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. Last Updated: 07/27/2016

Shell Signs Deal With Tatneft

Shell and Tatneft signed a deal Thursday that could strengthen the oil major's position in Russia's energy sector and help Tatneft tap hard-to-extract oil.

Under the agreement, the two companies will jointly develop vast heavy bitumen oil deposits in the republic of Tatarstan, the home base of Tatneft.

"[The companies] will conduct a feasibility study and assess technologies for extraction and processing [upgrading] of heavy oil, which is part of existing exploration and production licenses held by Tatneft," the companies said in a statement.

Tatneft controls 12 bitumen oil deposits with reserves estimated at 50 million tons. But the firm and industry analysts say Tatarstan may hold from 1.5 billion to 7 billion tons of bitumen oil resources. The biggest figure, if confirmed, would represent over a half of the country's total crude reserves estimated by BP in its latest Annual Statistical Review at 10.85 billion tons.

Analysts said the news was positive for Tatneft, which would benefit from Shell's large experience in tapping heavy oil.

"Choosing a heavy oil specialist such as Shell as a strategic partner for the project is particularly important, not only sentiment wise, but also as a funding source that can help accelerate the project," Troika Dialog said in a note.

Deutsche UFG said Shell has relevant experience in developing high-viscosity oil due to its involvement in oil sands projects in Canada.

Analysts at Alfa Bank and Deutsche UFG said they were not convinced that the project would be profitable as bitumen oil is among the most difficult and costly hydrocarbons to extract.