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.
Noble Energy, Inc. announced today a natural gas discovery at the Cyprus Block 12 prospect, offshore the Republic of Cyprus. The Cyprus A-1 well encountered approximately 310 feet of net natural gas pay in multiple high-quality Miocene sand intervals.
The discovery well was drilled to a depth of 19,225 feet in water depth of about 5,540 feet. Results from drilling, formation logs and initial evaluation work indicate an estimated gross resource range(1) of 5 to 8 trillion cubic feet (Tcf), with a gross mean of 7 Tcf. The Cyprus Block 12 field covers approximately 40 square miles and will require additional appraisal drilling prior to development.
Charles D. Davidson, Noble Energy’s Chairman and CEO, said, “We are excited to announce the discovery of significant natural gas resources in Cyprus on Block 12. This is the fifth consecutive natural gas field discovery for Noble Energy and our partners in the greater Levant basin, with total gross mean resources for the five discoveries currently estimated to be over 33 Tcf. This latest discovery in Cyprus further highlights the quality and significance of this world-class basin.”
Davidson went on to say, “We would like to thank the Government of Cyprus for their productive cooperation and support in achieving an important outcome for the people of Cyprus and Noble Energy. We look forward to working closely with the Government of Cyprus to develop this discovery in a manner that maximizes value for all stakeholders.”
Noble Energy operates the well with a 70 percent working interest. Delek Drilling and Avner Oil Exploration will each have 15 percent, subject to final approval by the Government of Cyprus.
- Noble Energy Announces Significant Natural Gas Discovery Offshore Republic of Cyprus (prnewswire.com)
- Cyprus: Offshore gas find gets investor interest (sfgate.com)
- Cyprus: Offshore gas find gets investor interest (seattlepi.com)
- Cyprus to Press Ahead with Offshore Drilling Despite Turkish Objection (mb50.wordpress.com)
- Cyprus Oil and Gas (mb50.wordpress.com)
- Cyprus’ FM briefs US officials on gas development (mysanantonio.com)
The well, known as Tucura, is located between the production fields of Voador and Marlim, at a water depth of 523 meters. Located 98 km from the shore of Rio de Janeiro State, the well is 3 km from Marlin’s Field and 2.3 km from the P-20 platform.
Within the framework of the Varredura Project, the discovery confirms the remaining oil potential in areas already considered mature in terms of exploration and production. This confirmation will speed up production in Marlin and Voador concessions.
The discovery was confirmed by sampling in post-salt rock in a reservoir located at a water depth of 2,694 meters.
Preliminary analyses indicate that the oil discovered is of the same quality as in adjacent fields, Marlin and Voador i.e. 20o API.
“Petrobras will continue with the activities and investments estimated in the Assessment Plan, including drilling a horizontal production well.” said the South American energy giant on its website.
- Brazil: Petrobras Discovers Hydrocarbons in Campos Basin (mb50.wordpress.com)
- Petrobras Announces New Discovery in Carioca Area, Offshore Brazil (mb50.wordpress.com)
- Expro Wins Wireline Contract in Brazil (mb50.wordpress.com)
- Chevron Throws the Brakes on Current and Future Drilling Offshore Brazil (mb50.wordpress.com)
- OGX Gets Nod for EWT and Production Development in Campos Basin, Offshore Brazil (mb50.wordpress.com)
The discovery in well 3BRSA960DRJS hasn’t yet been declared commercially viable, according to a posting on the website of Brazil’s National Petroleum Agency.
Petrobras owns 100 percent of the well.
By Karen Eeuwens (Bloomberg)
- OGX Gets Nod for EWT and Production Development in Campos Basin, Offshore Brazil (mb50.wordpress.com)
- Petrobras production hurt by ‘global bottleneck’ for rigs (mb50.wordpress.com)
- Modec Receives FPSO Order from Petrobras, Brazil (mb50.wordpress.com)
- Brazil’s OGX says finds more oil in Campos basin (reuters.com)
- Shell to invest $1.6bn in Brazilian oil block (telegraph.co.uk)
- Brazil In The Cross Hairs – Latest Finds Boost Brazil’s Emergence As Global Oil Player (gcaptain.com)
- Westshore Shipbrokers: Ultra-Deepwater, What is Next for the Shipowner? (Brazil) (mb50.wordpress.com)
Gas and condensate inflow was reported in the prospecting well during the exploration operations. The well testing will be followed by the reserves estimation.
The new field was the second discovery in the Kirinsky prospect.
Gazprom carries out geological exploration in the Sakhalin shelf as part of the state-run Development Program for an integrated gas production, transportation and supply system in Eastern Siberia and the Far East, taking into account potential gas exports to China and other Asia-Pacific countries. The Program was approved by the September 2007 Order of the Russian Federation Industry and Energy Ministry. Gazprom was appointed by the Russian Federation Government as the Program execution coordinator.
Gazprom holds subsurface use licenses for the Kirinskoye field, the Kirinsky prospect (including Yuzhno-Kirinskoye field) and the Vostochno-Odoptinsky and Ayashsky licensed blocks within the Sakhalin III project. Natural gas produced by Gazprom within the project will be delivered into the Sakhalin – Khabarovsk – Vladivostok gas transmission system.
Based on the results of the geological exploration performed between 2009 and 2010, Gazprom increased the Kirinskoye gas and condensate field reserves from 75 billion cubic meters of C1+C2 gas to 137 billion cubic meters of C1 gas. The recoverable condensate reserves rose from 8.6 to 15.9 million tons. It is projected to commission the field in 2012.
In September 2010 Gazprom discovered the large Yuzhno-Kirinskoye field in the Kirinsky prospect. The field’s C1+C2 gas reserves make up 260 billion cubic meters, the recoverable condensate reserves – 29.9 million tons.
Gazflot (a wholly-owned subsidiary of Gazprom) acts as the geological exploration operator.