You may have passed over the announcement that, at an average of 10.5 million daily barrels, Russia's oil production hit a new high in the post-Soviet era in November. It thereby handily tops Saudi Arabia's current rate of about 9.6 million barrels per day. With a combination of planned exploratory movements into potentially new producing areas, along with a Putin government that lately has toughened up regarding its relationships with the West, keeping a close eye on the big country's energy adventures -- and the companies that become involved there -- makes good sense for Foolish energy investors.
Big oil's important role
After all, much of Russia's energy future will lie in the hands of the western companies that will provide it with the technological sophistication that the country lacks, along with the investments that it craves. In years past, members of big oil who have played roles in the Russian oil scene have included ExxonMobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS-B), and BP (NYSE:BP). It's worth noting, however, that the relationships between the companies and their hosts have frequently been contentious at best.
Today, the big country's oil reserves are thought to approximate 60 billion barrels, most of which are contained in either Western Siberia, between the Ural Mountains and the Central Siberian Plateau, or in the Volga-Urals region. By far the majority of the country's current production occurs in those two areas.
Untapped regions currently generating interest include Eastern Siberia, the Russian Arctic, the northern Caspian Sea, and Sakhalin Island. Despite Russia's healthy production rate, these areas must prove to be at least marginally fertile for the country to achieve even flat production through the remainder of this decade.
As you likely know, Exxon has generally been successful in developing Sakhalin 1, on the inhospitable, 500-mile-long island to the east of the mainland. Shell, however, was forced a half-dozen years ago to sell much of its stake in Sakhalin 2 for bargain-basement rates to Gazprom, the big state-controlled oil and gas company. Despite their relative fanfare, however, Sakhalin fields account for only about 3% of Russia's total production. Nevertheless, reports have ExxonMobil, Shell, and BP investing heavily in acreage on Sakhalin, which, more than a century ago, Russian writer Anton Chekhov called "a hellish place."
You probably also know that ExxonMobil and Rosneft, the Russian state oil company, have signed an agreement to jointly explore Russia's offshore Arctic fields, primarily the frigid Kara Sea, north of Siberia. Beyond that, the pair will similarly examine the Black Sea. And as part of the deal, Rosneft will gain minority shares in a pair of Exxon-controlled shale and nonporous rock oil fields in West Texas and Western Canada, along with stakes in a number of Exxon-operated fields in the Gulf of Mexico.
As if that weren't enough, Rosneft is also in the process of acquiring BP's 50% stake in TNK-BP, Russia's third-largest oil company for $17.1 billion in cash and 12.8% of Rosneft's shares, for a total value of about $27 billion. The other half of the joint venture, which is owned by a group of Russian oligarchs, is also being sold to Rosneft for approximately $28 billion. Assuming all this is completed, Rosneft's production will be catapulted to about 4.5 million barrels a day, or a figure comparable to Exxon's output. As Forbes recently pointed out, Vladimir Putin will thereby become "the new global Shah of oil."
To the northwest, in 1988 the huge Shtokman gas field was discovered on Russia's Arctic shelf in the Barents Sea. Today, France -- through Total (NYSE:TOT) and others -- is pushing for development of the as yet unproductive Shtokman.
Moving beyond Russia
The Caspian states, primarily Kazakhstan and Azerbaijan (along with Russia), are also the sites of attractive oil and gas assets. For instance, in Kazakhstan, Chevron (NYSE:CVX) owns a half interest in Tengizchevroll, the operator of the giant Tengiz field, the world's deepest super-giant oil play. The same partnership is also developing the nearby Korolev field.
Another significant Kazakh oil field is the Kashagan, which is expected to begin production next year through the efforts of a partnership that includes Italy's Eni, (NYSE:E), Exxon, Total, and Shell. ConocoPhillips (NYSE:COP) has agreed to sell its 8.4% stake in the field for about $5 billion to Oil and Natural Gas Corp., a Kazakh state company.
David Lee Smith owns shares of BP. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron and Total. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.