Exxon has ambitious plans for Russian oil

As Barack Obama and Vladimir Putin argue over human rights in Russia and the fate of fugitive U.S. intelligence analyst Edward Snowden, the countries’ biggest oil companies are preparing to drill for giant discoveries together in the Arctic Ocean.

ExxonMobil Corp. and OAO Rosneft are set to start their first Arctic well this year, targeting a deposit that may hold more oil than Norway’s North Sea. They also plan to frack shale fields in Siberia, sink a deep-water well in the Black Sea and build a natural gas export terminal.

“We have a unique partnership,” Glenn Waller, Exxon’s Russian chief, said in an interview in Moscow. “They have the world’s biggest reserves and we have the largest market capitalization.”

The deepening alliance shows the two governments’ fractious relationship is no bar to America’s most valuable energy company investing billions in Russia. For Rosneft Chief Executive Officer Igor Sechin, the Irving, Texas-based company brings financial heft and the expertise needed to drill offshore in some of the world’s harshest conditions for rigs.

“There’s a whole stack of reasons why it’s good that Rosneft is working with Exxon,” said Richard Sakwa, an associate fellow at Chatham House in London, who writes on Russia’s oil industry. “There’s technology and management. Between Sechin and Exxon, there’s a degree of trust being built up that can be nothing but to the good” to both and to Russia.

Exxon CEO Rex Tillerson has said his company’s output will decline 1 per cent this year, a third straight annual drop, putting pressure on to find new reserves. Tillerson’s decision to expand work in Russia is a switch from his predecessor’s policy.

A decade ago, then-CEO Lee Raymond said he’d be reluctant to invest more after Putin’s government moved against OAO Yukos Oil Co., once Russia’s largest oil producer. Yukos’s assets were confiscated to pay tax claims and owner Mikhail Khodorkovsky was imprisoned.

“From Exxon’s point of view, if you want to do business in Russia, you have to do business with one of the chosen few, and Rosneft is clearly first among equals,” said Ed Chow, a senior fellow at the Center for International Strategic Studies.

The Arctic’s Kara Sea, where Rosneft will drill its first well this year, may potentially hold 85 billion barrels of oil equivalent, a number about equal to Russia’s existing, proven oil reserves, according to BP Plc.