France's Total S.A. (TOT) said Wednesday it will partner with IDT Corp. (IDT) to develop shale oil in western Colorado, the latest sign that large energy companies continue to look for ways to boost reserves despite the plunge in oil prices.

Under the agreement, Total will acquire a 50% stake in IDT's American Shale Oil LLC, or AMSO, subsidiary, which holds leases for shale oil properties on federal lands. Total will provide the funding to develop new oil production technology on the AMSO property.

"AMSO has a strong technical team, original patents and ideas to produce shale oil economically," a spokesman for Total said.

Total, the world's fifth-largest integrated oil and gas company by market value, and IDT said in a press release the deal is expected to close later in the first quarter.

"IDT is not a traditional oil and gas company, so we were looking for a partner who can contribute both with financial resources and technical expertise to help us both in developing our research and developing program and in the operational side," Claude Pupkin, AMSO's president, said in an interview.

Neither Total nor IDT provided detail of the value of the transaction.

Shale oil, or oil buried deep within rock formations, is more difficult and costly to extract than oil from conventional reservoirs. The deal comes at a time when production of this and other unconventional sources of hydrocarbons are seen as not economically viable at current oil prices, which are trading around $36 a barrel, or more than 70% below the all-time high in July.

The transaction hence highlights Total's optimism that oil prices will rebound in the long term. Total Chief Executive Christophe de Margerie recently said that oil prices need to be at least $80 to $90 a barrel to allow the oil industry to invest in future production.

The announcement also showed that major oil companies are aggressively looking for ways to access new reserves even from hard-to-get places as the access to conventional sources has become challenging due to nationalization by producing countries or increasing violence in oil-rich countries such as Nigeria.

"This is a good example that major oil companies are looking for new oil replacements and is evident Total thinks there may be long-life reserves there," said Sal Ilacqua, an energy analyst at Monness Crespi Hardt & Co.

Government reports estimate shale oil development could add as much as 800 million barrels of oil to U.S. reserves. U.S. crude oil in storage totaled just over one billion barrels as of Jan. 2, including the Strategic Petroleum Reserve, according to the U.S. Energy Information Administration.

Total's production strategy includes other unconventional projects, especially in Canada's oil sands where it acquired Synenco Energy Inc. (SYN.T) and Deer Creek Energy Ltd.

AMSO is one of three companies holding 10-year leases from the U.S. Bureau of Land Management to assess, test and demonstrate the potential for commercial shale oil production in western Colorado. The other leaseholders are Royal Dutch Shell PLC (RDS.A) and Chevron Corp (CVX).

-By Isabel Ordonez and Christine Buurma, Dow Jones Newswires; 713-314-6090; isabel.ordonez@dowjones.com

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