US oil giant Exxon and Russian peer Rosneft are to jointly develop oil and gas reserves in the Russian Arctic, opening up one of the last unconquered drilling frontiers to the global industry No.1.
The deal has ended any hope of BP reviving its own pact with Rosneft to develop the same Arctic territory - that deal was blocked in May by the billionaire partners in BP's existing Russian venture.
"New horizons are opening up. One of the world's leading companies, Exxon Mobil, is starting to work on Russia's strategic shelf and deepwater continental shelf," Russia's prime minister, Vladimir Putin, said.
Putin attended the signing of the deal in the Black Sea resort of Sochi by Exxon chief executive Rex Tillerson and Russia's top energy official, Deputy Prime Minister Igor Sechin.
Under the deal, Exxon and Rosneft will invest $3.2 billion developing East Prinovozemelsky Blocks 1, 2, and 3 in the Arctic Kara Sea and the Tuapse licensing block in the Black Sea.
Rosneft will own 66.7 per cent and Exxon 33.3 per cent of a joint venture to develop the blocks, which Exxon said were "among the most promising and least explored offshore areas globally, with high potential for liquids and gas".
Rosneft said the Kara Sea blocks contained an estimated 36bn barrels of recoverable oil resources. Total resources were estimated at 110bn barrels of oil equivalent.
The Black Sea block was estimated to hold 9bn barrels of oil reserves. First drilling was planned to start in 2015, with Exxon shouldering most of the costs.
"The Russians very quickly had a plan B and plan B was Exxon," said Fadel Gheit, energy analyst at Oppenheimer & Co.
The deal marks a turnaround for Exxon in Russia. The US firm was widely thought to be on the verge of taking over Yukos, then Russia's largest oil firm, before its head Mikhail Khodorkovsky was arrested in 2003.
Khodorkovsky was subsequently jailed for fraud and tax evasion and Yukos's prime assets bought at bankruptcy auctions by Rosneft, now Russia's industry leader and with enough reserves to cover 27 years of production.
"Politically, it is significant that this is an American company," said Clifford Kupchan, a Russia-watcher at the Eurasia Group. "Three years ago, American companies were being excluded. Here, an American company is at the centre of a flagship announcement."
City A.M. Reporter