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By Russell Working
Exxon Corp.'s $70 billion buyout of Mobil Corp. - if approved by American regulators - would be the largest merger in U.S. corporate history and would reconfigure the map of oil extraction in the Russian Far East. It would merge two of the giants invested in the Sakhalin projects, creating the world's largest oil company. But that doesn't mean anyone in Sakhalin is ready to tell you what it all means. "I don't think it's been approved yet," Nikolai Arseniev, deputy head of the Sakhalin Oblast Oil department, said Dec. 3, the day after the merger made headlines around the world. Told that Exxon and Mobil had posted the announcement on their Web sites, Arseniev said, "Really? Can you fax me a copy?" The Exxon-Mobil merger would leave three companies - Exxon-Mobil, Royal Dutch/Shell Group, and the soon-to-be-joined British Petroleum and Amoco Corp. - far larger than any of their competitors, the Washington Post reported. Each would control vast oil reserves and tens of thousands of gasoline stations. The combined company would have proven worldwide oil reserves of 10.9 billion barrels, Exxon and Mobil announced. Its natural gas reserves of 59.1 trillion cubic feet. Exxon and Mobil are deeply invested in Sakhalin projects, which contain crude oil reserves estimated at 29 billion barrels, along with vast natural gas reserves. Exxon Neftegas is operator for the Sakhalin 1 venture, while Mobil Sakhalin Ventures heads Sakhalin 3. This creates the possibility of what companies like to call "synergy" - in this case, combining resources to extract the oil and build infrastructure, such as a liquid natural gas pipeline from offshore oil fields in the north to the southern Sakhalin port of Korsakov. The pipeline could be extended across Laperuz Strait to the Japanese island of Hokkaido. "What you'll see is an expanded high-quality portfolio in production possibilities," said spokeswoman Sharon Curran-Wescot at Exxon's headquarters in Dallas, Texas. "I think you'll see that in your area, too." A map released by JP Morgan, which brokered the deal for Exxon, shows spots around the world where the companies can further cooperate. But beyond that, company officials from the corporate level down to Sakhincenter employees are vague about how the Sakhalin project might be affected. In a market glutted with cheap oil, Sakhalin is hardly the most exciting prospect around. The oil, buried offshore in a sea that is frozen for months every year, is costly to extract. Many foreign companies have complained for years that the State Duma hasn't passed either the production sharing agreements or the enabling legislation allowing them to extract oil. (Some State Duma deputies say Russia should hang onto the oil reserves until it is technically capable of extracting off-shore oil in the ice-choked waters off Sakhalin.) Even Larry Kennedy, Exxon Neftegas's Sakhalin operations manager, said, "You've got to recognize: Sakhalin is very low on our worldwide list of priorities." David Simerka, Mobil's Sakhalin venture manager, didn't return a reporter's phone calls, and Exxon's spokesman for operations in the Commonwealth of Independent States, Jim Riley, refused to comment. If nothing else, the merger could give the two a chance to catch up, assuming the State Duma cooperates. Sakhalin Energy Investment , which is running the Sakhalin 2 project, has already placed its rig Molikpaq offshore and is prepared to begin commercial drilling this summer. Nonna Chernyakova contributed to this report.
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