San Leon Energy: Patience, Please, in Poland

Shale gas exploration is risky, according to San Leon Energy’s Director of Exploration John Buggenhagen, who spoke about assessing the prospects for shale development in Poland at Shale Gas World Europe 2011.

“If you came for answers,” he quipped, “you’re going to leave disappointed, because you’re going to leave with more questions. We are in a very early phase of the exploration here in Poland.”

Mr. Buggenhagen said he was a bit irritated with press reports that had written off Poland’s shale gas prospects. “They create fear and panic in the marketplace and that takes away everything we are trying to do in the industry.”

As an example, he showed a quote from the Economist which wrote that the geology was “less favorable” in Poland than in North America.

“Right now we’re in a flux of regulatory, economic, political and investment issues surrounding shale gas. If you read what’s going on in the investment world, because we’re a public company I have to take all this into a balance. And I can’t say it more clearly: Exploration is risky. We just started doing this.”

He continued: “I think everyone needs to ask themselves, how we’re going to get from here to commercial gas production that’s going to change the energy environment in Europe, and here in Poland locally.”

Mr. Buggenhagen explained that San Leon was a small, listed company that had built a tremendous asset base through acquisitions of companies, taking advantage of the tough market conditions. “Through takeovers of two Canadian companies and an Irish one, we’ve amassed one of the largest shale gas portfolios in Europe, and that’s significant because it’s how we’ve gone about doing this that is the first step in where shale gas is going in Poland.”

He said San Leon’s core portfolio started in Poland, that he himself had been looking into opportunities for five years and the key to that was being on the ground. 

“Recent acquisitions of Realm Energy have increased our portfolio. We also have almost 2.5 million acres under application in Spain for unconventional gas; we also have significant applications in France; and we are looking at other countries as well including Morocco, where we have a tremendous shale gas position, again limited by some of the political issues.”

When one looked at the resource estimates, according to him, one saw tremendous numbers. “Just net to my company in Poland, we have the potential for more than 40 TCF of recoverable gas – those numbers are scalable throughout our portfolio. This is not just a well or a small field. This is a game changer, for everyone that’s involved here in Poland.”

He showed delegates San Leon’s vast, significant and well diversified positions in Poland, the company’s 14 concessions, spread throughout Poland.

“Where’s the sweet spot, the production center that’s going to fuel the growth that’s going to start this industry up? So we spread our blocks around the basin based on various geologic parameters.”

He reported that in southwest Poland San Leon had 1 million acres of contiguous position in the Permian basin. “We are leading the exploration effort there – actually drilling the first well targeting unconventional gas in the carboniferous section in Poland and hope to be reporting results in the coming months.”

“A quote I like that I heard very recently is ‘Every well that’s drilled in Poland is redefining the stratigraphy, the geology of the Baltic basin and the potential of Poland in general. Modern core, modern logs, modern drilling techniques – this is all new to Poland in terms of exploring for shale.”

Buggenhagen contended the results that San Leon and others were seeing in Poland were very different results from the model. “That’s neither good nor bad, we’re just having to re think the model that started this shale gas boom here in Poland.”

He mentioned that San Leon had become the largest net acreage holder for unconventional gas in Poland, in the Podlasie, Baltic and Carboniferous basins.

“We’re a small company, we use every penny that we have wisely. And we’re very aggressive – that’s a very delicate balance to maintain,” he said.

He noted that fewer than 15 wells had been drilled in Poland and said: “We know there’s shales in these rocks, but can we get the gas out of the ground?”

“After two wells, people have written off the basin,” he explained. The people in this room have invested so much as to not even consider that possibility.”

Providing the US’s Barnett shale and its progression over time as an example, Buggenhagen said, “I think we’re back in 1997, maybe even before that, in Poland, we’ve just started. Here we don’t have the benefit of the conventional production that preceded the unconventional in the Barnett.”

“It took George Mitchell 20 years,” he recalled. “The Bakken was a drilling hazard, people thought it was a crazy idea and now it’s producing.”

Despite an earlier protest before the start of the conference, he noted that Poland was very pro shale gas. “They understand that indigenous energy is better than imports; I can’t think of a dirtier energy resource than coal,” he commented.

He described what he said was “information chaos” surrounding– everyone’s looking at where the investment for the future was going to come from. “It’s important for us to be very open with the public, with the regulators and influence things to make for a positive industry.”

Referring to the demonstration, he said “What happened today is a tool for sorting out the balance, and keeping the industry honest.”

“It’s not going to happen overnight, it’s going to take time,” said Mr. Buggenhagen, who summed up of Poland’s nascent unconventional gas industry. “Look at the history of Poland - 23 years later the country has come very far in a short time, but we have a long way to go as an industry, as operators, contractors and regulators. As an industry it’s incumbent upon all of us in this room to get together to figure out how we can solve these issues.

“It will change the economy and energy balance of Europe and here locally it will change Poland and how it fits into the European Union going forward.”