$600 million Kara Sea drilling could be shut down

The United States new round of sanctions on Russia could force Exxon to alter its ongoing drilling in the Kara Sea by September 26.


The joint Exxon, Rosneft drilling at the University-1 licence east of Novaya Zemlya started in August at a time when U.S. and EU sanctions in response to Russia’s intervention in eastern Ukraine didn’t included already signed contracts. 

The $600 million drilling operation with the Norwegian owned rig “West Alpha” is the first take-off in a larger long-term Exxon, Rosneft partnership on oil-exploration offshore in the Russian Arctic. The ice-free window for drilling is said to last from August to mid-October, thereafter the plan was to tow the rig back to European waters.

With the new round of sanctions announced on Friday that might happen already by September 26 believed to be before the drilling itself is completed. 

In its announcement, U.S. Department of the Treasury writes “…sanctions that prohibit the exportation of goods, services or technology in support of exploration or production for Russian deepwater, Arctic offshore, or shale projects that have the potential to produce oil….” Among the entities listed is Exxon’s partner Rosneft. The Treasury Department continues: “U.S. persons have until September 26, 2014 to wind down applicable transactions with these entities…”

This goes way beyond the prior sanction on future activity and could force a halt in this autumn’s Kara Sea drilling within less than two weeks from now.

Alan Jeffers, spokesman for Exxon, says to the New York Times that “we have to look what was issued …. And determine how it affects us.”

The current drilling at University-1 is just the start of a larger $3,2 billion exploration agreement between Rosneft and Exxon at several licences in the Kara Sea, said in size to be bigger than the Mexican Gulf.

For Russia, the importance of the Kara Sea drilling was underlined by President Vladimir Putin when he in a satellite link with Rosneft’s CEO Igor Sechin from the platform in the Kara Sea said: ”This [operation] has become possible thanks to the joint efforts of Rosneft and Exxon Mobil. Our experiences show that it is practically impossible, or at least very difficult, to develop these kind of projects alone.”