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Partnerships critical to Polish shale success

Developing a successful unconventional gas industry in Poland can be achieved only with the help of experienced North American operators

San Leon Energy’s partnership with Talisman was critical to the success of its shale-gas exploration programme in Poland’s Baltic basin, according to John Buggenhagen, director of exploration. Talisman’s cash, which has funded 60% of San Leon’s seismic and drilling costs in the Baltic basin, and its technical expertise, have been crucial.

London-listed San Leon had “a very poor cash position”, Buggenhagen admitted, before the Canadian firm invested around $100 million in the company under their March-2010 joint-venture agreement. And Talisman has brought extensive experience of developing unconventional-gas resources in Canada and the US – San Leon has learned much from the partnership, he added.

But Poland is not North America and most operators recognise that shale-gas development in Europe will not happen overnight. Technical knowledge gained in North America is not always directly transferable because the geology of the shales in Europe are different.

The Baltic basin shales are often between 8,000 and 14,000 feet deep – almost double the depth of the US Marcellus Shale. Not only does that make drilling more technically difficult, but it is more expensive, too. A lack of geological data on Poland’s shale formations and an undeveloped services sector don’t help either.

“The investment world wants instant results, but that’s never been the way this business works,” Buggenhagen said. “We’ve always said we don’t want to be first. We want to use the combined knowledge of others.”

San Leon aims to spud its second shale-gas well any day now and Oisin Fanning, the company’s chairman said he is “more convinced than ever” that, despite the obstacles, it can make shale gas production commercially viable in Poland.

Major backer

3Legs Resources, meanwhile, which drilled Poland’s first horizontal shale-gas well in June, has the backing of US supermajor ConocoPhillips. The Aim-listed company, which has six licence areas in Baltic basin areas around Gdansk, said initial results from test wells on the Lebork licence, were positive and that it encountered “high gas saturations” throughout the area.

In September, 3Legs became the first company in Poland to flare gas, from its Lebien well in Pomorze. The first test results of the company’s multi-stage fracking programmes on two wells are expected by year-end.

A recent report by consultancy Netherland, Sewell & Associates gave 3Legs a further boost, estimating total gas in place for the company’s six Baltic licenses at 170 trillion cf (50 trillion cf net to the company). 3Legs said it has insufficient geological data to forecast how much gas is recoverable, but even if the figure was only 10% it would be a significant amount of the 187 trillion cf of shale gas that the US government claims could be extracted from Polish shales.

Kamlesh Parmar, 3Legs’ country manager in Poland, said he is upbeat about the company’s prospects. “It goes without saying that ConocoPhillips’s experience has helped a lot. We have the benefit of their know-how and capital investment,” Parmar said.

Going it alone

Companies operating alone in Poland have been less successful. London-based Aurelian Oil and Gas, which is assessing tight-gas prospects at the Siekierki field in northern Poland, recently admitted disappointing results from test wells. Flow tests from one South Permian basin well showed gas recovery at a much lower rate than expected. Initial data suggests recovery at the Trzek-3 well could be as little as 4 billion to 8 billion cf, rather than previously estimated 10 billion to 20 billion cf. Aurelian said the well is also producing higher levels of water than expected, but, as yet, doesn’t know why.

Chief executive Rowen Banbridge conceded that having a larger partner with more technical expertise would have been helpful. “We’re very disappointed with the results,” he said. “Once we find out how to recover more gas we’ll think about bringing a partner in. The project is bigger than we thought and we would benefit from a bigger company, with more technical skills.”

The Siekierki project is in the company’s two Poznan licences, which are wholly owned by Energia Zachod. Aurelian has a 90% stake in Energia Zachod alongside Avobone NV, which holds the remaining 10%.

But Banbridge insisted that it’s early days for the project and that there could be 1.6 trillion cf of gas in place. He added that the company has drilled wells on only 2.5 square km of a possible 150 square km within the licence.

And Aurelian is hedging its bets by developing conventional assets as well. “We didn’t get it right the first time, but that’s why they’re called unconventional,” Banbridge explained. “Fortunately we’re not a one-trick pony. We’ve got a busy conventional portfolio as well.”

Aurelian has 28 exploration licences across Poland, Slovakia, Romania and Bulgaria for conventional and unconventional exploration. The company is conducting a three-month assessment to decide which assets to focus on next.

High price of partnership

While San Leon’s and 3Legs’ relative success and confidence may be down to their partnership with North American operators, both have had to pay a high price for financial and technical support, however.

ConocoPhillips has provided 3Legs with funding for seismic work and the drilling of three wells in Poland, but in return secured a 70% stake in the Baltic concessions. 3Legs operates the project, but as part of the deal, ConocoPhillips can operate if it chooses. It has until March next year to stake its claim.

San Leon’s Buggenhagen, meanwhile, admitted that farm-in deals offer the lowest return financially, but, he said, it’s the price you have to pay to gain technical know-how and minimise risk. “Talisman’s experience is key for our success,” Buggenhagen said. “We’re very proud of Talisman and we have a successful partnership, but we also lost control of the play.”

Despite this, he added that San Leon will be looking for more joint-venture partners to help the firm develop acreage outside Poland. San Leon recently announced a deal to buy Realm Energy, which will provide access to prospective shale-gas acreage in Spain. Realm has been working with Halliburton to evaluate shale plays in various Spanish basins for around two years and holds two shale-exploration permits, covering around 200,000 acres in the northern Cantabrian basin.

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