The two companies will ink the agreement next week when Russian President Vladimir Putin visits the Netherlands, where Shell is headquartered, according to a person familiar with the matter.
The deal is the latest in a series of tie-ups between Russian state-controlled energy groups and foreign oil majors designed to safeguard Russia’s position as the world’s largest oil and gas producer.
The hope is that production from offshore fields in the Arctic and onshore shale formations will offset the declines seen in Russia’s traditional oil-producing areas, such as West Siberia. By teaming up with foreign majors such as ExxonMobil of the US, ENI of Italy, Statoil of Norway and now Shell, Russia is acknowledging that it will struggle to exploit these resources without western help.
The prospect of accessing Russia’s Arctic oil could offer some consolation to Shell, which has suffered big setbacks in its efforts to drill in the Arctic waters off the north coast of Alaska. Gazprom Neft, which is the oil arm of the state energy champion, and Shell declined to comment.
Shell said in February it was abandoning its exploration campaign in Alaska’s Beaufort and Chukchi Seas for this year, though it would resume it at a later stage.
The company has spent about $5bn on the Alaska programme, but a series of legal challenges, equipment failures and problems with ice mean it has yet to complete a single well.
Gazprom and Shell are already partners in Salym, a big oilfield in western Siberia, which produced about 170,000 barrels a day in 2011. Salym counts as one of the largest foreign investments in Russia’s onshore oil industry.
Shell has also been helping Gazprom Neft deploy cutting-edge technology to squeeze more oil out of Salym, using methods such as chemical flooding. This involves injecting polymers and other chemicals into the reservoir to target residual oil left behind after conventional crude production.
The new deal will see the two companies join forces to develop parts of the Bazhenov shale, a vast formation in western Siberia that is one of the largest accumulations of unconventional oil in the world.
Oil executives call it “Russia’s Bakken”, a reference to the formation in North Dakota that has driven a huge increase in US oil production.
Gazprom Neft is one of a number of Russian oil companies that are hoping to produce “tight” oil from the Bazhenov. Earlier this month, it completed its first appraisal well in a field known as Krasnoleninskoye or Red Lenin, which is part of the Bazhenov. It is also planning to produce shale oil at Salym.
Gazprom Neft is also active in the Russian Arctic, operating two big oil projects, Prirazlomnoye and Dolginskoye, in the Pechora Sea off Russia’s northwest coast. It also has licences in Russia’s Chukchi and Kara Seas.
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