Polish gas utility PGNiG signed off on a deal with US giant Chevron on March 31 that will see them join forces in hunting for shale gas in south east Poland. The companies say the move will speed up exploration efforts, but it also suggests that despite efforts by the government to boost activity, investors remain uncertain.
Sealing a deal agreed in December, the companies will collaborate in appraising shale gas deposits in four exploration licence areas in south-eastern Poland, PGNiG said in a statement. It will see them team up on four licensed areas, with each company having a pair of deposits covered.
In that initial stage of cooperation, the parties will also exchange geological data and experience. "If the parties move to the second stage of collaboration, their efforts will involve further exploration work in relevant licence areas. At all stages of the relationship PGNiG and Chevron intend to jointly carry out the exploration work, determine its scope and decide on the financing methods."
Poland has spent the last month front and centre in warning against Central Europe's heavy dependence on Russian gas. The crisis in Ukraine has seen it seek to put its sluggish bid to boost domestic production with unconventional gas back on a fast track. In particular, Warsaw has stressed that the number of test wells needs to grow, so an agreement between the two biggest companies still in the hunt to reduce the number of drillings is unlikely to have been part of the plan.
The companies, naturally, claimed that the deal was simply a means to improve efficiency. "By collaborating with Chevron we will be able to draw on its extensive experience in shale gas exploration," PGNiG President Mariusz Zawisza said in the statement. "We hope that this partnership will be beneficial to both parties by allowing us to optimise the costs and improve the effectiveness of our exploration efforts."
The deal suggests Poland's effort to reinvigorate its shale gas push is struggling. On the back of estimates of massive unconventional deposits, Warsaw originally launched dreams of becoming a major gas producer in 2010. Foreign investors snapped up licences, but the enthusiasm soon waned as reserve estimates were slashed and test drilling results disappointed, and several, including the likes of Exxon Mobil have since quit.
Barely disguising Warsaw's ire, Prime Minister Donald Tusk's government pushed state-controlled companies into the fray in their stead. However, huge demands for investment in new power capacity have made that a struggle.
That has seen another about-face, as Poland has this year launched a new charm offensive to persuade those foreign investors still on the ground to stay and raise their efforts, and others to take another look. The first step was an announcement from London-listed San Leon in late January that it's close to producing "the first commercial shale gas flows in Europe".
Recently appointed Environment Minister Maciej Grabowski has been drafted in to spearhead the renewed push for foreign experience with drilling for shale gas and cash. "This year, I think at least 30 wells for shale gas will be made," Grabowski said in February. "To date there were 55. This year will be a turning point for shale gas".
On March 11, the government announced it has approved draft legislation on a regulatory framework and tax regime designed to boost investor interest. Previous drafts had been slammed by investors, while the government's failure to nail down the legislation had left huge uncertainty for companies urged to spend big on expensive exploration efforts.
Tusk offered another hostage to fortune on March 11, when he insisted the draft bill would be sent to parliament within a fortnight, and said he hoped for "speedy proceedings," especially given the Russian-Ukrainian tensions. The lower house has yet to see the bill.
However, as Tamas Pletser at Erste Bank pointed out in February, Warsaw can offer whatever regulatory and tax temptations it likes, but can't overcome the fact that test drilling suggests many Polish shale gas deposits are commercially unviable. "The new law was missing for a long time, but what we really miss is the good results of the fracturing," the analyst points out.
"It seems to us that Poland cannot meet earlier expectations, even though new technologies may result in a breakthrough a few years from now," he adds. "We believe that the companies cannot change "Mother Nature," but they can lobby for a better law and lower taxation."
The fact that the two biggest companies still in the hunt are clubbing together to mitigate risk and trim costs likely reflects that uncertainty. PGNiG and Chevron said in December that if the initial cooperation is successful, they may set up a joint venture to work the licences, in which both would hold a 50% stake. Chevron holds four exploration licences in Poland overall, all of them adjacent to one another in the south east of the country.
PGNiG said the deal reflects its new policy of openness towards other companies involved in shale gas exploration projects in Poland. "The collaboration will enable the parties to reduce costs, share risks, and increase the pace of the exploration work," its statement reads. "As a result, the process of assessing potential shale gas resources in Poland will be completed sooner."
Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more
bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more
Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more