Exxon’s New International Edge: Domestic Reserves

(FORBES) Well, that was a turn up for the books. Exxon Mobil has managed to put the finishing touches on a US$3.2bn upstream oil deal with Rosneft to gain a stake in Arctic production (effective Monday, 16th April). Tax tweaks and export duty exemptions by Vladimir Putin certainly helped Exxon to put pen to paper, but in return, the US oil giant had to give Rosneft access to North American hydrocarbon plays. This is an old-school swap agreement – what’s more, Washington should expect many more deals to follow. US oil majors have a new chip to expand their global footprints; offering access to domestic reserves. They will use them.

The deal makes considerable sense for Exxon. It has basically acquired first mover advantage to access Russia’s Arctic oil riches for a commodity (Ural grades) currently trading at $120/b. Given steep (16%) Russian depletion rates, a Putin ‘3.0 Presidency’ will have to sustain a credible investment climate if it wants to maintain 10mb/d production, let alone increase output to 11m/b. Russia still depends on oil and gas for two thirds of its export, half of its federal budget revenue and 20% of its GDP. Roughly translated; Exxon is well aware the deal is merely the tip of a potentially very lucrative Arctic iceberg.

Read full article by Matthew Hulbert in FORBES