NGFE Reports: Lessons learned at Marcellus

North American experience gives Poland a head start

If potential shale gas development in Europe is ever to get off of the ground, players will have to navigate across a slightly different regulatory environment than the one experienced by those drilling for shale gas in North America.

Indeed, there is much speculation that “jumping through regulatory hoops” is likely to be much more challenging in Europe, due to stricter European Union environmental standards and possible resistance from the population.

With those issues in mind, the Global Shale Gas Summit 2010 in Warsaw, Poland began with a presentation by Tony Atherton, Vice President and Country Manager of Talisman Energy Poland on Regulatory Environments & Shale Gas Development: European Shale Gas From A North American Operator Perspective.

“This is just a warning that my presentation contains forward-looking statements,” quipped Mr. Atherton, who is responsible for Talisman’s operations in Poland.

He explained that Talisman, a global upstream enterprise headquartered in Canada, is pursuing three shale gas developments in the Gdansk region of Poland.

With locations in 14 countries, Talisman has a bit of reach, and expertise as a shale gas driller; Atherton reported that the company is spending US$ 1.5 billion on shale plays in North America this year.

“Shale gas is a good fit in our international portfolio,” explained Atherton. “Talisman identified Poland as country with access to a shale gas market. The basin here contains Silurian shale, similar to the Marcellus play in the US. The organic richness, etc. are all comparable to Marcellus. 2010 seismic data are being gathered and we’ll drill three wells here next year.”

To succeed, Atherton said Talisman needs to have the best rocks, execution and access to the best markets. “The North American shale gas business is growing,” he said. “The returns depend on the quality of the rocks.”

According to Atherton, in addition to the Marcellus shale in Pennsylvania and British Columbia, by adding Eagle Ford and others the company can ensure profitable, sustainable growth.

“Marcellus is the most mature of our shale plays,” he said, “and it will continue to be the focus for activities. It can be ramped up to 1 billion cubic feet per day and has a great deal of capital flexibility. We’ve brought on an additional 29 wells this year and are continuing to see cost efficiencies. The impact of all these changes has been dramatic, but there will be further improvements in our ‘lean’ journey.

Mr. Atherton also addressed regulation, speaking about how rules in North America might relate to the development of the emerging shale base in Poland.

“They are not alone in regulating,” he said of oil & gas regulators who can often be overwhelmed. “What we’ve found is that the regulatory regime provides certainty of tenure, of process (a predictable and stable government approval process) and of timing (a timely and predictable approval process).”

Atherton also spoke of the “one window” regulatory approach, which can be beneficial to facilitating the growth of shale drilling operations.

He explained “This ensures certainty of process – one department is given the responsibility to approve aspects over the lifetime of a project, but it requires that the regulator have expertise to be able to develop rules and guidelines; it also provides a single forum for public consultation.”

“This approach makes for a much more attractive destination for investment,” pointed out Atherton, who also talked about how lead regulators work together in British Columbia where there is a single window agency dealing with exploration, development, etc. This, he said, provides a one-stop regulatory agency, which can operate in parallel with other agencies.

Atherton said this approach was implemented via Canada’s Oil & Gas Commissions Act.

Meanwhile, Pennsylvania’s primary regulator is the Department of Environmental Protection (DEP), which deals with things like proper plugging of wells upon abandonment.

“DEP will in some cases take carriage to function as a single receipt point, collects required authorizations. It can coordinate well permit applications, contacts public resource administrators and includes their feedback in decisions.”

The merits of the single window approach are well worth considering as Poland’s shale gas development moves forward, said Atherton, who moved on to what could arguably be considered the biggest hurdles for shale gas production in Europe.

“First and foremost, the challenge is that shale be compatible with environmental stewardship. Given the large volumes of water, shale gas is gaining the attention of environmental groups. Effective water management is key. Large volumes of fresh water are needed. The focus is exacerbated because the plays are near populated areas. Movement to slickwater fracs has addressed environmental problems.”

He added that Talisman adheres to the highest environmental standards and is committed to them in the areas in where their shale gas operations exist.

Atherton said the availability of service companies and equipment is another challenge for those pursuing shale gas. “As activities in America increase, the stress on operations and on the service industry do likewise. If the access to services is not robust, costs remain high and shale gas developments are challenged. The regulatory regime needs to recognize that more than just a few service industry companies can participate.”

“The North American experience gives us a head start,” he said, “but a number of hot topics remain to be addressed such as the importance of disclosing frac fluid contents, and that drilling should not impact drinking water.”

Atherton said that positive economic benefits should be emphasized to communities near shale gas drilling operations.

He also outlined immediate regulatory tasks such as receiving water approvals, the ability to obtain an access order, and develop standard terms and conditions between industry and landowners. He said surface access may be a challenge unique to Poland, but that the future could otherwise be bright for the development of shale gas.

“Today we are looking at an energy revolution because if Poland is able to establish shale gas production it will change Europe, Poland and the Eastern Europe.

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