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Russia's Shale Oil Future

Brian Hicks

Written By Brian Hicks

Posted December 12, 2013

Russia sits on one of the largest deposits of technically recoverable shale oil in the entire world – an estimated 75 billion barrels worth – but it has largely gone undeveloped due to constraints in Russia’s oil industry.

The hope now is to reverse that trend and follow the likes of the U.S., which has rejuvenated its own oil industry with modern drilling technologies that can make impenetrable reserves a thing of the past.

russia gasWith Russia’s renewed confidence and the technology to back it up, there is a lot of speculation that Russia is going to make a push for oil supremacy.

New technologies like fracking and horizontal drilling have established the U.S. as a world leader in production, and it will likely become the world’s largest oil producer by 2015.

But forecasters warn that the U.S. shale boom has its days numbered. This bodes well for Russia, who lurks behind, growing stronger each day.

The International Energy Agency has already said that U.S. crude oil production should only lead the world for about 10 years.

That gives Russia all the time it needs to advance and dethrone the U.S.A.

The first plan of attack will be in its Samara region of western Russia, in the Ural Mountains.

Cutting Deals

Just last Friday, Igor Sechin, President of Russia’s state-owned Rosneft (MM: ROSN) met with Chief Executive Officer Helge Lund of Norway’s Statoil ASA (NYSE: STO). Together, the two signed a joint venture agreement to begin production of the Domanik shale formation in the Samara region that borders Kazakhstan.

Rosneft will control 51 percent, while Statoil will hold 49 percent.

Rosneft, the largest publicly traded oil and gas company in the world, says that teaming up with Statoil will accelerate its desire to break into its hard-to-reach shale reserves in the region.

The Domanik shale is thought to be full of great potential if early exploration results are correct.

Initially, the joint venture will conduct a three year pilot program to assess the potential for commercial success held by the Domanik shale. Both sides will contribute technology and expertise to the program in accordance with the agreement. Statoil will also perform a pilot survey for 12 license blocks, set to include data acquisition and drilling and fracking of pilot wells.

Once the pilot program is complete, license blocks will be selected and readied for commercial development.

An estimate of reserves for the Dominik has not been offered by either side as of yet.

We do know that the joint venture has agreed to drill at least six exploratory wells in the region through 2021 and that the latest state-of-the-art technology will be employed to tap the Dominik.

Rosneft has been keeping itself quite busy lately. Last Friday’s agreement is just the latest in a string of new deals to develop Russia’s shale formations.

In June, it came to terms with U.S. major Exxon Mobil (NYSE: XOM) in a deal similar to that with Statoil to further develop untapped reserves in Western Siberia in the Yuganskneftegaz region.

A deal has also been reached with Italy’s Eni SpA (NYSE: E).

The Pay Off

There’s no doubt that Russia is gearing up for a long-term onslaught; these deals are all the proof we need. We all know that Russia would love to topple the U.S. for that number one spot.

While there is already a timeline on how long the U.S. shale boom will last, that still gives us the most promise in the short-term.

But as we look further ahead, you can’t help but notice Russia’s potential in the medium- to long-term.

Russia is already currently number three, behind Saudi Arabia and the U.S. on the world production list. And it’s expecting output for 2013 to reach numbers not seen since post-Soviet records of 3.8 billion barrels, according to UPI.

2012 saw an increase of 1.3 percent from the previous year to 518 million metric tons, or approximately 3.79 billion barrels. That number should reach 520 million tons this year, above the goal of between 505 to 510 million tons.

So if you don’t mind biding your time, the big pay-off might just be with Russia.

The nation certainly has what it takes.


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