Polish shale gas hunt pushes PGNiG to accelerate IPO of exploration unit

By bne IntelliNews February 6, 2013

bne -

Charged with leading Poland's push to pour billions into developing its shale gas deposits, gas monopoly PGNiG confirmed on February 5 that it plans to float exploration unit PGNiG Poszukiwania on the Warsaw bourse by the middle of the year.

"The company has to be ready for an IPO by the end of the first half of the year," CEO Grazyna Piotrowska-Oliwa told reporters, according to the daily Parkiet. "I hope the market conditions will be good enough for a share issue."

Polish press reports in January said PGNiG had launched the process of selecting financial and legal advisors to help PGNiG Poszukiwania raise capital.

Not long after the subsidiary was formed in June, PGNiG said last year that it plans to float it in order to raise investment funds, in a sale that will feature both existing and newly issued shares. Given its mandate from Warsaw, the state-controlled gas giant will clearly maintain control over the unit. PGNiG Vice President Radoslaw Dudzinski told PAP last year that the exploration arm has capital needs of up to PLN1.2bn to fund its hunt for the unconventional energy. The company is reportedly now probing the market in a bid to sell licences in Pakistan, Egypt and Libya to raise some of the funds it needs for the hunt.

Poland has been pushing the prospects of its shale gas deposits for the past couple of years, in a bid to reduce its heavy reliance on gas imported from Russia. The US Energy Information Administration (EIA) estimated in 2010 that the country has as much as 5.3 trillion cubic metres (cm) in recoverable reserves. That saw over 100 licences issued, many to US companies hoping to repeat the same trick in Europe that has proved a game changer in their domestic market.

However, last year a Polish survey reduced estimated reserves to 786bn cm. While that may not be enough to change the European gas map, it would still cover Polish demand for decades. However, matched with disappointing initial drilling results, the enthusiasm of foreign investors waned throughout 2012, with sentiment reaching a recent nadir when Exxon Mobil announced it was quitting the country.

That has seen Warsaw turn to its state-controlled companies. PGNiG committed to drill at least 10 new test wells in 2013, while it is to be joined by a host of state-controlled utility companies, oil refiners and even copper miner KGHM, a major consumer in its shale gas hunt. The government says it expects up to 270 wells to be drilled by the end of the decade.

However, PGNiG is also leading criticism of the tax plans for shale gas producers announced by the government late last year. Despite suggestions from analysts that the regime looks relatively benign for investors, PGNiG complains that it would force the closure of some of its conventional gasfields.

Grazyna Piotrowska-Oliwa said in December that PGNiG will use "every single zloty" it has in its investment drive. That leaves it heavily exposed to policy changes in Warsaw, a risk that saw Standard & Poor's move its rating outlook to negative, and Moody's Investors Service to downgrade it a notch. The latter referred to changes in PGNiGs risk profile, "resulting from higher spending on upstream operations an unregulated segment which may be additionally subject to planned taxation of oil and gas in Poland."

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