The Rising Influence of Rising Affluence

[DewDiligence]

More on the XOM-Rosneft deal (addendum to #msg-74565025):

http://online.wsj.com/article/SB10001424052702304331204577356172630990902.htm

Igor Sechin, Russia's deputy prime minister and a close ally of President-elect Vladimir Putin, estimated that by 2030, up to 40% of Russia's oil output would stem from untapped sources in the Arctic waters and the Black Sea—which it needs foreign assistance to unlock.

A joint venture between state-run Russian giant OAO Rosneft and Exxon could eventually recover about 90 billion barrels of oil equivalent in oil and gas in those areas, the partners estimate. But first they will have to find oil in hostile climates and then set up massive airports, pipelines and dozens of iceberg-resistant offshore platforms. The deal, finalized earlier this week, gives Exxon a one-third stake in production companies in the Black Sea and the Arctic offshore.

…Exxon's landmark deal with Russia is a boon for the world's largest publicly traded oil company [well, maybe, but it seems too soon for such an assertion], which needs to replace the vast amounts of crude it extracts from the ground every year with new reserves. The "flagship" Exxon-Rosneft effort could generate investments of $200 billion to $300 billion by the partners over several decades, Mr. Sechin said.

To reduce risk, the Russian government is softening the taxes that will be imposed on such projects. [On last week’s CC, there was some limited information on the reduced mineral royalties payable to Russia: there will be four categories, defined by technical difficulty, with a sliding 5-15 year “guaranteed” period of lower royalties for the given categories. Export taxes will also be eliminated.] CEO Rex Tillerson, who was based in Russia earlier in his career, personally asked Mr. Putin for more favorable terms, Mr. Sechin added.