U.S oil major Chevron (CVX) and Russia’s top oil producer Rosneft joined hands for the development of a Russian oil field in the Black Sea. The agreement involves future exploration activity intended for Rosneft’s Shatsky Ridge off-shore license, covering an area of approximately 3,300 square miles in the Black Sea.
The deal was signed by Rosneft President Sergey Bogdanchikov and Chevron CEO John Watson in the presence of Russia’s Prime-Minister Putin and Rosneft Chairman and First Deputy Prime Minister Igor Sechin.
Both companies have settled for a $1 billion initial investment in the exploration project. However, with the success of the exploration program, the total cost of the project may rise to $32 billion. Chevron is expected to finance the initial exploration activities, including seismic surveys and exploration drilling. The drilling of the first exploration well is scheduled by the end of 2011.
Initial research identified 10 potential hydrocarbon structures in the area, of which 5 are promising as they contain approximately 80% of the license area’s resources, or approximately 860 million tons of oil.
The venture is Russia’s largest energy deal in 2010 involving foreign collaboration and is Chevron’s major foray into the Russian market since the failed attempt to buy a stake in the now defunct oil firm YUKOS in 2003.
Chevron management is confident about the success of the project and looks forward to receiving tax benefits for the field from the Russian government. Shatsky Ridge, being a highly prospective area, is vulnerable to environmental hazards and high costs. Hence, management hopes to work together with the government so that the financial terms are fulfilled to ensure rapid development of the project.
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