Sources inside the company have confirmed that Rosneft will not be able to move forward in the Arctic for at least a year due to sanctions.
State-owned energy giant Rosneft (ticker: RNFTF) will not be able to continue drilling in the Kara Sea in 2015 after Western sanctions halted its cooperation with ExxonMobil (ticker: XOM) in the arctic, two company sources told Reuters.
In September, Rosneft announced that it had found oil in the Kara Sea after drilling the Universitetskaya-1 well in partnership with Exxon. The Kara Sea resources are estimated to be comparable in size to those found in Saudi Arabia, and were hoped to keep Russian production growing after setting a post-Soviet record in 2014.
Rosneft was due to restart drilling this year but Exxon was forced to back out of the venture after sanctions from the West made it impossible for XOM to continue cooperating with the Russian company. Sanctions prevent Western firms from helping certain Russian companies, including Rosneft, to explore in the Arctic, in deep water or for shale oil, among other restrictions.
“There will be no drilling in 2015. There is no platform and it is too late to get one. The project was initially created for Exxon’s platform,” a Rosneft source told Reuters. A second source inside the company said that Rosneft planned to resume drilling in 2016, but commercial production would now be pushed back to beyond 2020.
“Usually, it takes eight to ten years from the first well to the first oil on the offshore, but here you have such a difficult situation,” the source said.
Rosneft was using the West Alpha platform, owned by Seadrill subsidiary North Atlantic Drilling (ticker: NADL), in the Kara Sea. The rig is on contract with Exxon until July 2016, and returned to Norway in mid-October after completing the well in the Kara Sea. Due to the weather conditions, drilling in the Kara Sea can only be conducted during a couple months in the year.
The first source said roughly a year and a half was needed to adjust the Kara Sea project for a new platform so in order to start drilling in July-August next year, Rosneft would need to start looking for a platform now.
Valery Nesterov, an analyst with Sberbank CIB, said the main challenge would not be to find a platform, but to address the safety of operations in an area where Russia lacks expertise.
Russian Energy Minister says country’s output will stay at 2014 level
The news comes on the same day that Alexander Novak, Russian Energy Minister, announced that Russian oil output will remain at the same level as in 2014. The inability to access resources in the Kara Sea for another year is going to continue to put strain on Russia’s oil and gas industry, which is already struggling to replace its rapidly depleting reserves from Soviet-era oil fields.
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