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Dallas Morning News

Exxon Gains Access to Arctic Oil in Exchange for Teaching Russians to Frack

Elizabeth Souder

Russian Prime Minister Vladimir Putin (right) speaks with Exxon CEO Rex Tillerson at a signing ceremony in the Black Sea resort of Sochi on August 30.

Exxon Mobil Corp. signed a deal with Russia's Rosneft that gives the Irving oil giant access to oil in the Arctic in exchange for teaching the Russians to use technology developed here in North Texas.

The companies plan a $3.2 billion exploration program for the Kara Sea on the Arctic Ocean and the Black Sea, they said in a joint press release on Tuesday. Rosneft, Russia's state-owned oil company, will have the option to invest in Exxon drilling projects in the Gulf of Mexico and tight oil fields in Texas that require new technology to produce. The companies will also study developing tight oil resources in Siberia.

"Access to resources, it's the most important thing for Exxon, the No. 1 priority for Exxon," said Fadel Gheit, an analyst with Oppenheimer Holdings Inc.

Oil companies grow by expanding the resource base they will drill in the future. These days, growth has become more difficult as many oil-rich countries grapple with unstable governments, and other countries block drilling.

The Rosneft deal also shows how Exxon can turn its $41 billion purchase of Fort Worth's XTO Energy into key a bargaining chip to get access to oil fields around the world. XTO developed technology to draw natural gas out of tight shale rock in North Texas, and has applied the technology to oil and gas elsewhere.

"Now Exxon can tell analysts and investors I told you so," Gheit said. "When we bought XTO, it was not only for the immediate future. We were looking at how we could redeploy XTO experience and expertise under the Exxon umbrella."

The deal with Russia comes at a time when XTO's drilling practices are under fire in the U.S. Some states and towns have banned hydraulic fracturing, a process of drilling into tight rock, setting off explosives to crack the rock, then injecting water and chemicals into the well to allow natural gas and oil to flow out. Anti-drilling activists say the process pollutes water and air.

People in some other countries haven't had the same reaction to fracking. And while natural gas prices in the U.S. have been depressed since fracking became widespread and juice supply, internatioanl natural gas are higher.

"They are here to get their education," Oppenheimer's Gheit said about Rosneft. "They are not interested in producing gas in the U.S. They are interested in producing gas in Russia."

The Exxon-Rosneft tie-up could generate as much as $500 billion in investment, Bloomberg News reported Russian President Vladamir Putin said.

The companies also said they will build an Arctic Research and Design Center for Offshore Development in St. Petersburg, develop safety and environmental protection systems, and organize employee exchanges.

"This venture comes as a result of many years of cooperation with Exxon Mobil and brings Rosneft into large scale world-class projects, turning the company into a global energy leader," said Rosneft president Eduard Khudainatov in a statement.

Exxon and Rosneft have been working together for years on their most challenging project, drilling off the coast of Sakhalin Island. Exxon chief executive Rex Tillerson lead the company's Russian operations, including the Rosneft project, before moving to the corner office in Irving.

Tillerson said Tuesday in a statement: "This agreement takes our relationship to a new level and will create substantial value for both companies."

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