Oil major Exxon Mobil (NYSE:XOM) may help its Russian partner, state controlled Rosneft (OTC:RNFTF) to unlock billions of barrels of tight oil reserves from the country’s shale formations by providing hydraulic fracturing technology. The use of hydraulic fracturing or fracking in the U.S. has helped companies unlock oil and gas in North Dakota and other states, lowering oil imports.
Exxon has looked to export the technology to tap natural gas resources in Europe, encountering some resistance in the process. However, with Russia now looking to import technology from western companies to maintain its oil production levels over the decade, a new avenue has opened up for the company’s expertise in the controversial technology.
We have a $94 price estimate for Exxon Mobil, which is at a 20% premium to its current market price.
According to reports, the Russian government is placing its hopes on Exxon Mobil to help it unlock oil trapped in the Bazhenov shale formation in Western Siberia. Estimates say that the block could yield 13 billion barrels of oil and Rosneft and Exxon are targeting old fields in the region that no longer produce oil. Russia is opening its doors to western oil companies to exploit its technically challenging reserves in deepwater and unconventional deposits to help it maintain its present production and export levels. According to government estimates, unconventional oil could eventually account for up to 40% of the country’s production.
Bloomberg says Russia exports around 5.1 mb/d, about 16% of the world’s oil exports. Oil income is a crucial source of revenues for the government and the Putin administration is keen on maintaining the country’s present output levels over the future. The government is also looking to tweak its taxation policy on oil to make technically challenging exploration more lucrative to foreign players.
The Russian government’s keenness to adopt the practice of fracking is a good sign for Exxon Mobil. The process has met resistance in Europe, where many countries have introduced a ban until its environmental aspects are understood better. However, the remoteness of Russian reserves makes general public protests against the process unlikely. Exxon’s chairman Mr. Rex Tillerson has said that his company was also entering into partnerships in other countries such as China and Argentina to further exploit its technical advantages. If such partnerships result in economically viable production, the move could result in a major increase in Exxon’s global oil and gas output over the long-term.
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