Polish Shales - Not All Acreage is Equal

With so much happening so fast in unconventional gas, sometimes a speaker just can’t make his or her presentation fresh enough. Such was the fate of James Elston of Palladian Energy Consultancy (and former CEO of Realm Energy International) who chaired Shale Gas Eastern Europe 2011 in Warsaw, Poland.

He explained: “I put together this presentation before seeing EIA report for shale outside North America, and would’ve included salient points from that. (Read More HERE)

“It should be of great interest to the delegates,” he said, offering up some tidbits from the report.

According to the report, said Elston, Poland’s resources were estimated at 187 trillion feet.

“It could really be beneficial to the country,” he commented.

If you look at a timeline for shale exploration in Europe, basically from 2006 onwards companies started quietly licensing territory,” explained Elston, who mentioned Exxon in Germany and 3Legs Resources/Lane Energy in Poland in the Baltic basin. Toreador, he said, was active in the Paris Basin in France, and in other places large acreage had been landed by companies like Realm, etc.

“There’s drilling in the UK and more drilling in Poland’s about to start,” he reported. “We’ll see how much de-risking has been achieved soon in the Baltic Basin.”

Elston showed a slide of the Polish shale basin acreage, explaining: “There’s been a tremendous amount of acreage licensed, five times the size of the Barnett in terms of acreage, and it covers much of Poland. ConocoPhillips and Lane have drilled several wells, BNK has drilled wells. There’s a tremendous amount of wells planned to be drilled, which would de-risk it. Given the size of the area, it needs tremendous investment.”

He said he would skip over to France, which was dominated by an oil resource play.

“There’s been quite a lot of discussion about that and it’s become a political football, and because there’s going to be an election politicians are trying to outdo each other. Once things return to normal, I don’t think the Paris Basin will be one of the regions to reject it,” he surmised. “The Government will issue an interim report and a final report in June and things look to cool down. There’s more flack than there is in Poland.”

Regarding the possibility of a shale revolution in Europe, Elston said that great acreage had been acquired here but that it had only been sparsely drilled.

“It’s high risk in Europe, oil and gas rights are owned by sovereign governments, as opposed to the landowners, who don’t own the mineral rights in Europe.”

Getting in early was important, he said, and land that started at $20-30-60 dollars per acre could climb to thousands of dollars per acre. Elston contended that Capex costs were being overestimated by most analysts.

“If the geology works, costs are being brought down offering the opportunity for there to be really great success at shale plays in Europe,” he said.

He said the process involved acquiring licenses, an early farm out, a later farm out, and “Proof of Concept” - drilling enough wells to give you an idea that a play could work on a larger scale.

“The primary land game is largely over,” Elston explained. “The acreage in Europe is now licensed up. If you’re looking at deal flow you must look at Poland where it’s racing forward. There will be a number of cash asset deals where companies are taken out by majors and national oil companies.”

Elston referred to a view he said he'd heard expressed by the head of Chesapeake when referring to the big five US shale gas plays: a rapid move to shale “haves” and “have nots.”  “You’re a have if you acquired the rights to explore and managed to sew those up before drilling took place, so if you’re a ‘have not’ it’s a game of moving swiftly and decisively,” he said.

“In Europe there isn’t necessarily the capital, so everyone’s farming out, from the supermajor and downward. So there’s a lot of acreage to farm into, but not all acreage is equal,” Elston contended.

“At Realm, we didn’t buy any acreage that we didn’t think we could sell the concept to others,” he explained.

Surface risks and limited data, he said, were also factors to consider. Higher costs in Europe may be vastly overblown.

“If in America it cost $2.5 million to complete a well in the Barnett, there were those who said it cost $15 million in Poland. Those costs are already being attacked and brought down. Gas prices here are higher here, so that helps.”

Elston named what he termed “game changer 2” for Europe: “Big Red” and “Big Blue.”

“Halliburton and Schlumberger,” he explained, “who have been all over resource plays in Europe from day one. They’re moving capital, building frack crews and providing explorers in Europe competitive frack rates.”

“We don’t have enough good rigs,” he commented, and added that there would be a tremendous amount of news in the next year.

“The future is bright, the deal flow is going to accelerate, but what kind of acreage do you have?”

Elston advised: “Watch out for drilling startups, which will be an enormous opportunity for professionals here who know how to make it work.”