The shale oil and gas boom is going global, as we explored Tuesday in Money Morning.
And this means huge profit opportunities for those who know how to invest in this global shale revolution.
Money Morning Global Energy Strategist Dr. Kent Moors speaks of "massive finds" in areas outside the United States - finds that could dwarf even the colossal Bakken formation in North Dakota.
In fact, the largest shale oil deposit could contain up to 100 billion barrels of recoverable oil... that's five times the amount of recoverable oil in the Bakken.
Energy investors wanting to cash in on this bonanza should look to the birthplace of vodka, the home of the Kremlin, and the country that already boasts the world's largest natural gas reserves.
That's right - the big story on how to invest in the global shale oil and gas boom begins in Russia.
Russia's Bazhenov Shale
The Bazhenov, the largest unconventional shale oil deposit in the world, is located in Siberia about 2,000 miles east of Moscow.
Tom Reed, chief executive officer of Ruspetro, a small oil company with 300,000 acres in the Bazhenov, told the Financial Times that the Bazhenov "is bigger than the 10 to 15 next biggest shale plays combined."
This massive shale formation is expected to become the centerpiece of Russian oil efforts over the next 20 years, surpassing exploration and drilling efforts of even the newly opened Arctic regions. Oil production in the Bazhenov is expected to increase to 2 million barrels a day by 2020. The Russian Energy Ministry hopes the increase will boost the share that tight oil production holds of the country's total oil production, from a mere 0.2% to 11% by that same date.
The vast untapped potential of this resource went unrecognized for decades, until the U.S. shale revolution began making headlines.
Up until now, however, steep oil production taxes have hampered efforts in the Bazhenov. Ruspetro reported to the Financial Times that for every barrel of oil produced in Russia, it had to pay $23 in mineral extraction tax and $55 in oil export duty.
But things are changing...
In an effort to encourage exploration and investment in oil extraction and production, the Russian parliament recently passed legislation granting a complete waiver of the mineral extraction tax for companies drilling in the Bazhenov, as well as reducing oil export duties.
These new tax incentives are expected to clear the way for increased shale oil production in the Bazhenov, opening the door to great investment opportunities.
That means now's the time to know how to invest in Russia's nascent shale industry - starting with the oil companies.
Oil Companies in the Bazhenov
Russian oil companies exploring the Bazhenov include Lukoil, Surgutneftegaz, Gazprom Neft, and its largest oil company, Rosneft Oil Co. (OTC: RNFTF).
Rosneft teamed up with Exxon Mobil Corp. (NYSE: XOM) in 2012 to evaluate the commercial potential of the company's more than 10,000 square kilometers in the Bazhenov. Rosneft is estimated to be holding at least 11 billion barrels of tight oil reserves.
Another western oil company betting on the Bazhenov is Norway's Statoil ASA (NYSE ADR: STO), which also sealed a shale exploration deal with Rosneft in June.
Statoil head of exploration Tim Dodson spoke of the Bazhenov's "huge, huge upside," telling Reuters, "It looks very, very much like the Bakken from a geological point of view... the scale of it is just enormous... the Bakken looks minute compared to it."
But big oil companies aren't the only way to invest in Russia's shale oil and gas boom.
How to Invest in Russia's Shale Boom: The Oil Services Bonanza
You see, to achieve the government's targets for tight oil output, Russia will have to double the number of horizontal wells drilled in Siberia from the nearly 800 drilled in 2012. And Russia is going to need a lot of help in tapping the Bazhenov's resources.
That's why oil field services offer investors another way to profit from the Bazhenov as Russia looks for production help from big-name global energy companies. And Moors predicts "genuine opportunities for North American technical, equipment, and production service companies."
Russian subsidiaries of the major oil service companies - Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), and Baker Hughes Inc. (NYSE: BHI) - are already shipping equipment, crews, and much-needed technical expertise from the United States to Russia.
According to research from Russia's VTB Capital, more than 57% of Russia's 1,835 rigs are more than 20 years old. As such, the aging rigs are not powerful or technologically advanced enough to drill Russia's shale, said Anthony Crawford, the Russia chief for National-Oilwell Varco Inc. (NYSE: NOV), to Bloomberg.
National-Oilwell Varco, one of Moors' top picks, is the largest U.S. oil equipment supplier.
VTB Capital reports that 105 new rigs will be delivered this year, a five-year high. But older rigs are being retired at a rate of about 400 per year, representing an obvious gap... and a golden opportunity. Rosneft alone plans to drill 50 horizontal wells this year in the Bazhenov, up from just three last year.
The country's biggest drilling rig operator, Eurasia Drilling, agrees that additional new rigs are badly needed. Its chief financial officer, Richard Anderson, believes Russia requires several hundred new rigs - at a minimum - to begin sufficiently exploring the Bazhenov.
At $35 million each, this translates into an $8.8 billion opportunity for the companies like National-Oilwell Varco supplying rigs to Russia. And those who know how to invest in these oil service companies will soon be hitting pay dirt as well.
The Second Massive Profit Wave of the Natural Gas Sector Is Under Way - Go Here to Learn How to Profit from It.
- Financial Times:
Russian Energy: Frozen Assets
Russia Tax Breaks Now, Tight Oil Boom Later
Statoil to Bet on Angola, Russian Shale in Exploration
Varco to Honghua Vying for $9 Billion of Russia Oil Rigs