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3Legs hobbled by poor Polish shale tests

Rapid decline in flow rate at well in Damnica licence area

3Legs Resources’ shares took a hit on disappointing results from hydraulic fracturing (fracking) operations at its Damnica licence area in Poland, despite its insistence that the well could still prove viable.

The UK-based shale-gas explorer is shutting in the Warblino LE-1H2 horizontal well following a rapid decline in flow rate. Gas flowed at an initial rate of 60 million to 90 million cubic feet a day (cf/d), but declined after five days of testing to around 18 million cf/d.

3Legs will now monitor the well, in northern Poland’s Baltic basin play, over the winter, with a view to testing again in spring next year. It hopes a shut-in lasting a few months will help the well recover from the fracture stimulation and enable any fracture fluid that could be obstructing the flow of gas to dissipate.

Through its local subsidiary Lane Energy, 3Legs has been a shale-gas pioneer in Poland, drilling another well close to Warblino earlier this year. The Lebien LE-2h well was shut down in September for further analysis, with gas was flowing at 500 million cf/d. The company had problems recovering fracking fluid from that well.

“Although flow rates have been low, we expect to further improve well productivity, as is often the case in US shale plays at this stage of appraisal,” said company chief executive Peter Clutterbuck.

Investors wary

But that did little to reassure investors on London’s Alternative Investment Market (AIM), where 3Legs was listed in June this year through an initial public offering (IPO) that raised around £60 million ($94.6 million). The firm’s shares dropped by more than a third on 16 November, on news of the latest shut-in. At the time of the IPO, Clutterbuck said the firm would be able to show its Polish wells were viable within two years.

3Legs said it will complete detailed analysis of data collected from its six Baltic basin licences in the first quarter of next year, and will then determine a short-term exploration plan with its partner ConocoPhillips.

Under the firms’ agreement, ConocoPhillips has agreed to fund seismic surveys and three wells, in exchange for a right to take a 70% stake in the concessions. If ConocoPhillips wants to exercise that right it must do so by March 2012. The US firm has so far invested £45 million in the project.

A report this month by Bernstein Research suggested that Polish shales might not prove as productive as those in the US, describing the formations as “over-pressured and hard-to-develop”. The report said exploitation would also suffer because of Poland’s relative lack of water resources compared with the US, its greater reliance on agriculture, higher population density and lower availability of drilling rigs.

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