Exxon, Rosneft Agree to Develop Tight Oil Reserves

Exxon, Rosneft Agree to Develop Tight Oil Reserves

Exxon Mobil Corp. said Friday it agreed to develop so-called tight oil reserves in Western Siberia with Russian state-controlled oil and gas company OAO Rosneft, in the Texas giant's latest effort to replicate the U.S. shale boom globally.

Exxon and Rosneft would use technology that the U.S. oil company already employs in unconventional oil and gas formations in the U.S. and Canada. The agreement is the latest chapter in a long-term strategic deal that includes offshore exploration of massive energy reserves in Russia's Arctic Sea and the Black Sea.

The venture comes at a time when Exxon has been increasing its foothold on unconventional oil and gas development, not only in North America, but all over the world. The company--which is exploring for shale oil and gas in Germany and Argentina--recently revealed it will also develop tight oil in Colombia and that it was evaluating the potential of shale oil and gas in China. Exxon has said a key component of its $25 billion acquisition of shale producer XTO Energy in 2010 was transferring the know-how that allowed the company to unlock vast new reserves of natural gas in the U.S. via hydraulic fracturing.

The agreement is also an indicator of a re-emerging symbiosis between international oil companies and Russia, which needs to replace its declining oil production with an ever-larger amount of hard-to-exploit crude if it is to remain one of the world's largest energy powers. In recent months Eni SpA and Statoil ASA have also signed deals with Russian companies to develop Arctic fields.

The work to start tapping Western Siberia's tight oil reserves was mentioned by Chief Executive Rex Tillerson to Dow Jones Newswires in an interview earlier this month. At the time Mr. Tillerson said that "there is huge shale potential in shale rocks in West Siberia...we just don't know what the quality is."

Exxon and Rosneft said they expect to approve in the near future geological studies and drilling for selected Rosneft license blocks, including the Bazhenov and Achimov reservoirs. Exxon Mobil, the world's largest publicly traded oil company by market value, will finance the geological studies and exploratory drilling, which is expected to begin in 2013.

The two companies also agreed to establish a joint Arctic Research Center for Offshore Developments. The center will provide services to support all stages of oil and gas development on the Arctic shelf, including the design of ice resistant offshore vessels, structures and Arctic pipelines.

Exxon Mobil reported its first-quarter earnings fell 11% on reduced production and sales volumes, as well as higher operating expenses at its exploration and production business.


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