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ExxonMobil gets a short reprieve on Russia sanctions that may allow it to finish its Arctic well

Obsession
Energy Shocks
Obsession
Energy Shocks

ExxonMobil today said it received permission from the US government to miss next week’s deadline for halting work in the Russian Arctic, so that it can wind down its drilling work safely before falling in line with punitive sanctions related to Moscow’s invasion of Ukraine.

The Obama Administration’s concession also may provide the company sufficient time to complete drilling an exploratory well that had to be finished and plugged by late October anyway because of the coming winter ice.

Prior to the fresh sanctions, announced last week by the US and Europe, ExxonMobil had begun drilling the Universitetskaya oil well on Aug. 9 and planned to finish within 70 days. After that, it was going to study well samples to determine whether Universitetskaya holds commercial volumes of oil. Analysts expected the company to announce drilling results before the end of the year.

Russia’s Rosneft says that Universitetskaya contains up to 9 billion barrels of oil, which, if true, would make it the largest field discovered in years. With big volumes of oil increasingly hard to find, the Russian Arctic has attracted a frenzy of attention from the major oil companies.

The sanctions deadline was set for Sept. 26, by which time US and European companies were to stop all new work in Russia. ExxonMobil’s statement did not specify when it will meet the sanctions, nor whether it actually has stopped drilling.

Just hours before the statement, Reuters quoted a Russian government minister as saying that drilling was continuing, while a Bloomberg report said drilling had stopped but that it would take weeks for ExxonMobil to back the drill out of Universitetskaya, foot by foot, so as to ensure that there is no damage to the casing before the well is plugged with cement.

If the Bloomberg description is accurate, it still fits with a scenario of the company being able to finish drilling and plugging the well within the planned 70-day schedule. Hence, the sanctions would bite Russia only if they continue into next year, when ExxonMobil plans to resume drilling.

According to the ExxonMobil and Rosneft plans, Universitetskaya was the first of some 40 wells they would drill in the Arctic over the next four years, a strategy intended to create a rich new source of production for Russia.

ExxonMobil did not return a phone call or emails. This is the entirety of its statement:

The US Treasury Department, recognizing the complexity of the University-1 well and the sensitive Kara Sea arctic environment, has granted a license to ExxonMobil and other US contractors and persons involved to enable the safe and responsible winding down of operations related to this exploration well. The license recognizes the need to protect the safety of the individuals involved in these operations as well as the risk to the environment. All activities related to the wind down will proceed as safely and expeditiously as possible.

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