As Russia's traditional oil provinces such as West Siberia are depleting, the country is increasingly looking to more expensive new frontier resources.
Apart from hard-to-access vast reserves offshore the Arctic, Russia is believed to have enormous hard-to-extract resources in already developed regions.
But a combination of tax and technology will be crucial factors determining if, when and to what extent these are exploited.
The national subsoil agency Rosnedra estimates that the most promising reserves of tight oil, the Bazhenov formation in West Siberia, may hold between 25 billion mt (182 billion barrels) and 50 billion mt of recoverable reserves.
Output from Bazhenov could provide between 800,000 b/d and 2 million b/d by 2020, or up to nearly one-fifth of the country's current total production of just over 10.2 million b/d, Russia's energy ministry estimates.
But at present tight oil reserves account for no more than 400,000 b/d, or around 4% of total Russian oil output, as oil producers are continuing to test costly and difficult geological plays to find the most efficient oil production techniques.
The Bazhenov formation, like the similar Achimov and Tyumen formations, is below conventional oil layers, differs from them by geological composition, and is challenging due to narrow pay-zones and low permeability.
But perhaps the most formidable challenges are an extremely low recovery rate as well as high decline rates that translate into a high lifting cost.
At present, recovery rates at different tight oil projects in Russia are just at between 2% and 8%, according to Lukoil which estimates that tight oil reserves in the country amount to as much as 62% of its total reserves.
Lifting costs of tight oil are estimated at between $14/b and $40/b, according to data by different companies.
In comparison, the lifting cost of some new conventional oil projects in Russia exceeds $10/b, while average lifting costs are much lower and stood at below $3/b for Rosneft and $5/b for Lukoil, according to Q2 financial reports of the two biggest oil producers in Russia.
While developing the Bazhenov formation has so far been unprofitable, recent success in developing tight oil reserves in the U.S. is expected to give an impetus to the development of tight oil reserves elsewhere in the world, including Russia.
Studies have showed that the geological structure of Bazhenov is very similar to that of the liquids-rich Bakken play in the U.S. and that technology and experience from the U.S., such as horizontal drilling with multiple hydrofracking, could be deployed in Russia.
The country's biggest oil producer Rosneft has already teamed up with ExxonMobil to develop the Bazhenov reservoir in West Siberia.
The tight oil project—into which the U.S. company "is to bring in its advanced technologies tested in North America"—is a part of a major cooperation agreement that also includes joint work at offshore fields in the Arctic and other regions.
Rosneft and ExxonMobil plan to begin drilling of the Bazhenov and Achimov reservoirs in West Siberia in 2013, upon completing their geological study.
Rosneft also teamed up with Norway's Statoil to work on Russian tight oil assets in southern Russia and in West Siberia, as part of a major cooperation agreement the two signed in May. Rosneft estimates it has around 5.8 billion barrels of tight oil reserves, or 13% of its total recoverable reserves.
Potential production from its hard-to-extract reservoirs could exceed 300,000 b/d.
Other companies, including Surgutneftegaz, Bashneft and Tatneft, have also experimented with oil recovery methods from tight oil reserves.
Lukoil continues testing different techniques at its Yaregskoye high viscous oil field and the Bazhenov reservoir of two fields in West Siberia, including steam-assisted gravity drainage (SAGD) and thermal stimulation method that was successfully tested in the U.S. and allowed boosting crude output at some fields by 2-4 times.
Lukoil pumped 550,000 mt of extra-heavy crude at Yaregskoye in 2011 and expects the modern technologies to boost production from the project to 3.5 million mt/year.
Gazprom Neft and Shell, through their 50:50 joint venture in West Siberia, are developing a pilot project to tap the Bazhenov reservoir at the Salym group of fields and expect to start drilling in early 2014, according to the JV operator, Salym Petroleum Development (SPD).
TNK-BP is also believed to have a significant resource potential in the Bazhenov formation and is working on quantifying these resources.
It is also considering a pilot project to tap the Tyumen reservoir in the Krasnoleninskoye field; and together with Schlumberger is carrying out a pilot project to increase production efficiency of hard-to-recover oil reserves at its Severo-Khokhryakovsky field in West Siberia.
