At a worldwide low moment for offshore oil and gas, Statoil and Rosneft have announced the start of drilling on exploration wells off Magadan in the Sea of Okhotsk.
The wells are in less than 500 feet of water, less than the limits under European and U.S. sanctions restrictions on participation in Russian deepwater projects – and they are south of the Arctic Circle, satisfying a second requirement.
Western sanctions on Russia over the conflict in Ukraine have limited the involvement of international oil majors in Russian energy projects, and Statoil is among a handful to move forward with exploration joint ventures in recent years (though several are participating in infrastructure projects like Yamal LNG and the Nord Stream 2 pipeline). The restrictions have suspended projects like Exxon’s Sakhalin-1 and Kara Sea deepwater blocks, Shell’s shale exploration with Gazprom Neft, and Total’s heavy shale oil project with Lukoil. Russian firms have effectively postponed deepwater Arctic drilling as a result of limited access to foreign technology, equipment and spare parts, on which it is heavily dependent. In all, experts estimate the combined impact of low oil prices and curtailed drilling at $170 billion over 2014-2017, hurting Russia’s economy and federal budget.
Rosneft has license obligations for the Sea of Okhotsk blocks, located some 400 km off Magadan, and the firm emphasized that drilling had begun one year in advance of requirements. It is the only company to continue offshore exploration in the current environment, said chairman Igor Sechin, and it plans to continue an extensive seismic and drilling portfolio despite difficult market conditions.