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8 Apr, 2013 13:21

Gazprom Neft and Shell to team up to drill for Arctic oil

Gazprom Neft and Shell to team up to drill for Arctic oil

Gazprom Neft, the oil division of Russia’s state-run natural gas major Gazprom, and Royal Dutch Shell have signed a memorandum of intent to jointly explore and develop shale oil and Arctic offshore projects in Russia.

The document, signed by the head of Gazprom Aleksey Miller and the head of Shell Jorma Ollila, referred to two offshore blocks: at the junction of the Chukchi and East Siberian seas, as well as in the Pechora Sea. 

If Gazprom wins the license to develop these deposits, the Russian company will have a 66.7% share in the project and Shell 33.3%. 

The deal between Gazpromneft and Shell is seen as one of the key matters on the cooperation agenda between Russia and its second largest trading and investment partner The Netherlands, set for agreement during Russian President Vladimir Putin’s visit to Amsterdam. 

Russia has been looking for a foreign partnership in order to develop the Arctic. A deal between Gazprom Neft and Shell would be seen as a success in the Kremlin’s effort to open up Russia's hard-to-recover energy reserves to international partners, who possess technology, funds and experts.

“Such projects are complicated, require massive investment, and need technology that may not yet exist. No country could cope with such a mission alone,” Nezavisimaya Daily quotes Konstantin Simonov, Executive Director at the National Energy Security Fund, adding that the Dutch partnership would be essential for Russia.

Some experts are skeptical and say that agreements even if reached and signed could remain on paper for quite a long time and eventually be frozen. They stress that for now, projects in the Arctic remain unprofitable with the current technology, which will hold back foreign investors.

Cooperation between Gazprom Neft and Shell goes back years. They have started developing shale oil deposit in Yamal where the two are working on the Salym Petroleum Development project. Shell also collaborates with Gazprom in the giant Sakhalin gas project offshore in the sub-Arctic of Eastern Siberia.

Meanwhile state oil major Rosneft sealed a series of deals with the likes of ExxonMobil, Statoil and ENI for Arctic exploration. Last month the company confirmed it was also signing projects with BP.