August 30, 2011 – SOCHI, Russia (Reuters) - U.S. oil company Exxon <XOM.N> and Russia's Rosneft <ROSN.MM> signed a deal on Tuesday to develop oil and gas reserves in the Russian Arctic, opening up one of the last unconquered drilling frontiers to the global industry No.1.
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The deal, signed in the presence of Russian Prime Minister Vladimir Putin, involves Arctic assets BP <BP.L> had hoped to exploit, and dashes the British company's hopes of reviving its own deal with Rosneft that was blocked in May by its billionaire partners in an existing Russian venture.
"New horizons are opening up. One of the world's leading companies, Exxon Mobil, is starting to work on Russia's strategic shelf and deepwater continental shelf," Putin said.
Under the deal, Exxon and Rosneft will invest $3.2 billion in developing East Prinovozemelsky Blocks 1, 2, and 3 in the Arctic Kara Sea and the Tuapse licensing block in the Black Sea.
Those regions "are among the most promising and least explored offshore areas globally, with high potential for liquids and gas," Exxon said in a statement.
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Rosneft, meanwhile, will be offered an equity interest in a number of Exxon exploration projects in North America, including deep-water Gulf of Mexico and tight oil fields in Texas, as well as in other countries.
"The fact that after the BP-Rosneft deal collapsed a new partner was found so quickly is a very positive signal," said Denis Borisov, energy analyst at Bank of Moscow.
The deal would help Rosneft share the risks of developing the Arctic, which could run into the hundreds of billions of dollars, and contrasts with the BP-Rosneft deal in that it does not include a share swap.
"If this is essentially the BP deal it is exposure to a pretty significant resource base. There's a lot of risk that's involved in it," said Jason Gammel, energy analyst at MacQuarie Research.
"Rosneft had been pretty clear that they were still looking to get a deal done up there," Gammel added. "It's a pretty big win for them if they were able to gain access up there, clearly dependent on what type of terms they got."
Rosneft shares were up 2.1 percent in late Moscow trading, paring earlier gains of up to 3 percent on expectations of an announcement. Exxon stock opened 1.3 percent weaker.
(Additional reporting by Vladimir Soldatkin, Katya Golubkova and Michael Ermann, Writing by Douglas Busvine, Editing by Timothy Heritage and Andrew Callus)