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OPEC Cuts Are Already Paying Off

OPEC Cuts Are Already Paying Off

Despite troubling economic data from…

Sanctions Force Rosneft To Shut Down Oil Project

Rosneft

Economic sanctions against Russia have made the offshore Yuzhno-Chernomorsky oil field economically unfeasible, and Rosneft will now suspend exploration in the area for five years, Russian media reported, quoting the company.

Rosneft also claimed that a lack of drillships and other equipment prompted the suspension—equipment needed for well-drilling in the Yuzhno-Chernomorsky license area in the Black Sea.

Still, the company said, it will keep an eye on the macroeconomic situation in Russia and resume exploration in the license area as soon as the economic circumstances permit.

Russia’s largest oil company holds licenses for seven offshore blocks in three southern seas: the Black Sea, the Sea of Azov, and the Caspian Sea. An audit that DeGolyer & MacNaughton carried out last year peg the combined reserves of the seven blocks at 3.6 billion tons of oil equivalent (26.39 billion barrels).

The Black Sea blocks are a top priority for Rosneft’s southern offshore exploration business, but these blocks are challenging because of the depths at which drilling needs to be done, and which reach 2.2 km, or over 7,200 feet. What’s more, the water in the Black Sea has a high concentration of hydrogen sulphide, which requires specially treated equipment that can resist this chemical makeup.

Related: The Qatar Blockade Could Cause A Regional Recession

In its Black Sea projects, Rosneft has partnered with Exxon and Eni, but only the latter has been able to continue working with the Russian company amid the flurry of sanctions imposed on Russia after the 2014 annexation of Crimea by both the United States and the European Union.

The EU’s sanctions contain a grandfather clause allowing existing partnerships to continue, but this is not the case with the U.S. sanctions, so Exxon has had to pull out of its joint projects with Rosneft. Earlier this year, the supermajor asked Washington for a sanction waiver in a bid to continue its work in Russia, with a special focus on Arctic drilling, but the request was denied.

By Irina Slav for Oilprice.com

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