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Tatneft strikes deal with Shell

Russian oil producer OAO Tatneft said Thursday it signed a deal with Royal Dutch Shell Group to jointly develop oil-bearing tar sands in the central Tatarstan region.

The company gave no indication of when it expected to start producing oil from the project, or how much it could ultimately produce. Earlier reports had put the project's potential daily output at around 40,000 barrels.

Oil sands contain a tar-like bitumen that is extracted using high-pressure, high-temperature mining techniques.

In a separate statement, Tatneft - a government-controlled oil company that is the sixth largest producer in Russia - said its board of directors had approved a three-year plan under which it will keep its output stable at around 520,000 barrels a day through 2010. The company expected almost two-thirds of this output to benefit from differentiated tax rates.

Tatarstan is a Volga River region located about 700 kilometers (450 miles) east of Moscow.

High royalty taxes and export duties have started to severely restrict Russian oil companies' ability to develop new fields and sustain output from mature ones in the last year.

In a statement, Shell said that the agreement with Tatneft "opens the door to other potential joint activities, including the acquisition of new licenses for hydrocarbon exploration in Tatarstan and elsewhere in Russia."

"We look forward to our cooperation with one of Russia's largest oil and gas companies and hope that this partnership will build Tatneft's position as a leader in heavy oil development in Russia," Shell's chairman in Russia, Chris Finlayson, said.

With world oil prices hovering at record highs and the cost of the capital-intensive technology for extracting oil from sands declining, oil companies are invested in exploiting hard-to-get oil sands deposits, particularly in western Canada.

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