Exxon, Rosneft tie up in Russian Arctic, U.S. (Reuters)

SOCHI, Russia (Reuters) – U.S. oil company Exxon and state-owned Russian peer Rosneft are to develop oil and gas reserves in the Russian Arctic jointly, opening up one of the last unconquered drilling frontiers to the global industry No.1.

Tuesday's deal ended any hope British group BP had of reviving a pact with Rosneft to develop the same Arctic territory -- that deal was blocked in May by the billionaire partners in BP's existing Russian venture.

"New horizons are opening up. One of the world's leading companies, Exxon Mobil, is starting to work on Russia's strategic shelf and deepwater continental shelf," Russia's prime minister, Vladimir Putin, said.

Putin attended the signing of the deal in the Black Sea resort of Sochi by Exxon chief executive Rex Tillerson and Russia's top energy official, Deputy Prime Minister Igor Sechin.

Under the deal, Exxon and Rosneft will invest $3.2 billion developing East Prinovozemelsky Blocks 1, 2, and 3 in the Arctic Kara Sea and the Tuapse licensing block in the Black Sea.

Rosneft will own 66.7 percent and Exxon 33.3 percent of a joint venture to develop the blocks, which Exxon said were "among the most promising and least explored offshore areas globally, with high potential for liquids and gas."

"RESET" RESULT

Rosneft said the Kara Sea blocks contained an estimated 36 billion barrels of recoverable oil resources. Total resources were estimated at 110 billion barrels of oil equivalent.

The Black Sea block was estimated to hold 9 billion barrels of oil reserves. First drilling was planned to start in 2015, with Exxon shouldering most of the costs.

"The Russians very quickly had a plan B and plan B was Exxon," said Fadel Gheit, energy analyst at Oppenheimer & Co, referring to the quick switch to Exxon from BP.

The deal marked a turnaround for Exxon in Russia. The U.S. oil giant was widely thought to be on the verge of taking over Yukos, then Russia's largest oil firm, before its head Mikhail Khodorkovsky was arrested in 2003.

Khodorkovsky was subsequently jailed for fraud and tax evasion and Yukos's prime assets bought at bankruptcy auctions by Rosneft, now Russia's industry leader and with enough reserves to cover 27 years of production.

"Politically, it is significant that this is an American company," said Clifford Kupchan, a Russia-watcher at the Eurasia Group. "Three years ago, American companies were being excluded. Here, an American company is at the center of a flagship announcement."

The deal also demonstrated that the "reset" in relations sought by President Barak Obama was working to reduce the significant political risk for U.S. business of investing in Russia, analysts said.

Uncertainty persists over whether Putin or President Dmitry Medvedev will seek the presidency next March. Putin can now show off the deal as a success if he decides to run.

The transaction also marks a comeback for Sechin, who was ousted as Rosneft chairman earlier this year in a purge of state company boards ordered by Medvedev. Sechin estimated total investment in the project at $200-$300 billion.

U.S. UPSTREAM

Rosneft will be offered an equity interest in Exxon exploration projects in North America, including deep-water Gulf of Mexico and fields in Texas, as well as in other countries.

Thus, the deal fulfils the demand for reciprocity so often made by Putin, helping Rosneft, which already works with Exxon offshore Russia's Sakhalin island, toward its long-term goal of being a global energy major.

"That is probably huge for them," said Allen Good, Exxon analyst at Morningstar. "Being able to expand in deepwater and gain some experience and some knowledge from Exxon Mobil will probably benefit them as well as they look to explore offshore in Russia."

There will be no exchange of equity, Sechin told reporters.

The BP deal had called for a $16 billion share swap in which BP would have exchanged a 5 percent stake for 9.4 percent in Rosneft.

"It is the same plan with very small modifications. Instead of exchanging equity stakes with each other, Exxon instead is going to JV them into some of their properties in the U.S.," said Gheit at Oppenheimer.

"Exxon is double or triple the size and market value of BP. So, obviously this would be much more important for a BP than it is for Exxon."

