Russia Steals Shale Technology
Joining the Energy Race
Desperate times call for desperate measures...
And if you're Big Oil, your chances of making a deal with the devil have increased over the decades.
Sure, there was a time when Exxon execs stood atop a sand dune in Saudi Arabia, their eyes filled with greed.
Truth is, they owned the Middle East back then. Forty years ago, the seven major oil companies controlled more than 90% of the Middle East's oil production, equating to roughly three-quarters of the world's crude supply.
Oh, how the tables have turned, as national oil companies (NOCs) have come to dominate the industry...
Dealing with the Devil
When I say "dominate," that's not exaggerated in the least.
Since the 1970s, NOCs have literally taken control of the world's oil reserves, squeezing Big Oil nearly out of the picture:
It turns out "Big Oil" ain't so big anymore:
As you can see, ExxonMobil (NYSE: XOM) doesn't even show up on the list until the fourteenth spot.
But the recent surge in unconventional production from tight oil and gas formations has given companies like Exxon an ace up their sleeve.
Unfortunately, they're about to lose that advantage.
You've heard of them before. Names like Petro-China, CNOOC, Statoil, Rosneft, Saudi Aramco, and PDVSA are just a few on the list.
What's interesting is their growing interest in North America.
I have no doubt you recognize the increased number of recent deals that have been made over the years.
Whether its the billions of dollars that China is pouring into U.S. shale plays, or even Statoil's emergence onto the scene with its buyout of Brigham Exploration last year.
Now we can add a new player to the mix – Russia.
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Russia Enters the Shale Race
Back in September, Russia inked a $2 billion deal giving ExxonMobil the chance to explore Russia's Kara Sea for oil and gas. Considering the difficulty involved in drilling in Arctic waters, Exxon's victory may be short-lived.
Remember, we're not talking about the shallow waters off the Gulf Coast. The cost alone to explore the Arctic deepwater will be in the billions.
However, this deal didn't come without a hefty price.
In fact, two things come directly to mind.
The first is Exxon's deepwater experience. Without it, extracting the potential 36 billion barrels of recoverable oil and gas from the Kara Sea would take decades.
The second is much closer to home. In return for their generosity in opening up the Arctic waters to Exxon, Russia will gain a share in Exxon's projects in North America, including the Cardium oil play in Alberta.
So why are the Russians interested in a mature oil play in the heart of the Canadian energy industry?
It's not as if the Cardium formation is a new play, companies have been drilling in the area for more than sixty years.
Still, there is something very specific Russia wants – and it's not giving Exxon a leg-up over its competitors.
Putin and friends are after the one thing that can help them unlock the tight oil reserves in Western Siberia – technology.
The fracturing technology Russia can learn from Exxon is infinitely more important to them than spending billions on an arctic exploration campaign that won't even begin for another two or three years.
And by then, we don't even know if Russia will decide to keep them around by then. Besides, Exxon should be used to getting the boot, especially after being kicked out Venezuela a few years ago. With Putin's track record of dealing with opposition, it wouldn't be surprising to see it happen again.
You can't say we didn't see this deal coming from a mile away. Everyone wants a piece from the North American unconventional boom taking place.
And the Russian/Big Oil deal is only the latest team-up to happen. We know it'll continue throughout 2012.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
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