MOSCOW (MRC) -- Exxon Mobil Corp. shook off the chill of sanctions and continued to snap up drilling rights in Russia last year, giving it more exploration holdings in Vladimir Putin’s backyard than in the U.S., said Bloomberg.
Taking the long view, Exxon boosted its Russian holdings to 63.7 million acres in 2014 from 11.4 million at the end of 2014, according to data from U.S. regulatory filings. That dwarfs the 14.6 million acres of rights Exxon holds in the U.S., which until last year was its largest exploration prospect.
While U.S. and European Union sanctions against Russia forced Exxon to shut down an Arctic drilling project in October, the producer is staking claims to areas that could yield tens of billions of barrels in coming decades. The bet on Russia follows a string of drilling failures elsewhere and spending cuts that will likely be addressed in Chief Executive Officer Rex Tillerson’s investor meeting Wednesday.
Sanctions to punish Russia for supporting separatists in eastern Ukraine and for the annexation of Crimea prohibit companies based in the U.S. and EU from probing Russia’s deep-sea, shale and Arctic fields. They don’t bar activities such as seismic surveying or acquiring drilling rights, opening an avenue for Exxon's bold campaign.
The producer, based in Irving, Texas, added drilling rights in the Laptev and Chukchi seas last year to holdings it already had in the Kara and Black seas under joint-venture agreements with state-controlled OAO Rosneft, the filings showed. The exploration rights have various expiration dates spanning from 2017 to 2023.
Geologists have no estimate of how much oil is trapped beneath the acreage Exxon amassed. In 2012, Russian officials said the resources were so vast that they would require new airports to be built to handle thousands of roughnecks and scores of offshore platforms to manage crude production. The Kara and Black sea assets alone will cost as much as USD350 billion to develop, Igor Sechin, the Rosneft chairman who was deputy prime minister at the time, said in April 2012.
Tillerson is scheduled to brief a gathering of investors and analysts on the company’s growth outlook at the New York Stock Exchange on Wednesday. Exxon signed the agreements to acquire more acreage in May, said Patrick McGinn, a company spokesman. That was about two months after the Russian annexation of Crimea that spurred U.S. and EU leaders to escalate sanctions.
The company’s fourth-quarter output tumbled to a 15-year low, and its shares lost 8.7 percent of their value in 2014, the steepest annual decline since 2009. The U.S. oil explorer’s willingness to expand in Russia when western governments are working to isolate President Putin’s regime may indicate it expects sanctions to be short-lived, said Timothy Ash, chief economist for emerging markets at Standard Bank Plc in London.
Worldwide, Exxon’s exploration failure rate worsened last year to 39 percent from 33 percent in 2013. The company had so-called dry holes, or wells that failed to locate commercially viable amounts of oil or gas, in two-thirds of the regions in which it operates. Of the seven exploratory dry holes Exxon drilled in 2014, four were in the U.S. The company’s costs to extract a barrel of crude from the ground rose 9.3 percent last year to a global average of USD12.55.
ExxonMobil is the largest non-government owned company in the energy industry and produces about 3% of the world's oil and about 2% of the world's energy.