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Russia confirms oil discovery at Arctic well

A major oil discovery has been made at the Arctic well operated by ExxonMobil and top Russian crude producer Rosneft.

In recent times, the Universitetskaya-1 well in the Kara Sea, north of Siberia, has been a hotbed of activity as Russia aims to develop its already expansive Arctic oil development.

The latest discovery now means the area has the potential to become one of the planet's most important crude-producing regions, according to Rosneft Chief Executive Igor Sechin.

He revealed that he spent two whole days sailing on a Russian research ship travelling to the drilling rig, where the find was unveiled.

Untapped resources

Overall, around one billion barrels of oil have been unearthed, with similar geology nearby meaning the surrounding area could be even more fruitful than the US part of the Gulf of Mexico.

Mr Sechin added: "It exceeded our expectations. This discovery is of exceptional significance in showing the presence of hydrocarbons in the Arctic."

The well is valued at 700 million and has been one of the most closely scrutinised projects in the oil industry, with geologists believing the Arctic region may be the last truly unexploited global resource.

A key facet of the new discovery is the presence of condensed oil and gas liquids, which counters fears that the new drilling campaign could only result in less profitable natural gas being discovered.

Long-term investment

In September, Rosneft said it will invest $400 billion in the Arctic over the next 15 years, and expects to open a new oil province there, with reserves comparable to those developed in Saudi Arabia.

According to Mr Sechin, the estimated resource base of the new trap will yield more than 750 million barrels of high-quality light oil, as well as 338 billion cubic metres of gas, adding to the belief that the area could be a veritable goldmine.

Despite this, analysts have noted that the results from the first well are not conclusive, due it only concentrating on one specific area; as such, a second round of exploratory drilling will be needed next year to test the flow of oil from the well.

It is predicted that this will give a more accurate assessment of the available reserves, but this could prove to be a double-edged sword, as it may rely on cooperation with Exxon, which is currently prohibited from working with Russian companies.

Challenges ahead

Sanctions imposed by the US Treasury in September made it impossible for any American company to participate in joint ventures in the Russian Arctic, as of September 26th; this means that although Rosneft and Exxon were able to make and report their recent discovery, subsequent exploration is on hiatus for now at least.

One sign of positivity may be the fact that Exxon was given a short extension by the Treasury to continue work after the deadline, in order for the crew on the rig to seal the well and make it safe to abandon; this suggests that a development of national importance could be excepted, in the short term at least.

Indeed, Exxon’s strategic alliance with Rosneft has been viewed very positively on both a domestic and international front, with the two companies intending to spend a combined $3.2 billion on exploration in the Kara and Black seas in the coming years.

Following a 2013 agreement for Exxon to work with the Russian company in the Arctic and in the Bazhenov shale of western Siberia, Rosneft also received minority stakes in some assets in the Gulf of Mexico; a development the Russian government hoped would enable it to sustain oil production and maintain its export earnings as older oil field reserves decline.

Keeping track

As well as Rosneft's desire to expand its presence in the region, there is also plenty at stake for Exxon, which - with a market value of $408 billion - is the world’s largest energy producer.

Russia not only represents the second-biggest exploration prospect worldwide, but the company also holds drilling rights across 11.4 million acres in the country - only slightly below the 15.1 million acres it has in the US.

Eyes from Russia and the US alike will therefore be focused on developments in the Arctic and keenly keeping track of the Treasury's sanction measures in the coming weeks and months, with a potential treasure trove of oil waiting to be harvested in the Kara Sea.

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