Languages

“Won’t give a kopeck for Arctic shelf exploration”

Russia’s largest private oil company Lukoil says drilling the Arctic seabed is accompanied by too high risks and will not be profitable enough.

“If someone asked me to invest money in Arctic exploration and development, I wouldn’t give a kopeck,” says Leonid Fedun, vice-president of Lukoil interviewed by Financial Times.

Lukoil is Russia’s second largest oil company and the largest non-governmental driller.

Backing off from areas like the Barents- and Kara Seas is a move Lukoil takes after Shell last month announced taking a “time-out” from Arctic exploration off the coast of Alaska. Shell’s announcement was made after the company experienced several set-backs and incidents with its rigs last year.

Also French oil major Total last year hinted that Arctic drilling could be premature.

If Leonid Fedun’s statement means a temporary back-off from the Arctic shelf, or if it is a well-thought strategic change from Lukoil’s side, remains to see. In late February, BarentsObserver reported that the company could be interested in drilling the Khatanga Bay in the Laptev Sea north of Siberia.

Last autumn, Lukoil representatives visiting Oslo said the company was teaming up with Norwegian partners in a bid for oil fields in in Norway’s sector of the Barents Sea. In 2011, Lukoil became the first Russian oil company to be prequalified for operations on the Norwegian shelf. 

Lukoil has earlier also said the company is anxious to get a piece of the Russian Arctic shelf, but with the current legislation only state-owned companies, to the large meaning Rosneft and Gazprom, are allowed to compete for offshore licenses.

Leonid Fedun now argues it is much cheaper to go for the still untapped onshore fields in Siberia than to drill the Arctic seabed. 

“You don’t have to build pipelines, water pipes, electricity, or bring workers,” the Lukoil vice-president says to Financial Times.

Rosneft has financially secured its potential operations on the Arctic shelf by entering co-share financial agreements with foreign partners. Statoil is partner in the northern part of the Russian sector of the earlier disputed area of the Barents Sea, while Eni is partner in the southern part. ExxonMobil is partner in the Kara Sea and two weeks ago, a joint Russian, Chinese energy agreement was signed letting China National Petroleum Corp. pay for the initial exploration of three offshore Arctic areas. 

A year ago, Lloyd’s issued a warning report urging companies not to rush for the Arctic, but instead do excactly what Lukoil now says it will do and like Shell said last month; take a step back and think carefully about the risks. At the time of publishing, author of the report Charles Emmerson told BarentsObserver there’s still far too much we don’t know about the region - so closing knowledge gaps, establishing baselines and developing specific technologies and practices is key.