Rosneft-Chevron Black Sea shelf development

Timon Singh

Showing that stake-holder BP's woes are nothing to worry about, Russian oil company Rosneft has proceeded to go ahead with an agreement with Chevron Corp to jointly develop a shelf section of the Black Sea.

In recent weeks there has been speculation that Rosneft might be in trouble with rumours of BP's planning on selling their $10 billion assets in a bid to avoid bankruptcy, but Rosneft CEO Sergei Bogdanchikov showed no such concerns as he signed the cooperation agreement with Chevron's management.

Russian Prime Minister Vladimir Putin was present at the signing ceremony and stressed to both companies the importance of pay attention to environmental aspects of the exploration project. In recent months, Prime Minister Putin has been speaking to heads of oil companies to ensure that a repeat of the Gulf of Mexico oil spill doesn't happen in Russian waters, or even worse, in the Arctic where rescue efforts would be fraught with difficulty.

Speaking to representatives from both Rosneft and Chevron, Putin said, "I proceed from the fact that the planned work with Rosneft will be carried out at a high level, with the observance of all environmental standards."

With the Black Sea close to the Russian Winter Olympic site in Sochi as well as a number of resorts, a disaster in the area could be devastating for Russia.

Chevron Chief Executive Officer John Watson said the company would take all possible steps to ensure environmental safety, but added the Chevron-Rosneft project is risky and will demand large investment and probably tax preferences.

"Chevron has successfully drilled 375 deep water wells in complex environments... we are confident that we will continue to drill deep water wells safely," Watson said.

"It is a highly prospective area, it does have geological risks and high costs. We will need to work closely with the government to ensure that proper fiscal terms are in place to allow this project to develop rapidly."

Project aims

The Rosneft-Chevron project aims to see the development of the Val Shatsky deposit near the port of Novorossiisk. As part of the project, two exploration wells will be drilled into the shelf area that is said to include reserves of 858 million metric tons of oil (180 million tons with account for risks).

As part of the project, Rosneft and Chevron are expected to create a holding fund to work in the Black Sea, with shares being distributed according to expertise and financing. Russian Deputy Prime Minister Igor Sechin added that Rosneft will hold the license for geological prospecting and production, and that drilling of the two exploration wells should start by the end of 2011.

Investment for the Rosneft-Chevron project is expected to total $1 billion, which is to be provided mainly by Chevron. If the project is successful, the costs of geological prospecting work could exceed $32.4 billion.

The deal is said to be the biggest energy in Russia with a foreign major firm this year. It also marks Chevron's biggest foray into the Russian market since a failed attempt to buy a stake in the now defunct oil firm Yukos in 2003.

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