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back THU, DEC 13, 2012

Rosneft, Gazprom Neft Advance Tight Oil Schemes

Russian state-controlled oil companies Rosneft and Gazprom Neft are moving forward with plans to develop tight oil in West Siberia, although analysts question the viability of these projects under the current tax regime.

Rosneft and Exxon Mobil last week signed an agreement envisaging the start-up of a pilot program to develop Russia's Bazhenov and Achimov formations in western Siberia. The program includes the establishment of a joint venture to assess the possibility of commercial production of tight oil reserves. Rosneft will take a 51% stake in the venture, expected to be set up in early 2013, with the remaining 49% to be held by the US major (related).

Under the pilot program, work will include drilling new horizontal and vertical wells using the latest fracturing technologies as well as deepening existing wells and reviving idle wells. It will be carried out at 23 blocks in West Siberia, covering an area of more than 10,000 square kilometers. Drilling itself should begin next year, while the parties also plan "to run an advanced core survey program that will include geomechanical surveys."

Rosneft, which holds the licenses for the blocks, is set to provide the workforce and, more importantly, access to the existing infrastructure in the region. The US firm will shoulder the financial burden, investing some $300 million in the pilot project, and will also provide technology and specialists.

The pilot program should help Rosneft and Exxon evaluate and define the areas where commercial development of the tight oil reserves is possible. Upon completion of the program in 2015, Rosneft and Exxon should select blocks for commercial development -- a step that will require setting up a new joint venture for the development of those areas.

Gazprom Neft actively applies technology from Royal Dutch Shell to tap unconventional reserves in the Bazhenov formations at the Verkhne-Salymskoye field, which it is developing alongside the Anglo-Dutch major within the Salym Petroleum Development (SPD) joint venture.

Speaking at the Global Energy Intelligence Day (GEID) in Moscow last week, Sergei Vakulenko, the head of Gazprom Neft's strategic department, said the project, if a success, should help tap some 15 million metric tons (110 million barrels) by 2035.

Russian oil companies recently got a fresh incentive to develop the country's unconventional resources after President Vladimir Putin signed a law envisaging tax breaks for hard-to-recover reserves, including shale oil. The law grants zero mineral extraction tax (MET) for fields harboring unconventional resources and reduced export duty set at 10% of the average export duty of $396.50 per ton ($54.09 per barrel) set for December.

Fyodorov told the GEID that zero MET only allows oil companies to save some $20/bbl, while the whole set of incentives should help to gradually make viable the development of some 15 billion bbl of reserves and 73 billion bbl of resources.

This article first appeared in Nefte Compas
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