Shell Venture Starts Fracking Giant Russian Shale Oil Formation

Royal Dutch Shell Plc (RDSA) and OAO Gazprom Neft began a drilling campaign to assess the potential of Siberia’s Bazhenov formation, reckoned to be one of the world’s largest deposits of shale oil.

Salym Petroleum Development, the venture between Shell and Gazprom Neft, has started drilling the first of five horizontal wells over the next two years that will employ multi-fracturing technology, according to a statement today.

The Bazhenov layer, which underlies Siberia’s existing oil fields, has attracted Shell and Exxon Mobil Corp. (XOM) because it’s similar to the Bakken shale in the U.S., where advances in drilling technology started a production boom. Exxon will also start a $300 million pilot project drilling in a different part of the Bazhenov with OAO Rosneft (ROSN) this year.

“This is a big theme for Russia,” according to Ildar Davletshin, an oil and gas analyst at Renaissance Capital in Moscow. “Bazhenov holds as much resources as has been produced in Russia to date. The question is what portion of it can be recovered and at what cost.”

The first horizontal well follows three years of study on the prospect, which included three vertical wells, 3D seismic, coring and well logging in the Upper Salym area, according to the Salym statement.

“Bazhenov development is an important element of our growth strategy,” Oleg Karpushin, head of Salym Petroleum Development, said in the statement. “We hope that the pilot project will allow us and our shareholders to make a decision about moving to a large-scale development of the Bazhenov formation in the Salym fields.”

To contact the reporter on this story: 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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