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PKN Orlen spends big on shale

PKN Orlen set to spend Zl500 million ($159 million) by the end of 2013

Poland’s PKN Orlen will spend Zl500 million ($159 million) drilling six shale-gas wells by the end of 2013. The country’s largest oil refiner began drilling its first test well on 24 October, based on encouraging results from geological surveys. The well, in Syczyn, near Lublin, eastern Poland, is the first of the two PKN plans to drill in the region by the end of the year.

Once the well reaches 3,000 metres, PKN will run a series of tests and will decide whether to continue work in the area based on the results of those. If they are encouraging, it will drill horizontal wells within the Wierzbica and Lubartów licence areas in mid-2012.

Unconventional gas production requires “immense amounts of money”, said Jacek Krawiec, PKN’s president, because of the technological challenges associated with drilling to such great depths. But, he added: “We are in the fortunate position that the test ground for shale gas production is across the Atlantic, where shale gas has been produced on an industrial scale for as long as 10 years. Ten years is a lot for technology – we will use only the best, proved and safe technologies.”

PKN holds eight licences for exploration of conventional and shale oil and natural gas in Poland, six of which are in the Lublin region. The US Energy Information Administration estimates there could be 222 trillion cubic feet (cf) of shale gas in the Lublin basin alone.

PKN is also venturing into international shale-gas exploration: in December last year, it signed a memorandum of understanding with the Ukrainian government; and in September, began talks with Encana over a shale-gas asset swap. PKN is reportedly looking for a stake in the Canadian firm's US shale-gas assets, in return for access to shale concessions in Poland.

EnCana has extensive shale assets across North America, including in the Haynesville, Fort Worth and Greater Sierra plays. PKN is looking for partners to jointly develop its domestic shale-gas assets and a partnership with an experienced North American player would be ideal. In May, it reportedly offered potential partners 20-30% stakes in its domestic concessions.

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