chiefs of Staff, are urging the Senate to ratify the treaty. The officials claim it will act as a tool to deal with aggressive actions by Iran, China, and Russia. But as I have long argued, no matter the current rationale for the treaty, it represents a bad deal for the United States.
Panetta and Dempsey rolled out three hot issues to make their case:
- Iran is threatening the world economy in the Strait of Hormuz? The Law of the Sea Treaty (LOST) will help solve this.
- China is threatening the Philippines in the South China Sea? LOST is a crucial tool to prevent war.
- Russia is claiming land in the Arctic region to extract natural resources? LOST will put the screws to Moscow.
These international controversies will be magically resolved if only the Senate ratifies the convention.
If this sounds too good to be true, it is. It is not clear the treaty would do much at all to alleviate these flashpoints. Especially since the two most important potential antagonists, China and Russia, already have ratified LOST. And it is certainly not the best option policy-wise for the United States with each issue: Iran’s bluster in the Strait of Hormuz may prove its weakness. U.S. policy in the South China Sea suffers from a far more serious flaw: encouraging free-riding by allied states. Russia’s move into the Arctic has nothing to do with Washington’s absence from LOST.
The treaty itself, not substantially altered since 1994, is still plagued by the same problems that have halted its ratification for decades. Primarily, it will cede decisionmaking on seabed and maritime issues to a large, complex, unwieldy bureaucracy that will be funded heavily by—wait for it—the Untied States.
On national security, the U.S. Navy does not need such a treaty to operate freely. Its power relative to all other navies is the ultimate guarantee. Serious maritime challengers do not exist today. Russia’s navy is a rusted relic; China has yet to develop capabilities that come close to matching ours. Moreover, it is doubtful that the United States needs to defend countries such as the Philippines when flashpoints over islands in the region affect no vital American interests.
The average American knows very little about this treaty, and rightly so. It is an unnecessarily complicated and entangling concoction that accomplishes little that the longstanding body of customary international law on the high-seas or the dynamics of markets do not account for. My conclusion in testimony before the Senate Committee on Armed Services in 2004 still holds true:
All in all, the LOST remains captive to its collectivist and redistributionist origins. It is a bad agreement, one that cannot be fixed without abandoning its philosophical presupposition that the seabed is the common heritage of the world’s politicians and their agents, the Authority and Enterprise. The issue is not just abstract philosophical principle, but very real American interests, including national security. For these reasons, the Senate should reject the treaty.
- US Administration Renews Push to Ratify Law of Sea Treaty (voanews.com)
- Obama’s Sneaky Treaties (fromthetrenchesworldreport.com)
- Oil Wars on the Horizon (mb50.wordpress.com)
- Note:The United Nations Convention on the Law of the Sea (UNCLOS), also called the Law of the Sea Convention or the Law of the Sea treaty, is the international agreement that resulted from the third United Nations Conference on the Law of the Sea (UNCLOS III), which took place from 1973 through 1982. The Law of the Sea Convention defines the rights and responsibilities of nations in their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. The Convention, concluded in 1982, replaced four 1958 treaties. UNCLOS came into force in 1994, a year after Guyana became the 60th state to sign the treaty. To date, 162 countries and the European Community have joined in the Convention. However, it is uncertain as to what extent the Convention codifies customary international law.While the Secretary General of the United Nations receives instruments of ratification and accession and the UN provides support for meetings of states party to the Convention, the UN has no direct operational role in the implementation of the Convention. There is, however, a role played by organizations such as the International Maritime Organization, the International Whaling Commission, and the International Seabed Authority (the latter being established by the UN Convention).
NEW YORK – Russian energy Czar Igor Sechin said Wednesday that U.S.-Russia economic relations still don’t reflect their full potential, but that opportunities to tap Russia’s massive oil reserves will provide opportunities for that to change.
At an event in New York describing details of Exxon Mobil Corp.‘s deal with OAO Rosneft, Sechin, who is Russia’s Deputy Prime Minister, said that “the time has come in Russia-U.S. relations for a step-up in the level of practical and real projects.”
The partnership between Exxon and Rosneft could give the companies access to about 90 billion barrels of oil equivalent in estimated resources from the Arctic Ocean and the Black Sea, Rosneft said Wednesday.
In a video presented to analysts in New York, Rosneft said that the partnership would drill its first wells at the Kara Sea in the Arctic Ocean as early as 2014-2015, with a final investment decision on full-scale development expected by 2016-2017. Sechin said that Kara Sea production is estimated to begin around 2027.
The Exxon-Rosneft deal comes in the wake of the Russian government’s efforts to step up the development of new oil production regions, especially in the Arctic. Sechin said that about 5% of oil output to come from new regions by 2020, and up to 40% by 2030.
“We recognize that the implementation of such projects will require strong and consistent support of the state,” which aims to ensure transparent terms of access to the new fields, Sechin said.
Sechin said that under new rules, tax rates were defined for different types of operational conditions. Exxon-Rosneft projects in the Kara Sea will have a royalty of 5%. Royalty levels for deepwater projects in the Black Sea will be 10%, Sechin said.
Long-term investment in offshore development is estimated to exceed $500 billion, Sechin added, creating more than 300,000 jobs.
Overall, the large scale investments needed to tap Russia’s massive oil and gas wealth provides an “enormous potential for U.S.-Russia cooperation, which ought to help us to overcome our over-politicized relationship,” he said.
Such large projects “will be welcomed and will find strong support of the Russian government,” Sechin said.
Copyright (c) 2012 Dow Jones & Company, Inc.
The Bureau of Ocean Energy Management (BOEM) announced yesterday that it was seeking public input on issues that should be tackled by the bureau in preparing an Environmental Assessment for proposed seismic data acquisition activity in Arctic areas of the Alaska Outer Continental Shelf (OCS).
ION Geophysical Corporation has applied to conduct an exploratory 2D marine seismic survey during the fall of 2012. The application proposes conducting operations throughout much of the Beaufort Sea Planning Area, with specific transect lines and segments within the Chukchi Sea Planning Area. Data obtained during this survey would be used by geologists and geophysicists to view and interpret large-scale subsurface geologic structural features and evaluate prospects for oil and gas reserves.
The Bureau of Ocean Energy Management (BOEM), an agency under the United States Department of the Interior that manages the exploration and development of the nation’s offshore resources, has also on its website announced ION’s permit application #12-01 and the associated area coverage map. BOEM has also explained the the procedures required for submission of comments, setting the deadline for April 30, 2012. More information can be found at BOEM’s official website.
Below you can see ION’s recent video: Case Study in Challenging
Environments: The Arctic Environment
Top of the world tactics at ION. See the ION approach in action as Joe Gagliardi, Director Arctic Technology & Solutions, tackles the punishing Arctic environment. By combining the capabilities across the company, ION delivers the answers and the technology that allows operators to acquire data further north than ever before and dramatically extends the short working season.