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Lukoil Looking for Partners to Invest in U.S. Shale Gas Fields

OAO Lukoil President Vagit Alekperov
OAO Lukoil President Vagit Alekperov. Photographer: Aaron M. Sprecher/Bloomberg

OAO Lukoil, Russia’s largest non-state-controlled oil company, is scouting for oil and natural-gas investments in U.S. shale fields, President Vagit Alekperov said.

“If we are lucky in identifying a good partner, we are ready to be actively involved in the U.S.,” Alekperov said in an interview yesterday at CERAWeek, a Houston conference held by IHS Cambridge Energy Research Associates.

Alekperov joins a line of companies looking at the North American shale industry, as much to get the drilling technology as the oil and gas. Exxon Mobil Corp. bought shale gas producer XTO Energy Inc. for $34.8 billion last June and PetroChina Co. last month made its biggest overseas investment of $5.4 billion for a stake in Encana Corp.’s Canada shale field.

Shale formations consist of dense rock that can be broken apart to release trapped oil and gas. Advances in directional drilling and so-called hydraulic fracturing techniques have increased production from shale fields. Hydraulic fracturing injects water, sand and chemicals into the rock to crack it.

Alekperov said he wants to be able to apply those techniques to oil-rich shale deposits in Russia. Lukoil already is experimenting in the Bazhenov formation in West Siberia, which has “huge resources of liquid hydrocarbons,” he said.

Siberian Shale

Lukoil is hunting for new ways to recover oil as the Russian oil industry is at “a crossroads,” according to Thane Gustafson, a Russia specialist for energy consultants IHS CERA.

Russia raised production to more than 10 million barrels a day from about 6.2 million barrels a day in 1999 by applying techniques such as water flooding and directional drilling to old Soviet-era fields. Now the payoff from such techniques is declining in mature areas such as West Siberia, Alekperov said.

Russia needs an infusion of Western technology and capital to explore for and develop resources in the Arctic and East Siberia, Alekperov said.

After a lull of several years, Russia has seen a burst of transactions this year.

BP Plc agreed a $7.8 billion stock swap with state-controlled Rosneft Oil Co., though it’s being challenged by BP’s Russian partners in TNK-BP. On March 3, France’s Total SA agreed to pay $4 billion for 12 percent of Russia’s NovaTek OAO. Both groups aim to develop fields in the Russian arctic.

Lukoil pioneered such transactions, with ConocoPhillips taking a stake that at one point reached 20 percent. ConocoPhillips has since sold out as part of a larger asset-disposal program. Alekperov said he didn’t need a new partner to replace ConocoPhillips, saying Lukoil obtained the know-how it needed from service companies such as Baker Hughes Inc. and Halliburton Co.

Joint Ventures

Joint ventures will continue to be used by international oil and gas companies wanting to acquire shale acreage in the U.S., Michael Wang, a research director for IHS Herold, said yesterday at the CERAWeek conference.

Meantime, the deals keep coming. Last month, Australia’s BHP Billiton Ltd., the world’s biggest mining company, agreed to buy Chesapeake Energy Corp.’s Arkansas shale gas assets for $4.75 billion.

In the same month, Chevron Corp. completed its $3.58 billion purchase of Atlas Energy Inc. to add acreage in the gas-rich Marcellus Shale in the U.S. East.

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