Russia’s ambition to defend its tottering status as an oil superpower have been given a recent boost by the discovery of potentially enormous oil reserves in the Arctic and Black Sea areas.
Following movement over the last couple of years, President-Elect Vladmir Putin has announced his government’s resolution to further open up the far north and Russian arctic for oil and gas extraction
Russian Deputy Prime Minister and Putin ally Igor Sechin has stated that these virgin oil fields could account for 40% of the country’s oil output by 2030 amounting to upwards of 90 billion barrels of oil. The revelation by the Russian government that they would be seeking partnerships with Western Oil companies to exploit these resources has sparked something of a oil rush in Europe and America, as oil and gas corporations trip over themselves to get a glimpse of Russian black gold.
First off the mark are oil barons Exxon Mobil Corporation (NYSE: XOM), who recently announced a partnership with Russian partners Rosneft (PNK: RNFTF.PK), to exploit deep arctic and Black Sea resources to the tune of several billion barrels of oil. The news has been greeted ecstatically by Exxon’s shareholders, and analysts predict that the move will trigger a large surge in demand from investors, and a subsequent peak in its stock price.
“Strategic Global Alliance”
Not wanting to be left out in the cold, Exxon’s rival BP plc (NYSE: BP) has also secured its own partnership with Rosneft to drill for oil in the continental shelf beneath the arctic ocean. This is great news for BP, being the first major foreign deal secured since the catastrophic Deepwater Horizon oil spill in 2010. The deal, first signed in January 2011, was greeted in effusive terms by BP’s CEO Bob Dudley, who described it as “a historic moment for BP”
The deal involves joint exploration and pooling of expertise in over 125,000 square km of arctic seabed, an area that shows almost unlimited potential for expansion. To clinch the marriage BP will take a dowry of a 9.5% stake in Rosneft in exchange for Rosneft taking on 5% of BP’s shares. The alliance is estimated to be worth around $8 billion
With such lucrative partnerships already secured, it is clear that there is big money to be made on the Russian frontier – very good news for an oil industry that until recently has found itself on the back foot due to environmental disasters and rising fuel costs.
With Exxon and BP already in place, it should not take industry observers by surprise to find Chevron Corporation (NYSE: CVX) negotiating its way into the action. On 1st March 2012, representatives of the US oil giant held high level talks in Moscow with the Russian Ministry of Natural Resources. The goal of the negotiations was the further opening up for oil exploration of areas of the high arctic currently off limit to non-state corporations.
Denis Khramov of the Russian Ministry has revealed that the talks also broached the idea of setting in place a more favourable tax regime for foreign oil companies, placing them on a more even footing with state sponsored operations Rosneft and Rao Gazprom (PINK:RGZPF)
Whether the new oil rush will see a reduction in soaring global fuel costs is anyone’s guess, but the developments will certainly see a rush on oil stocks, and a subsequent windfall for industry investors.