Exxon to Start Siberian Oil Drilling With Rosneft in 2013

Exxon Mobil Corp. (XOM) agreed to start drilling tight oil prospects in Siberia in 2013 with state-run OAO Rosneft as Russia looks to tap the technology that reversed slumping U.S. output.

Exxon will finance geological studies and drilling at the Bazhenov and Achimov shale formations, the companies said today in a statement. After the exploration stage, the Irving, Texas- based producer will get a 33.3 percent stake in any development, they said.

President Vladimir Putin, who oversaw today’s agreement and an earlier accord in April, is inviting foreign producers to help reverse declines in the mature West Siberia oil province and keep output at a post-Soviet high of more than 10 million barrels a day. Crude and gas provided half of the government’s budget revenue last year.

“We didn’t choose this partner by chance,” Rosneft Chief Executive Officer Igor Sechin said today, highlighting the U.S. unconventional oil and shale gas boom. He spoke at a signing ceremony attended by Putin and his Exxon counterpart Rex Tillerson in Tuapse on Russia’s Black Sea coast.

The companies will seek to pump a mixture of chemicals and sand into horizontal wells to smash the low permeability rock that characterizes the Bazhenov geology and thus increase the amount of oil flowing up wells. Such output from the Bakken shale in North Dakota has pushed an U.S. oil boom that since 2009 has begun to reverse almost two decades of decline, according to BP Plc (BP/) data.

International Partnership

Today’s tight oil agreement firms up part of the wide- ranging partnership signed in April in which Exxon has pledged to spend $3.2 billion to study and drill for some of the world’s largest resources in difficult, unexplored provinces in Russia’s deepwater Black Sea and the Arctic Kara Sea. Rosneft, meanwhile, has signed agreements to gain stakes in Exxon projects in Texas, Canada and the Gulf of Mexico.

Russia is developing tax incentives by October to encourage development of unconventional oil deposits.

The pilot wells will seek to locate deposits that Rosneft has said may hold 13.2 billion barrels of oil, a prospect needed for Russia to keep supplying 16 percent of global exports another decade.

“We are not only looking at new geographical regions of operation, but are also studying the potential of difficult to produce reserves in traditional oil producing regions,” Sechin said.

To contact the reporters on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net; Stephen Bierman in Moscow at sbierman1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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