Exxon Signs Deal to Help Rosneft Develop Huge Bazhenov Shale Play in Siberia

Vladimir Putin's power in Russia is underpinned by oil boom that he has overseen. Unluckily for him the oil boom has passed and reserves are declining, threatening the production capacity so important for the revenue his government earns, and for maintaining his grip over the nation.

Russia's Bazhenov shale play in Siberia is one of the largest in the world, 80 times larger than the Bakken shale play in North Dakota. It offers the potential for securing Putin's power and returning Russia to the top as the world's largest oil and natural gas producer.

However the Siberian climate in which the Bazhenov exists makes fracking much more difficult. This has lead Russia's state controlled oil company, OAO Rosneft, to form a partnership with Exxon Mobil Corp who have vast experience fracking for tight oil in the US. As part of the deal Rosneft has also acquired 30% of a Texas tight oil project in order to receive direct experience with fracking technology.

Hopes that the Bazhenov will one day match the growth of North Dakota's Bakken field depend on Putin offering tax breaks in order to make the projects profitable. Putin may be reluctant to offer the tax breaks as it will see the nation's income from petroleum revenue fall.

As Ronald Paul Smith, an oil and gas analyst from Citigroup Inc., said, "if the government is serious about promoting tight oil production, it is within their grasp."

Rex Tillerson, the CEO of Exxon, is excited by the potential of the Bazhenov play, but admits that the tax breaks will be vital. "The in-place potential is enormous -- billions of barrels. The real issue is can we develop it in a cost effective way? -- same as the issue we have with tight oil and unconventional resources in North America."

Other companies are also working on the Bazhenov field, including Russia's second largest oil producer OAO Lukoil, and OAO Surgutneftegas, both of who already have the resources to access the billions of barrels in the formation.

By. Charles Kennedy of Oikprice.com