Here’s the Scoop on Exxon’s $500B Deal With Rosneft

ExxonMobil (NYSE:XOM) and Rosneft announced an offshore exploration partnership on Wednesday that will invest up to $500 billion in developing Russia’s vast energy reserves in the Arctic and Black seas. The deal was signed in Moscow on Monday after nearly a year of talks between the two companies.

In accordance with the deal, the partners will attempt to develop three fields in the Arctic with recoverable hydrocarbon reserves that are estimated at 85 billion barrels in oil-equivalent terms. An investment decision on exploration north of Russia in the Kara Sea is expected in 2016-2017.

Discovery efforts have found estimated recoverable reserves of 9 billion barrels in the Tuapse block of the Black Sea. Russia’s commitment to reforming offshore energy taxation by abolishing export duties and slashing mineral extraction taxes was crucial to making the deal possible.

Despite the excessive politicization and historical stereotyping of Russo-American relations, Russia will focus on concrete economic projects and commit to seeing these areas developed. The deal will give Rosneft a 30 percent minority stake in Exxon-led projects to develop hard-to-recover reserves in Texas, the Canadian province of Alberta, and the U.S. Gulf of Mexico. The deal will also cover areas of oil reserves in Rosneft’s main oil-producing base in Western Siberia.

Rosneft will increase hydrocarbon output by 4 percent per year to 3.7 million barrels per day of oil equivalent until 2020. According to Russia’s top oil producer, the forecast rise from 2.5 million barrels per day in 2010 took into account an oil price of $90 per barrel in real terms and favorable tax regime. The increase was supported by a rise in gas output, including associated gas. Rosneft expects gas output to rise to 45-55 billion cubic meters in 2020 from 12 bcm in 2010.