Exxon Mobile Corp (NYSE:XOM) Stops Drilling Arctic Oil Due To Sanctions

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By Mark Michaels on September 18, 2014 Company, Intl News

Exxon Mobile Corp (NYSE:XOM) had begun to drill for oil on an offshore oil well as the first step in uncovering billion of barrels of crude oil in the remote Arctic in Russia. Today, the company has put a stop to its plan, according to those familiar with the matter.

Work halted just a few days after the United States and the European Union issued a sanction that prevented companies from aiding the Russians exploit deep water or shale oil field in the Arctic. This information was provided by three individuals who were involved with the company’s operations but were not authorized to speak on the matter. The sanctions by the United States were meant to levy a penalty against Russia for amplifying tensions in Ukraine, and gave companies in the United States a grace period that will last until September 26^th, to cease all restricted drilling and testing services.

In addition to Exxon, Seadrill Ltd and North Atlantic Drilling (NADL) are under immense pressure to complete, or at least temporarily seal, the $700 million oil well just off of Russia’s northern coast before the deadline and the sanctions go into effect. According to the chief energy strategist at Prime Executions Inc, Chris Kettenmann, with only eight days before the United States sanctions prohibit Exxon from any work in the Arctic with Rosneft, the company’s partner in Russia, the project will most likely be put on hold until next year, which is the earliest that it would resume.

Prime Executions Inc is a brokerage firm located in New York.

Mr. Kettenmann said that this oil well has been one of the most watched wells in the industry, so the issue with this particular one is a big deal.

Ever since the USSR was broken up about 25 years ago, companies from the United States and other European countries have all pitched in the help rebuild Russia’s energy industry, hoping to obtain some of its oil reserves, which is estimated to be about 75 billion barrels.

Key Points

The well was the initial venture into tapping into about 9 billion barrels of crude deep oil deep under the Kara Sea floor. The amount of oil is worth roughly $885 billion at today’s prices. It is vital to both Exxon’s efforts to pick up decreasing production as well as Russia’s goal of finding new oil fields to replace its faltering Soviet-era wells.

A spokesperson from Exxon refused to comment on the issue. Dick Keil, the company’s spokesman, stated that the company is still in the process of assessing the sanctions, but will fully comply with all regulations and laws. Representatives from Rosneft did not respond to a request for comment.

Europe and the United States have levied a series of increasingly stringent sanctions against Russia since its takeover of Crimea in March of this year and the support for Russian separatists in the eastern region of Ukraine. These sanctions have pushed Russia’s economy nearly to a recession, and the lasting impact could be for two or three years, according to Alexei Kudrin, the former Finance Minister of Russia.

Shutting Down

The dilemma that Exxon faces is that it must give itself enough time to safely shut down the well before leaving it.

According to industry experts, Exxon would do best to stop where they are now, and take the week that is left to set in plugs in the well and pull out the anchor and blowout protector.

Russian partner Rosneft has already suffered from the consequences of the sanctions, and has struggled to finance itself and acquire technology.