Energy in Ukraine: Exxon to spend $735mln on new Black Sea wells

According to RIA Novosti and Bloomberg, Texas-based oil company ExxonMobil (largest in the world by revenue) will spend $735mln to drill two new deep-water oil wells in the Black Sea, off the coast of southern Ukraine. $400mln of that money will go to cover the cost of the drilling, while $335mln has been ear-marked for the Ukrainian government as a "signing bonus," according to a minister in Ukraine's energy ministry.

Photo credit RIA Novosti.

Smells like a big of political palm-greasing to me. I'm not sure whether to applaud at such a seemingly open admission of corruption, or to shake my head and wag my finger.

Either way, according to RIA Novosti, "The Black Sea is relatively undeveloped by the global oil industry. It has fewer than 100 oil wells, whereas the North Sea has 7,000, according to Bloomberg. A recently opened gas field off the coast of Romania, now yielding 630 million cubic feet a day (17.8 million cubic meters) has fueled interest in the area."

Here's more information about that "recently opened gas field" off Romania, also in the Black Sea and not far from Ukraine: http://www.energy365.com/devenergypedia/romania-exxonmobil-and-petrom-grant-romgaz-10-option-on-offshore-midia-block-in-black-sea/. ExxonMobil recently granted the Romanian state-owned firm Romgaz a 10% share in operations in the offshore oil and gas blocks there.

Current ExxonMobil operations in Black Sea off coast of Romania. Photo credit: http://www.energy365.com/devenergypedia/wp-content/uploads/2013/02/Romania-ExxonMobil-and-Petrom-grant-Romgaz-10-per-cent-option-on-offshore-Midia-Block-in-Black-Sea.jpg

The agreement in Ukraine, meanwhile, is due to be finalized later this year. It should be an interesting development to watch, in an increasingly interesting and active Ukrainian energy market. Not only are oil exploration and production increasing, but shale gas could soon play a huge role as well; and of course all of this has very serious political undertones and effects. Exxon, and all American energy companies and investors, should keep a weather eye on the political horizon in Ukraine.

Trickling Along: ExxonMobil Facing Challenges

Just saw this article on Breaking Views via DealBook and wanted to post the link. Despite my longstanding partiality towards XOM it appears that they are truly facing some serious financial problems, and that the "Exxon premium" and higher EV/EBITDA valuation multiple relative to competitors may be on the way out.

http://www.breakingviews.com/exxon-mobil-running-hard-just-to-stand-still/21082033.article

Rosneft considering joint Iraq venture with XOM

(Photo credit Barents Observer)

I was originally intending to make my first post more of an introduction to the blog and to myself, but this piece of breaking news on the website Seeking Alpha grabbed my attention. According to SA, Igor Sechin, CEO of Russian oil giant Rosneft (ROSN:RM on Russia's Micex exchange, 215.23 rub, -0.85%), is considering a joint venture with ExxonMobil (XOM, 88.44, +0.40%) to exploit oil and gas production in Iraq. XOM has been wanting to reduce its large stake in the West Qurna-1 oil field and has expressed its intent last year to sell its entire 60% stake to focus on oil projects in Kurdistan.

More details are provided by this Reuters article, which states that an Iraqi delegation is to visit Moscow on May 10, and provides the following financial details:

* Rosneft plans to produce 100 bcm of gas a year by 2020

* Rosneft's 2013 capex seen at $20 bln post TNK-BP deal

* Sechin says market capitalisation of Rosneft to reach $120 bln in two-year time

The deal is expected to double Rosneft's share of the Russian gas market by 2020, and seems to be the next step in the oil company's gradual process of expansion. Quoting from Reuters: "Rosneft has been expanding since Sechin, a powerful long-standing ally of Russian President Vladimir Putin, was appointed to head Russia's top oil producer last May. It bought Anglo-Russian oil company TNK-BP from BP and the AAR consortium of Soviet-born tycoons for $55 billion, clinched deals with international majors to tap Russia's Arctic hydrocarbon reserves, and acquired domestic gas producer Itera."

This seems like a very interesting development to keep track of moving forward. I wonder how this will affect the dynamics of the Russian gas and energy market, given Gazprom's current monopoly yet Putin's support of Sechin?