Poland on the cusp of Europe's first commercial shale gas production, claims investor

By bne IntelliNews January 24, 2014

bne -

One of the last major foreign investors still searching for Polish shale gas claimed on January 23 that it is close to producing the first commercial flows in Europe. Warsaw, which has watched its dreams of becoming a significant gas producer rapidly crumbling over the past couple of years, will be keen to believe the hype.

London-listed San Leon Energy announced the first results from its latest test drilling suggest commercial flows will be available at its Lewino deposit in the Baltic Basin in the north of the country. The company, which last year bought its two partners out of the Polish licences it operates, claimed in a statement that the project is the most commercially advanced in the country.

"This is the most encouraging vertical shale well test in Poland to date," Chairman Oisin Fanning said. "We have moved a long way towards cracking the code towards commercial production from our unconventional plays."

"Several million cubic feet of gas a day is what we're expecting," he later told Reuters, adding that an announcement on flow rates, which are expected to be at a commercial level, would be made within 60 days. The company says it will now move on to horizontal drilling at the deposit. "In the US, horizontal wells typically yield 7-30 times the production rate and recovery of vertical wells," the statement says.

The news will cheer officials in Warsaw, who have had their dreams of Poland as a major gas producer raised and then looking close to dashed. Estimates of huge reserves had foreign investors running to buy up licences early in the decade, but a cut of around 90% in that forecast, and failure to secure any commercial flows at test drillings since, has seen enthusiasm wane.

The government has not helped, with investors complaining that regulation covering shale gas exploration and extraction is a mess. US giant Exxon Mobil kicked off the exodus when it quit the country in 2012. Last May, San Leon bought partner Talisman out of the three licences they shared. This year, Italian giant Eni abandoned its licences, according to government officials. That leaves Chevron and ConocoPhillips as the only major players in the hunt.

Experts have since been complaining that the rate of investment in exploration in Poland is insufficient. To fill the void, Warsaw has been pushing state-controlled utilities and miners into the shale gas hunt, much to the chagrin of investors and executives at those companies. San Leon claims the trend is about to reverse. "With results from us and other people you are going to see a complete rejuvenation of interest in this area [of Poland]," Fanning told Proactive Investor.

The company adds that the introduction of new methods to its fracking process - the controversial method of extracting shale gas by pumping water, chemicals and sand into bedrock - has made the difference. "We've basically cracked the nut in terms of the recipe, in terms of how to frack," Fanning told Reuters. Companies pulling out of Polish shale gas have suggested that the geological formation of the country's deposits make them commercially unviable.

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