Russia's Rosneft may exit its joint operations in Sharjah with the UAE's Crescent Petroleum, after its two-well gas exploration programme proved unsuccessful.
The Russian energy producer issued a statement to The National that said the joint development, with two exploration wells drilled between 2011 and 2014, did not show any commercial hydrocarbon reserves. "As a result, Rosneft is considering the possibility of exiting the project," it said.
Rosneft GDRs were down yesterday to US$4.861 in afternoon London trading, a slight dip from $4.987 at the close of Friday. Alpha Bank's analyst covering Russia, Alexander Kornilov, said that Rosneft's decision follows the same logic that is driving major global oil companies to cut capital expenditure (capex) amid lower oil prices.
“And the UAE project is not an exception,” he said adding that the Sharjah onshore concession was a relatively small project for Rosneft.
Rosneft entered into a deal with Crescent Petroleum in 2010 to develop the Sharjah onshore concession. The Russian firm held a 49 per cent interest with Crescent holding the remaining 51 per cent. The companies reported that the two exploration wells would cost about Dh220 million to fully develop.
Globally, Rosneft reported drilling 100 exploration wells with an 80 per cent success rate last year, discovering five new fields and 64 new deposits on existing fields.
“The impact for the entire company isn’t that big – maybe for the UAE, it could be somewhat painful,” Mr Kornilov said.
Crescent Petroleum could not be reached for comment.
Crescent's fellow UAE-based company, Dana Gas, is getting continued production from its Sharjah offshore concession. The Zora gasfield has gas reserves with production planned to commence with an initial flow rate of 40 million standard cubic feet per day.
Brent crude prices continue to hover around US$65 per barrel, significantly lower than the highs of last June at about $115 per barrel. Many firms have slashed their budgets, or capex, which has shaken up the sector and caused companies to re-evaluate their exploration programmes.
Majors like British Petroleum, the American firm ConocoPhillips, France’s Total and China’s Sinopec have slashed capex and continue to look at ways to lower operating costs.
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