Exxon Mobil Corp. said the U.S. government is giving the company more time to shut its Russian Arctic well beyond the deadline for sanctions aimed at halting the $700 million project.
Exxon asked Washington for an extension to allow it to continue performing shutdown work on the University-1 well in Russia's Kara Sea to make sure the well is safe before it is temporarily abandoned. The Irving, Texas-based company already had ceased drilling the offshore well after U.S. sanctions set a Sept. 26 deadline for ending the work.
"The U.S. Treasury Department, recognizing the complexity of the University-1 well and the sensitive Kara Sea arctic environment, has granted a license to Exxon Mobil and other U.S. contractors and persons involved to enable the safe and responsible winding down of operations related to this exploration well," Exxon said in a statement Friday.
The latest round of sanctions intended to punish Russia for its involvement in separatist violence in Ukraine barred U.S. and European Union companies from helping Russia exploit oil resources in the Arctic, deep seas and shale formations.
The measures had prompted Exxon and its partner OAO Rosneft to temporarily halt drilling at the well, which lies about 260 feet beneath the sea surface off Siberia's northern coast, said three people familiar with the project. The well is aiming to tap a resource estimated to hold as much as 9 billion barrels of crude, worth $880 billion at current prices.
Exxon sought the exemption from the deadline after engineers warned they needed more time to properly plug the well with cement and conduct tests to ensure there are no leaks, cracks or faults that could damage the reservoir or allow environmental contamination, said a source with knowledge of the matter who asked not to be identified because he was not authorized to speak publicly.
Exxon and Rosneft are exploring a geologic formation never before drilled by humans, which means the pressure changes, layer densities and temperatures at various depths are unknown, increasing the risks of unexpected collapses or pressure bursts. For that reason, the engineers closing the well need to map the formation a foot at a time as they back out of the well, a process that can take weeks.
The halt at University-1 is a blow to Russian President Vladimir Putin's quest to find a new generation of oil fields to replace declining output from some of the country's Soviet-era reserves. The Russian oil industry is dependent on expertise and equipment from the U.S. and Europe to penetrate crude reservoirs that are deeper, denser and more remote than anything it has attempted before.
The disruption also is a setback for Exxon as the company seeks to lift production that touched a four-year low in 2013, as the rate that it's replacing output with new discoveries tumbled to the lowest in half a decade.
Exxon's $3.2 billion exploration pact with Moscow-based Rosneft is a linchpin of the U.S. company's bid to propel production and reserves growth in the next decade, said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis.
"The Arctic drilling potential for Exxon is really enormous," Youngberg said. "It's one of the key growth areas they're looking to post-2020."
Rosneft in Moscow declined to comment. Hagar Chemali, a U.S. Treasury Department spokesman, declined to comment and referred to a Bloomberg News inquiry to Exxon.
Information for this article was contributed by Indira A.R. Lakshmanan, Mikael Holter and Stephen Bierman of Bloomberg News.
Business on 09/20/2014