Oil major ExxonMobil Corporation (XOM) is set to form a joint venture (JV) with Russian state oil company Rosneft. The JV will allow Rosneft to explore North American unconventional sources as well as gain access to the know-how for developing unreachable resources.
ExxonMobil has interests in unconventional projects in the Permian basin in West Texas and several unconventional fields in Canada. The U.S. company had offered Rosneft to participate in various projects under a $3.2 billion deal, which included joint exploration in the Arctic and the Black Sea. This contract could help Rosneft to maintain its leadership position as it is likely to unlock about 36 billion barrels of oil reserves in the unexploited Russian offshore province.
However, Rosneft decided to participate in three projects in West Texas, the U.S. Gulf of Mexico and in Canada’s Alberta province, while it may take part in other projects eventually.
According to the deal terms, Rosneft will concentrate on exploring unconventional hydrocarbons -shale oil and shale gas – in North America and aims to employ the advanced recovery methods used in those regions in its own fields in Siberia. As the Russian companies are inexperienced in developing mature oilfields, their partnership with ExxonMobil will help them in expanding these resources by acquiring those advanced technologies.
Further, the deal also calls for joint development of mature oil fields in Western Siberia. These fields have regained demand due to rising oil prices. Per the Rosneft estimations, the shales at the Bazhenov formation in West Siberia are estimated to hold 2.5 billion tons of oil reserves.
Earlier, ExxonMobil had beaten BP Plc (BP) in the race to attain the Rosneft partnership that gave it the first mover access to Russia’s abundant Arctic resources.
ExxonMobil’s continuous effort to build an unconventional resource portfolio both in North America and overseas aims at increasing production through greater exposure to large energy resources with longer reserve life and low field declines. The company’s strength is in its balanced operations, strong financial flexibility and continuous improvement on efficiency and cost control.
For the long term, we maintain our Neutral recommendation.
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