Hungary: Getting Deeper into Unconventional Gas
Victor Soreg, Director, Exploration Projects, MOL Group told delegates at the Tight and Shale Gas Summit in Budapest, Hungary that his company needed assistance from “massive stimulation” to reach the country’s unconventional gas assets.
According to him, there were similar advantages and disadvantages in Hungary similar to other countries for unconventionals. He explained that the Hungarian mining law handled unconventional resources and that the royalties were 12% for production of unconventional hydrocarbons.
Still, he was firm: “Despite the disadvantages, we have to do it. There’s no question.”
Soreg said MOL had also been looking for new possibilities in European countries and other places where the company had concession licenses.
He recalled a bit of the company’s drilling history: that MOL drilled its first exploratory well in 1921 in the western part of the country; its first discovery was in 1937. MOL eventually discovered 1400 reservoirs and drilled more than 8500 wells.
According to him, from the 1960s to early 90s was the company’s golden age of E&P.
He said it was a mature company regarding exploration. “We have strong local knowledge, and high data coverage,” he noted. “In the case of a new discovery we can reach the pipeline system within 25 kilometers.”
Mr. Soreg added: “We use the new dynamic model in exploration, not static models.”
“Combining all technology and methodology we have been able to attain a 73% success rate in the last five years,” he noted. “We need to spend more money for constantly decreasing resources. This is the typical curve in countries where they’ve reached mature exploration.”
Mr. Soreg said tight gas sands and shale gas were in focus in Hungary while he also listed coal bed methane.
“We can deal with the next main type of unconventional resources,” he said of MOL. “Tight gas we can find mainly in the sandstone reservoirs. Typically there is a huge amount of initial gas in place in terms of volume. For commercial and economical production hydraulic fracturing is required.”
He showed the Neogene sub basins of the Pannonian basin and said the thickness of the basin filling sediments could be more than 5000 meters. Mr. Soreg also mentioned the Mako and the Drava basins in Hungary
According to him, MOL had to build up its evaluations systems.
“We had very little experience regarding unconventional reservoirs. We went through the system and focused mainly on shale gas and tight gas. At the beginning of the program it was very important for us to enter into partnerships with companies that had experience.”
He recalled that the most promising basins were in the southwestern and southeastern parts of Hungary. “The two main formations contain mainly sandstones and seals, so it was good candidate for tight sands.”
MOL had identified source areas and possible migration zones, according to Soreg, who said that high temperature could cause a lot of problems and it was difficult to find technical equipment that could work in that range.
He showed MOL’s portfolio in the last five years, including exploration in the Derecske, Bekes, Mako and Drava-Zala basins.
“We have had partnerships in the Mako basin,” he explained of MOL’s joint venture with ExxonMobil and Falcon Oil and Gas, which ended in 2010.
“Unfortunately because of the results of the exploration activity the partnerships have terminated.”
Meanwhile, he said the Zala basin was complex and had several different targets like tight gas, shale gas, etc.
We began an in-house study in 2002 to explore the southeastern Hungarian sub basins; then in 2006 they went into the partnership with Exxon and Falcon. These basins had the biggest theoretical potential. The deepest part of the basin is below 6000 meters,” he explained.
Three Exploration wells were drilled, and two were fracced. The results were a bit unexpected, said Soreg. Now, the Bekes basin well was ready for fraccing.
“We’ve proved the presence of the gas and that it is of good quality. There has been no commercial test yet.”
Regarding the Drava/Zala basin, he said: “These have different conditions than the previous, but there are some similarities. We have been doing a technical study and encountered tight reservoirs with potential but we are at the very beginning of this story.”
Potential in the Derecske basin began when MOL drilled it’s first tight gas exploratory well. Mr. Soreg said four wells had been drilled. “We didn’t use any enhancement technology - we didn’t fracc them.”
In 2008, he explained, MOL had conducted a study, which confirmed the high hydrocarbon potential in the project area. “In the next month we will do the first fraccing job,” he added.
“The Derecske basin is totally covered by 3D,” he explained. “Technology can help us to build a very detailed model of this region. It’s a major gas producing region. The first important discovery was made in 1959. It has 58 BCM of gas.”
He said the first phase in Derecske had taken place from 2005-08. While “Well A” was non commercial, “Well B” had a good quality wet gas system.
Soreg explained, “This well can produce gas only periodically. The production rate is below sub commercial. After a shut down the pressure comes back only very slowly and we don’t have significant production.”
He continued, “We would like to use special perforating technology to enhance penetration, to reach higher daily production and expected recovery.”
MOL was now in the second phase of its exploration program, comprising 2009-12, so far drilling two other wells, according to him. Hydraulic fracturing was planned for 2011-12.
“This is the new opportunity and it’s a huge challenge,” Mr. Soreg summed up. “We need to get the know how. Our unconventional strategy has become an important part of the upstream strategy. We are present in Kazakhstan, India, etc. and are looking for opportunities in our operational regions.
He reported that MOL was waiting for the results of a well fracc in Derecske which would likely be available in November.
Additional perspective on Hungarian unconventionals was provided by Andras Jenei, Advisor to the Board at Falcon Oil & Gas.
He said that Falcon was involved in three operative areas: 1) in a joint venture with Serbian E&P Nis in the Mako basin in Hungary; 2) a JV with Hess Energy in the Beetaloo Basin in Australia; and 3) operations in the Karoo Basin in South Africa, where there was a drilling ban.
According to his slide, from 2010-2040 shale gas production would be six times what it was today in the United States.
“It’s really hard to predict,” he commented upon a false 2004 EIA forecast. “This shows how fast this shale gas development is going on.”
He said that there were three operators now involved with unconventional gas in Hungary: RAG with Cuadrilla Resources, MOL and Falcon.
Jenei reported there would be four wells in Hungary’s Mako trough. “It’s an active petroleum system caused by high temperature, high pressure. The deepest well is 6085 meters deep, the deepest ever in Hungary.”
Falcon, he said, had two gas production wells there and has been paying mining royalty for two years.
Mr. Jenei made some comparisons of the E&P environments in different countries in Central & Eastern Europe.
“In Poland, if you begin to ramp up your production, I don’t know where you’ll sell your gas, for lack of infrastructure.” he began, offering a contrast closer to home.
“Hungary has a very good connection to western Europe: there are interconnectors with Slovakia, Croatia; and when you consider that South Stream and Nabucco will go through Hungary, that could facilitate selling unconventional gas.”
Mr. Jenei opined that he didn’t think the population would be the bottleneck in Europe, but rather the infrastructure. He said that while Europe had three times more rigs than it did three years ago, it would not likely reach the 1,000 rigs operational at one time that the US had.
He also spoke about regulation of unconventional drilling in Europe.
“There is the possibility to make a common regulatory system. I don’t think the EU should make it too special,” he said. “Existing regulations are much more strict than in the States. We shouldn’t create barriers.”
Regarding allegations that hydraulic fracturing may cause earthquakes, Mr. Jenei said he had heard rumors about seismic events following fraccs in Hungary. Falcon, he explained, did seismic monitoring of all it’s fracturing, and never caused any of these events.
“It’s proactive to measure it. If the authority comes after an unlucky coincidence you can prove that in 99% of cases there is no connection.”
And, he said it was possible for drillers to contaminate aquifers if they did not do correct, effective casing and tubing. Old disposal wells could also be problematic if near a new drilling site according to the analysis “Fracs in the façade”.
“Hungary is very well interconnected now if there are the different interconnectors. But it will make it hard if the Russians play with gas price which kill any shale gas activity in Europe.”
He concluded, “If Poland develops unconventional gas, Hungary will follow.”