Polish shale gas dreams take another hit

By bne IntelliNews September 18, 2014

Tim Gosling in Prague -

 

Poland's dreams of turning itself into a major shale gas producer took another hit on September 17 when 3Legs Resources, previously seen as sitting on some of the country's most promising concessions, joined the exodus of foreign explorers by dropping three of its most promising concessions. 

3Legs Resources, a UK-listed company exploring Poland, said that it is quitting its Baltic Basin licences in Poland because of a lack of commercial prospects. The statement said: "it would be in the best interests of its shareholders to exercise its option to withdraw" from concessions in the western Baltic shale basin. The British company still holds three other concessions in the eastern part of the onshore Baltic Basin.

Poland previously eyed a role as a game changer on the European gas market, but reduced its ambitions to increased self-sufficiency as reserve estimates were cut in 2011. However, since then, foreign investors have been dropping like flies - particularly the US majors that drove the shale gas boom in their home country, leaving smaller operators to scout the country for the most part.

French giant Total was the latest giant to quit Poland in April. Exxon Mobil, Eni, Marathon Oil and Talisman Energy all beat it out of the door.

Meanwhile, Warsaw has been pushing state-controlled companies into the fray. That tactic, however, has strained their balance sheets and caused friction, with the government also demanding from them significant investment in power generation and other efforts to raise energy security. 

The Ukraine crisis has added to impetus in Warsaw to reduce reliance on Russian gas imports. The government has put shale gas back towards the top of its agenda this year, called for increased efforts from remaining investors.

Hence 3Legs' exit from the licences will come as a big disappointment, particularly since it only said in mid-August that efforts to bring Polish shale natural gas into production were going "very smoothly".

The last US major present in the country - ConocoPhillips - has a drilling program agreement with 3Legs that includes an option to end the contract once the latter's net share of expenses reached $19m. "This limit has now been reached," the UK company said in its statement.

Much has been made of the government's struggles to produce industry and tax regimes and the ill effects on investors. In July, it finally approved a draft bill as it pushes for increased drilling. Treasury Minister Wlodzimierz Karpinski pledged in late August that state companies will plough PLN5bn into exploration by 2016. 

However, the government's renewed efforts can do little to deal with the major stumbling block: while Polish shale gas reserves are significant - the most recent Polish estimates gauge them at up to 768bn cubic metres - difficult geology has helped stifle commercial flows in test drilling. 

Tamas Pletser of Erste Bank pointed out in February that Warsaw can offer whatever regulatory and tax temptations it likes, but can't overcome the fact that test drilling indicates many Polish shale gas deposits are commercially unviable. "What we really miss is the good results of the fracturing," the analyst said. "The companies cannot change Mother Nature."

3Legs said some of its wells, which were exploited using hydraulic fracturing, were yielding oil and gas, but not at a level necessary for commercial operations. "The prospects of a more successful outcome appear remote," it added.

"The company is not currently conducting any other operations elsewhere and, moreover, has committed to its shareholders not to pursue other activities outside Poland," it said in the statement. "It is therefore actively considering its options to maximize cash returns to shareholders in the most efficient, timely and cost-effective manner."

 

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