Exxon, Rosneft Find Oil and Gas at Arctic Well

U.S. Sanctions Raise Questions About How the Companies Will Exploit the Resources They Have Found

By DANIEL GILBERT
CONNECT

Sept. 27, 2014 12:41 p.m. ET

Exxon Mobil Corp. XOM +1.25% and Russia's OAO Rosneft have found major amounts of oil and natural gas at their first well in the Arctic, Rosneft said Saturday, offering a glimpse of the potential buried beneath the ice-studded waters north of Siberia.

But the news raised questions about how Rosneft and Exxon will exploit the resources they have found. U.S. sanctions imposed earlier this month bar companies from providing goods, services and technology for Arctic oil projects, among other types of drilling in Russia.

Exxon a week ago acknowledged the impact of the sanctions as it confirmed that it was winding down drilling of the University-1 well in the Kara Sea.

"We have encountered hydrocarbons but it is premature to speculate on any potential outcome regarding the University-1 exploration well," Alan Jeffers, an Exxon spokesman, said Saturday.

Rosneft said geological data from the well was still being analyzed to come up with an estimate of the resource. But the company touted the early indications, saying it wanted to name the field Pobeda, or "victory" in Russian.

"This is an outstanding result of the first exploratory drilling on a completely new offshore field," Igor Sechin, Rosneft's chief executive, said in a statement. Rosneft praised other western partners including Schlumberger Ltd. SLB +2.43% , Halliburton Co. and Weatherford International WFT +1.57% PLC.

The Arctic is estimated to hold some of the world's largest deposits of oil and gas that have yet to be tapped.

Exxon and Rosneft in 2011 struck a deal to explore Russia's Arctic waters, expanding it to cover an area larger than Texas. The companies have estimated the exploration costs alone will exceed $3.2 billion, with Exxon footing most of the tab.

The University-1 well in the Kara Sea is the first well the companies have drilled in the partnership. The results, however, won't have an immediate impact on Exxon or Rosneft. Even without sanctions, it would likely take years for the companies to pump meaningful amounts of oil and gas.

For Exxon, the deal represents one of its best long-term opportunities to find new sources of oil and gas to replace what it pumps. For Russia, tapping the Arctic's energy riches is part of a strategy to increase domestic production, a mainstay of its economy and geopolitical clout.

U.S. and European officials have imposed sanctions to crimp Russia's ability to develop the Arctic and other new energy resources, such as a giant shale-rock formation in Siberia. The measures are designed to punish the Kremlin for stoking a military conflict in Ukraine, Western officials have said.

A Rosneft spokeswoman didn't immediately respond to a request for comment on the impact of U.S. sanctions on developing the discovered oil and gas.

http://online.wsj.com/articles/exxon...ell-1411836098