Shale oil: Indo-Russian Deal

The BloombergBusiness reads, “Oil & Natural Gas Corp., India’s biggest energy explorer, is banking on the world’s largest shale oil reserves to save its Russian acquisition.”

Shale oil is an alternate synthetic oil form, extracted from oil shale rock fragments through the processes of fracking, also called hydraulic fracturing, first pioneered in the United States. Fracking essentially is the process of cracking open the rocks by subjecting it to a mixture of chemicals and water and high pressures.

Imperial Energy Corp., which was bought by ONGC (due to huge losses) in 2009 for $2.1 million, has started drilling four wells in Bazhenov, Russia. Imperial Energy Corp. has always been reeling under massive losses, 11.8 billion rupees to be exact as of 2010, which prompted ONGC to purchase the company, scrapping its oil fields just months after.

As Bezhenov may well hold the largest shale oil reserves amounting to approximately 360 trillion barrels (according to Bloomberg Industries in their 2012 report), ONGC aims to derive enough to start commercial production. In the coming four years, ONGC not only plans to increase its production of oil and gas by two fold but also aims to spur the growth assets in Sudan and Syria, increase output in Venezuela and revive the falling output of Imperial field’s.

US SANCTIONS: LIBERTY RESOURCES BACK OUT

Russia suffered from a heavy pelting of criticism from the United States post its annexation of Crimea from Ukraine. Despite several calls to retreat from Ukraine, Russian forces stood firm. This eventually led to the US posing sanctions on finance, arms and the energy sector along with trade controls.

The sanctions (energy) caused Liberty Resources LLC to back out from a contract with Imperial Energy, wherein Liberty (a Denver based drilling company) was to drill in its shale oil reserves in Bazhenov. Thus, now ONGC (Imperial) is drilling four wells in this region on its own.

Nomac Drilling Corp. floorman Matthew Brown, right, steadies a section of drill pipe as floorman Richard Lane cleans the connection during natural gas drilling operations for Chesapeake Energy Corp. in Bradford County, Pennsylvania, U.S., on Tuesday, April 6, 2010. Companies are spending billions to dislodge natural gas from a band of shale-sedimentary rock called the Marcellus shale that underlies Pennsylvania, West Virginia and New York. The band of rock, so designated because it pokes through near a city of that name in northern New York, may contain 262 trillion cubic feet of recoverable gas, the U.S. Department of Energy estimates. Photographer: Daniel Acker/Bloomberg *** Local Caption *** Matthew Brown; Richard Lane

Nomac Drilling Corp. floorman Matthew Brown, right, steadies a section of drill pipe as floorman Richard Lane cleans the connection during natural gas drilling operations for Chesapeake Energy Corp. in Bradford County, Pennsylvania, U.S., on Tuesday, April 6, 2010. Companies are spending billions to dislodge natural gas from a band of shale-sedimentary rock called the Marcellus shale that underlies Pennsylvania, West Virginia and New York. The band of rock, so designated because it pokes through near a city of that name in northern New York, may contain 262 trillion cubic feet of recoverable gas, the U.S. Department of Energy estimates. Photographer: Daniel Acker/Bloomberg *** Local Caption *** Matthew Brown; Richard Lane

POT OF GOLD AT THE END OF THE RAINBOW: PERHAPS NOT

Though the Russian government has increased the percentage of revenue a firm producing in the Bezhenov region can retain, from 21% to 40%, Imperial does not seem to be safe just yet. According to the chief of ONGC Videsh Ltd. the firm may perhaps be able to cover up some of its debt, however, will fail to earn profits, “I’m not saying we will make profits, I’m saying the company may sail through”. This coupled with declining oil prices has made things worse for Imperial. Brent crude, a yardstick with which a greater portion of the world’s oil is measured declined 48% in London trading last year. Moreover, sluggish growth of the Chinese economy, OPEC’s refusal to reduce output and a world oil surplus has added to the long list of burdens of ONGC.

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