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Exxon inks joint-venture for vast Russian fields

Russia's state-owned Rosneft teamed up with U.S. company ExxonMobil on Tuesday in a multibillion deal to develop offshore oil fields in the Russian Arctic.
/ Source: The Associated Press

Russia's state-owned Rosneft teamed up with U.S. company ExxonMobil on Tuesday in a multibillion deal to develop offshore oil fields in the Russian Arctic — one of the last regions with immense and untapped hydrocarbon deposits — in return for access to resources in the Gulf of Mexico.

Because Rosneft does not have its own technology for deep sea drilling, it was looking for partners to develop the offshore projects in the Arctic and other regions of Russia. A deal it was pursuing with Britain's BP earlier this year fell through, leaving the path open for ExxonMobil.

The oil giant already has experience drilling in the Arctic regions of Canada.

Rosneft spokesman Rustam Kazharov told The Associated Press that the "strategic partnership" with Exxon was signed in the presence of Prime Minister Vladimir Putin. He was unable to name the plots that Rosneft will work on in the Gulf of Mexico and Texas.

ExxonMobil said in a statement that Tuesday's agreement includes $3.2 billion to be spent on exploring three giant undeveloped oil and gas fields in the Kara Sea — between the northeastern corner of continental Russia and the Arctic archipelago of Novaya Zemlya — in the Arctic as well as a sector in the Black Sea.

The Kara Sea sectors cover some 50,000 square miles between and contain some 35.8 billion barrels of oil, Rosneft said. The Black Sea sector covers 4,300 square miles.

Russia's top energy official said Rosneft, which is 75 percent owned by the Kremlin, will get shares in at least six ExxonMobil projects in the United States.

The shares "will be in proportion to the ones Exxon will get by working in the Russian projects," Deputy Prime Minister Igor Sechin told the Interfax news agency. "I'd like to emphasize the exclusiveness of these decisions for Russian companies ... that until today were not able to develop existing deposits in the U.S."

Sechin also said that ExxonMobil could get a share in other projects in the Black Sea. "If the Tuapse (field) yields results, Exxon will become a natural partner for our additional capabilities in the Black Sea," he was quoted by Interfax as saying.

Rex Tillerson, ExxonMobil's chief executive, attended the ceremony and said in the statement that the deal "takes our relationship to a new level and will create substantial value for both companies."

ExxonMobil and Rosneft first struck a deal in January to develop a sector in the Russian part of the Black Sea.

Putin lauded Exxon for its extensive experience in drilling in the Arctic region in Canada.

Tuesday's signing ceremony was preceded by talks between Rosneft executives and ExxonMobil top brass, including President Neil Duffin.

Putin hailed the deal as "a truly strategic partnership", the RIA Novosti news agency reported. The prime minister estimated the total investment in the project at a massive $500 billion, a figure he described as "scary," over an unspecified number of years.

The deal is a blow for Britain's BP, with which Rosneft struck an accord in January to jointly develop the Arctic fields. That agreement fell through, however, after BP's Russian shareholders managed to block it.

"The Exxon deal is offering us much more" than BP, Kazharov told the AP.

BP's spokeswoman Sheila Williams would not comment on the deal but said BP is still "committed both to Russia and to the continuing success of TNK-BP," its Russian venture.

Tuesday's agreement is the largest Russian oil deal in recent years.

Royal Dutch Shell had invested some $20 billion in the Sakhalin 2 offshore project in Russia's Far East before it was forced out of the project in 2006.

The agreement surpasses the 2004 deal between ConocoPhillips and Lukoil when the American oil company paid $2 billion for a 7.6 percent stake in Russia's second-largest oil producer.

In a similarly landmark agreement, Rosneft and pipeline operator Transneft signed a cash-for-oil swap in 2009, where the Russians secured a $25 billion loan from a Chinese bank in exchange for oil supplies to China.