Russia looks to West for oil tech

Shale trove locked tight without ‘fracking’ know-how

Visitors at the 21st World Petroleum Congress in Moscow gather at the Skolkovo Foundation display Monday. The foundation is a scientific and technological agency in Russia.
Visitors at the 21st World Petroleum Congress in Moscow gather at the Skolkovo Foundation display Monday. The foundation is a scientific and technological agency in Russia.

HOUSTON -- Even as the decision to stop natural gas supplies to Ukraine aggravates tensions with the United States and Europe, Russia faces a dilemma: It still needs Exxon Mobil, Halliburton and BP to maintain output from Soviet-era oil fields and to develop Arctic and shale reserves.

Russia will require Western companies to provide the modern drilling and production gear -- and techniques such as hydraulic fracturing -- that are essential to unlocking its $8.2 trillion worth of oil still underground.

The cutoff to Ukraine's gas supply adds another layer of complexity for energy companies facing a shifting geopolitical landscape in the search for new oil and gas supplies. Decision-makers from some of the West's biggest oil explorers are gathering in Moscow this week at the World Petroleum Congress to pave the way to new deals.

"There's certainly a prize there," said Alexander Robart, a principal at PacWest Consulting Partners, a Houston-based consultant that tracks fracking service providers. "For the big guys, it's certainly one of the top priority future growth markets they're looking toward, without a doubt."

Russia's latest aggression toward Ukraine can only heighten the political tensions companies already feel as they seek to justify broadening business ties to the country, said Fadel Gheit, an analyst at Oppenheimer & Co.

"It will move the scale a tad against Russia," Gheit said, raising the chance the U.S. and Europe will push for additional sanctions.

Sanctions have had no effect on work in Russia yet, BP Chief Executive Officer Bob Dudley said Tuesday in Moscow. The London-based company, which owns almost 20 percent of Russia's largest oil producer, OAO Rosneft, signed a preliminary agreement last month to evaluate shale reserves in the Volgo-Urals region.

"There is shale everywhere," Dudley said. "There is only some good shale. It will depend on how the shale actually can be broken to see its productive capacity."

Russia already is the second-largest market outside North America for fracking, measured by about 1.1 million horsepower of pumps used to blast water, sand and chemicals underground to free trapped hydrocarbons, behind only China's 3.1 million horsepower. North America is still the world's fracking king with 19.7 million horsepower.

Through its existing oil fields, Russia is the world's largest producer of crude, with daily output last year of 10 million barrels, according to the Energy Information Administration. To maintain that, Russia will have to use the latest technology to squeeze oil out of shale rocks in Western Siberia, said Matthew Bey, an energy analyst at the geopolitical intelligence firm Stratfor.

As a result, Russia's supply of rock-crushing gear is forecast to double to 2.3 million horsepower by the end of 2018, according to PacWest. That's assuming that engineers can "crack the code" on the Bazhenov Shale, a huge, hard-to-drain rock formation that lies under Western Siberia's decades-old conventional oil fields, Robart said.

In May, Total partnered with Lukoil, Russia's second-largest crude producer, to seek oil in the so called tight-rock oil of the Bazhenov area of Siberia. The deal followed Exxon and Statoil ASA, which already have fracking ventures with Rosneft in Western Siberia, and Royal Dutch Shell, which partnered with Gazprom Neft.

"We need to bring mainly know-how" to drill unconventional deposits in Russia, Jacques de Boisseson, Total's head of exploration and production in the country, said Tuesday in Moscow.

Without Western expertise and technology, it's unlikely Russia could sustain its current production levels, much less increase them, David Pursell, an analyst at Tudor Pickering Holt & Co., said in a phone interview. The country has "zero chance" of exploiting deep-water reserves without Western help, he said.

Rex Tillerson, Exxon's chief executive officer; Dudley at BP; and Maria das Gracas Foster, head of Petroleo Brasileiro, are among the many energy chiefs expected to speak at this week's conference in Russia.

After the uncertainty created by its conflict with Ukraine, Russia will have done all it could to make sure all the big players attend its conference, "in order to make a show that, 'Hey, we're serious about working with you guys,'" Robart said.

Information for this article was contributed by Eduard Gismatullin of Bloomberg News.

Business on 06/18/2014

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