Exxon’s $ 1.23Bn dive in the Black Sea looks promising
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Exxon (NYSE: XOM) has recently announced that it is planning several open tenders for the drilling for natural gas in the Black Sea bed and subsequent operations at the beginning of November, as part of a larger operation that it has started together with Petrom (BVB: SNP), Romania’s largest energy company (and largest overall, in revenue, assets and profit).
Petrom, which used to be the National Petroleum Company of Romania until 2004, had 45.000 employees, EUR 3.3 Bn in revenue and heavy losses and was taken over by Austrian-based OMV, which had only 9.000 employees but EUR 11 Bn in revenue. Needless to say, the Romanian company has been undergoing a major restructuring ever since and made a record-high profit last year. Petrom is the only integrated fuels producer in Romania and owns numerous exploration licenses, including perimeters in the Black Sea.
Following their agreement signed in 2008, the two companies have brought in the heavy machinery: in 2009, a $ 160 million ship for 3D seismic mapping of the 9.900 square Km (3.825 sqm) Neptune perimeter, out of which only a third had exploration potential. Last year, a Korean-made behemoth, specially designed for the Black Sea, Deepwater Champion, started drilling the first well, 3.000m deep (approx. 2miles). The $1bn, 229 meter long ship takes 90 days to dig a single well, and operating costs reach $1 million daily.
Earlier this year, Petrom made public the preliminary drilling results: deposits that have been evaluated between 42 and 84 billion cubic meters (148-296 Bn. cubic feet), which, at $400/1.000cbm, amounts to at least $17Bn. This equals the total consumption of Romania for at least three years, but could actually replace all gas imports from Russia for 20 to 25 years.
Exxon’s planned investment in the project reaches $1.23 billion in the next two years, though the earliest date for the start of production has been estimated by Petrom officials to be 2018, if all goes well with the wells.
The good news comes one week after the Petrom-Exxon venture has bought all exploration and exploitation rights for another perimeter nearby Neptune from Canadian Sterling Resources for a base price of $29.5 million, that can rise up to $79 million depending on the results of preliminary drilling.
Exxon and Petrom are also drilling side by side, together with Royal Dutch Shell (NYSE: RDS-A) and Nadra (state-owned Ukrainian oil company) in another Black Sea perimeter. The consortium outbid Lukoil for the exploration of 16.700 square Km (approx 6.450 sq. miles) and will pay an advance of $300 mil. to the Kiev authorities, while investing $200 mil. in the first stage of the project, that is due to start producing natural gas in 6 to 8 years.
Half a year ago, Exxon gave up the exploration of shale gas in Poland (operations had started in 2008), after two if its wells failed to produce exploitable quantities of gas. Chevron (NYSE: CVX), on the other side, had more luck in Poland and is also preparing to start drilling in Romania, but that is a different story, for the future.
OvidiuNeacsu has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
