Is Russia the next frontier in shale oil development? Although its conventional oil-producing zones, like that in West Siberia, are running low, it is estimated that Russia contains enormous reserves of hard-to-access oil and gas offshore and elsewhere.
For example, the national subsoil agency, Rosnedra, has stated that the Bazhenov shale formation in West Siberia could reveal between 25 billion mt and almost 50 billion mt in recoverable reserves – that’s 182 billion barrels on the low end.
The energy ministry estimates that Bazhenov production could supply between 800,000 barrels per day and 2 million barrels per day by 2020, almost a fifth of the nation’s current production of a little over 10.2 million barrels per day.
The Bazhenov is an oil formation located below conventional oil layers, which makes it tricky to exploit. Low recovery rate, high decline rate, and forbidding geography all make for high costs of extraction.
Present recovery rates at various tight oil projects across Russia are between 2 to 8 percent. However, tight oil reserves could account for as high as 62 percent of Russia’s total reserves.
In the face of all this, Russia looks eagerly to the success experienced by North America in its shale revolution. The geology of the Bazhenov is quite similar to that of the Bakken shale here in the U.S., meaning fracking could be the solution to Russia’s oil situation.
The Russian oil producer Rosneft has already paired up with ExxonMobil (NYSE: XOM) to jointly work the Bazhenov formation. They will begin drilling in the Bazhenov and Achimov formations in 2013, following completion of an ongoing geological study.
Rosneft has also reached an arrangement with Norwegian firm Statoil (NYSE: STO) to develop Russian oil assets in Southern Russia and West Siberia.
Other major oil companies like Lukoil (PINK: LUKOY) and Gazprom (MCX: GAZP) are also exploring ways of developing tight oil reserves.
The Russian unconventional oil and gas market could be heading for a time of profit and success.