Analyst View: Rosneft, Exxon to explore oil in Russian Arctic

SOCHI, Russia Tue Aug 30, 2011 11:25am EDT

SOCHI, Russia (Reuters) - Exxon Mobil and Russia's Rosneft signed a deal on Tuesday to develop oil and gas reserves in the Russian Arctic, opening up one of the last unconquered drilling frontiers.

Here are some comments on the deal:

JASON GAMMEL, ENERGY ANALYST AT MACQUARIE RESEARCH

"If this is essentially the BP deal, it is exposure to a pretty significant resource base. There's a lot of risk that's involved in it. There's been essentially no derisking of the Kara Sea. There is a lot of uncertainty associated with it. BP was looking at several billion dollars of exploration expenditures up there."

"Rosneft had been pretty clear that they were still looking to get a deal done up there. I would say that Exxon was probably competing with Shell primarily. It's a pretty big win for them if they were able to gain access up there, clearly dependent on what type of terms they got."

On Rosneft getting access to Gulf of Mexico: "It might be a sort of quid pro quo very similar to the share swap arrangement that BP was trying to negotiate with Rosneft. In other words, you get the strategic benefit of exploration in the Arctic and you further bind the companies through some other cross-holding or agreement. This could be filling that role."

DENIS BORISOV, ANALYST AT BANK OF MOSCOW

"Not only BP but Exxon also showed an interest to develop Russian energy resources. The fact that after the BP/Rosneft deal collapse a new partner was found shortly is a very positive signal.

"For Rosneft, it means a share of risks (operating in Arctic) but the common signal is that foreign investors still believe in Russian energy potential.

"The minus of the new deal (comparing to BP/Rosneft deal) is that there is no share swap option, which means Rosneft will keep its own 9.4 percent share stake on its balance and would not cash it out."

ALLEN GOOD, EXXON MOBIL ANALYST AT MORNINGSTAR

"There is a high estimate of resources in Russia, so if Exxon Mobil can get access, I think that's certainly beneficial to them.

"Ultimately these deals come down to the economics: What are they giving up to get in there? What are the returns they're going to see out of Russia? Those are the type of things they're never going to disclose, so it's really tough to look at these deals and estimate what their actual value is."

"We've always thought that Exxon Mobil is a preferred partner given their operating history and their technology and their project management skills. This move just reinforces that."

On political risk in Russia: "I think that's always a concern. But when you're a global international oil company, you have to deal in environments with governments that aren't as steady as you'd find in say Canada, Australia or the U.S. That's just part of the risk that goes along with it."

On Rosneft getting access to U.S. Gulf of Mexico: "That's probably huge for them. I don't think they have too much outside of Russia. Being able to expand in deepwater and probably gain some experience and some knowledge from Exxon Mobil will probable benefit them as well as they look to explore offshore in Russia."

JOHN HERRLIN, EXXON MOBIL ANALYST AT SOCIETE GENERALE

"With the integrated oil companies, Wall Street has had this school of thought that resource access was getting more limited. An announcement like today shows that when you have the right technology, that's not necessarily the case."

"In Russia when you do deals you want to have the Putin Good Housekeeping Seal of Approval, which clearly this had."

"There's political risk everywhere, even the U.S. It's all relative. The issue you're going to have with Russia is how will you be taxed in terms of what you're producing. But this is still too early. This is right now a science project, for the near-term. I think it's important to be exposed to these type of resources and deal with the political system as it is."

On perks for Rosfnet: "They're getting exposure to offshore oil, both shelf and deepwater, and other resource exposure. Exxon Mobil, from an engineering standpoint, is the best of the best in terms of what they do."

CLIFF KUPCHAN, DIRECTOR OF EURASIAN PRACTICE AT EURASIA

GROUP

"Politically, it is significant that this is an American company. Three years ago, American companies were being excluded. Here, an American company is at the center of a flagship announcement. This deal demonstrates that 'reset' has had a positive effect on U.S.-Russia energy relations."

"Development of the Kara Sea and the Arctic is a long term project. Don't expect quick progress. I see this mainly as an acquisition of option value for Exxon Mobil. They have very lucrative options should things go well to work in the next energy frontier: the Arctic. It doesn't mean that all this is going to happen but from Exxon's point of view, that's the real appeal -- to open new future avenues of production.

"Many other companies that have operated successfully in Russia have focused on providing intellectual capital and technology to Russia as part of a broader deal. Acquisition of indigenous technology is very important to the Russians as they seek to modernize, and establishment of the new center will increase the chances that this partnership will be successful."

"The recent track record of IOC's in Russia is not very impressive. BP-Rosneft failed, and Rosneft's ventures in the Black Sea with both Chevron and Exxon Mobil have floundered. That said, I don't think Russia can afford a second high-profile flop. They have chosen a company in Exxon Mobil that is very cash rich, that doesn't need to take gambles like BP did and historically makes very conservative decisions."

"My instinct is that Exxon Mobil has kicked the tires, dotted the i's and crossed the t's. Doing that doesn't ensure success in Russia, but it increases the chances of it. I think the chances of this failing are significantly lower than previous deals."

ALEXY KOKIN, EQUITY ANALYST AT URALSIB IN MOSCOW

"Of course there will be enthusiasm about this deal. And this deal will help Rosneft to privatize it. I believe there is a link between what Rosneft has been doing with Exxon and its privatization.

"There won't be quick practical results. But it's important that Exxon is awaiting for changes in the Russian law, while Rosneft will gain access to new technologies."

FADEL GHEIT, ENERGY ANALYST AT OPPENHEIMER & CO

"The Russians very quickly had a plan B, and plan B was Exxon."

"It is the same plan with very small modifications. Instead of exchanging equity stakes with each other, Exxon instead is going to JV them into some of their properties in the U.S. ... Basically it's the same blueprint as what BP and Rosneft had in mind six months ago."

"Exxon is double or triple the size and market value of BP, so obviously this would be much more important for a BP than it is for Exxon."

"It is an important deal for Exxon for two things. Number one: to establish a foothold in the Arctic. The Arctic is the last unconquered frontier, if you will, so this is very important to them. And also access to resources.

"Resource access has been getting tighter and will continue to get tighter...If Rosneft could do it alone they would not have asked BP or Exxon to come along and share the lot with them...Only in the very difficult and complex projects will these companies like Exxon, Shell and Chevron have a chance."

"Exxon has the ability to settle disputes privately. They also have the reputation around the world that they do not get pushed around. And Russia knows that and every other country knows that. You can try to push around other companies, but when it comes to Exxon you have to be careful."

"The other thing that is important is ... unconventional (resources) in Russia, which a lot of people estimate could be bigger even than the conventional resources in Russia. Exxon is going to show that the acquisition of XTO is bearing fruit outside of the U.S."

(Reporting by Mike Erman and Ernest Scheyder in New York and Katya Golubkova and Vladimir Soldatkin in Moscow, compiled by Tiffany Wu)

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