Exxon's coup deals a setback to other international oil majors, after Royal Dutch Shell was named earlier by Putin as a possible partner for Rosneft in the Arctic.

Rosneft shares closed up 1.4 percent in Moscow. Exxon stock traded 1.0 percent weaker.

(Additional reporting by Vladimir Soldatkin, Katya Golubkova, Michael Ermann and Ernest Schneyder; Writing by Douglas Busvine; Editing by Dan Lalor)

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Stocks rise for second day; Exxon leads Dow (AP)

NEW YORK – Exxon Mobil Corp. and other energy companies led stocks higher Tuesday as major indexes rose for the second day in a row.

Exxon rose the most of the 30 stocks in the Dow Jones industrial average, gaining 3.2 percent. Chevron Corp. was also up more than 3 percent. Energy stocks got a push upward from a 2 percent increase in the price of oil, to $85 a barrel.

Bank of America Corp. sank 2.7 percent, the most of any Dow company. The stock has lost 36 percent this month as investors become increasingly worried about the bank's ability to raise capital and its liabilities related to subprime mortgages. The latest disappointment came Monday with news that BofA will not sell its 10 percent stake in China Construction Bank.

Stocks rose broadly despite another weak report on the U.S. housing market. The Commerce Department said the number of people who bought new homes in July fell 1 percent, the fourth monthly drop. New home sales are on track to have their worst year in half a century.

In early afternoon trading, the Dow rose 208 points, or 2 percent, to 11,063. The Dow also rose 200 points in morning trading Monday, but ended with a gain of just 37.

The S&P 500 index rose 24 points, or 2.1 percent, to 1,148. The Nasdaq rose 58 points, or 2.4 percent, to 2,403.

James Paulsen, chief investment strategist at Wells Capital Management, said Tuesday's gains seemed fragile because stock trading has been so volatile. "But at least we're going up and down, not just down," Paulsen said. "Every day this goes on you get the sense that maybe we've found the bottom."

Major indexes eked out minor gains Monday following a four-week losing streak. During that time there were four days in a row in which the Dow Jones industrial average moved by at least 400 points, the first time that has happened in the Dow's 115-year history.

The S&P 500 index has dropped 16 percent since July 22 and 13 percent this month as investors worry about the U.S. economy softening and a flare-up in Europe's debt crisis. The broad market measure is on track for its worst August since the Asian financial crisis rattled world markets in 1998.

One measure of the market's swings, the Chicago Board of Options Exchange's volatility index, has soared 54 percent this month. That's a sign investors are anticipating more wide swings in the S&P 500, the stock index most money managers use a benchmark. The index fell 8 percent Tuesday to 39 as concerns about future turbulence eased.

UBS rose 4 percent. The Swiss bank said it planned on cutting 3,500 jobs worldwide in the hope of saving $2.5 billion by the end of next year. UBS's stock has dropped 20 percent this year.

H.J. Heinz Co. fell 3 percent after the world's largest ketchup maker said profits fell 6 percent in the most recent quarter. Heinz also lowered its earnings estimate for the year.

Better reports on manufacturing in Europe and China lifted world markets. Hong Kong's Hang Seng rose 3 percent and Germany's DAX rose more than 1 percent. Investors are also hoping Fed Chairman Ben Bernanke will announce some kind of assistance Friday for the U.S. economy.

There's still fear that the U.S. could slip into another recession. Investors will be watching Bernanke's speech at the Fed's annual retreat in Jackson Hole, Wyo., on Friday. It was at the same conference a year ago that Fed Chairman Ben Bernanke made the case for buying Treasury bonds to push interest rates lower and spur spending. That $600 billion bond-buying program was credited with giving stock markets a lift but it ended in June.

The yield on the 10-year Treasury note edged up to 2.11 percent from 2.10 percent late Monday. The yield fell below 2 percent last week, its lowest on record, as investors sought refuge from turmoil in the stock market.

Gold, which edged above $1,900 Monday, fell $33 to $1,859 an ounce. Gold has jumped 15 percent this month to new highs as nervous investors shift money into hard assets.

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