Will Exxon, Rosneft's Arctic Find be Hurt by U.S. Sanctions?

News of the integrated oil major Exxon Mobil Corporation (XOM) and its joint venture (:JV) partner, the Russian state-run firm OAO Rosneft’s discovery in the Arctic recently made headlines. However, the fate of the development of the well is largely tied to the recent U.S. sanctions against Russia.

The sanction forbids American oil firms from providing equipment, technology or service assistance to Russian companies in developing Arctic offshore projects. This could pose problems for both Russian and foreign firms as Russia is a promising exploration prospect and Exxon as well as other foreign E&P firms have considerable stake in the country. Hence, many of these firms hope the sanction to be withdrawn at the earliest.

Rosneft had announced that it has found significant amount of oil in the JV’s first well, University-1, located in the Kara Sea. The discovery well is anticipated to hold over 338 billion cubic meters of natural gas and 100 million metric tons of oil. The well was drilled at a record time of just one and a half months but is now being sealed, as Exxon halted operations in compliance with the sanction.

Rosneft also acknowledged the contribution of other firms like Schlumberger Limited (SLB), Halliburton Company (HAL), Weatherford International plc (WFT), Baker Hughes Incorporated (BHI) and FMC Technologies, Inc. (FTI) in this development.

The discovery highlights the potential of the Arctic but the sanctions put further development of the well on hold. Though the well has been plugged, analysts believe that Rosneft could continue with the evaluation of the find, thus preventing a total block on the well development. If the sanctions are withdrawn by the end of the evaluation phase, the parties could carry on with further development.

The find represents a promising long-term opportunity for Exxon Mobil as the region has massive untapped potential. Development of the region is equally important for Russia as it would mean significant economic benefits for the nation.

Read the Full Research Report on SLB
Read the Full Research Report on WFT
Read the Full Research Report on HAL
Read the Full Research Report on XOM


Zacks Investment Research