Contents
Contents 82 xx p / 1 0 opinion p / 1 2 news p / 1 6 results p / 2 4 Investor’s corner p / 2 6 who’s who p / 5 8 profiles p / 6 2 business p / 8 2 faces p / 9 4 policy p / 1 0 4 environment p / 1 0 8 legal p / 1 1 4 geology p / 1 2 0 education p / 1 2 6 jobs p / 1 2 8 events p / 1 3 1 BmP’s The FACES of Poland’s shale revolution
on the cover: Early results were dismal, but we’re still bullish on shale More on page 16 Photography by iStockphoto
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Contents 58 p/10 Leader: Local communities count p/12
Whats making the news?
p/16
Well results to date
p/2 4
De-risking Polish Shale
p/2 6
WHO’S WHO
in concessions
p / 4 9
WHO’S WHO in services
p / 5 6 By the numbers p/58
CR Profile: Patrycja Kujawa
p/62
The farm-in game
p/6 4 New Entrants p/66 Patrycja Kujawa, LNG Energy
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Open hole completions
Ta b l e o f C o n t e n t s
76
p/82
F A C ES , a pictorial
p/94
Brussels, at odds p/96 Royalty rate, rising? p/98
Security concerns
p / 1 0 1
Minister Pawlak
He was driving his Harley when he got the call
p/10 4
Community protests
16
p/108
Top 10 Energy Lawyers p/114
Fracking & seismic events
p/116
There will be less gas
p / 1 2 0 Mapping the Baltic Basin p/12 4
Turn to p 16 for the results from the first dozen wells
p/70
PGNiG 2.0
Picking brains
p / 7 5
p/132
Silurian private placement
BMPS
p/76
p/141
Bill Marble’s shale secrets
BMPS (In Polish)
p / 8 0 Romania shale gas
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Shale Gas
PUBLISHER’S LETTER
investment / Guide
Poland
editor
Wojciech Kos´c´
Publisher Parker Snyder
WRITERS Jo Harper, Mirona Hritcu, Wojciech Kos´C, Sonja van Renssen
Analysts Tobiasz Adamczewski Parker Snyder
PHOTO editor Szymon Szczes´niak
PHOTOGRAPHY March 7, 2012 Dear Colleague, Today I met with Karol Kolouszek, whose construction company NTS has entered the market to build well pads to suit. Mr. Kolouszek is not the only one positioning a company for upstream unconventionals. Viking entered the market on the back of a government-sponsored 2D seismic program. MND Drilling, a Czech company, has secured their fourth drilling contract in Poland. LST Capital, a fund, will open a ceramic proppant factory, perhaps as early as 2013. The market is competitive, and the well count is increasing, but not all is roses in Polish shale. The first well results were moderate to poor. BNK screened out. Lane failed to flow gas at commercial quantities. San Leon drilled a few dry holes until their Rogity-1 well confirmed liquid rich hydrocarbon shows of 500 meters. The markets have reacted, poorly. All five of the independents are trading at 50-75% off their peak price in 2011. Community relations has a long way to go, especially after Chevron walked out of a meeting in ˚urawlów, scared off by a few protestors. (See leader, p. 10.) For an example of CR done right, check out our profile of Patrycja Kujawa, whose company LNG Energy sponsored the opening of a cultural center in the gmina of Jadów, a place they may not even drill. Kind Regards, Parker Snyder Publisher
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Wojciech Drewka/ExpressKaszubski.pl, Łukasz Ostalski/REPORTER, Michał Niwinski & Bogdan Nieznany 1LOT.PL, Mateusz s´wider Szymon Szczes´niak
Published by Cleantech Poland LLC Ul Pustelnicka 48/22 04-138 Warsaw, Poland
Editorial contact Wojciech@CleantechPoland.com
Advertising contact Parker@CleantechPoland.com
(+48) 517 469 881
General requests info@CleantechPoland.com
ART DIRECTION AgatKa Kubien Paige Weir
printeR Drukarnia Beltrani printed in 3 000 copies
Cleantech Poland (CTP) is media and consultancy for sustainable business. CTP connects capital to technology in Poland’s conversion to a low carbon economy. The Shale Gas Investment Guide covers the development of Poland’s shale basins. Ul Pustelnicka 48/22 04-138 Warsaw. info@cleantechpoland.com DMS Law Firm – DeBenedetti Majewski SzczeÊniak is a law firm specializing in oil & gas, commercial law, securities and banking. Recently joined by Christian Schnell and his renewable energy team. Saski Crescent, ul. Królewska 16, 6th floor, 00-103 Warsaw, www.dms.net.pl The American Chamber of Commerce (AmCham) is a business organization that serves and promotes its member companies. AmCham fosters positive relationships with the government and promotes the free market spirit for the benefit of business. Ul. Emilii Plater 53, 00-113 Warsaw. www.amcham.com.pl PACWEST is a boutique consulting firm out of Austin Texas, providing market analysis and market entry services. PACWEST has teamed up with Cleantech Poland to provide North American firms with a package of market entry services, including market/risk analysis, partner/JV identification and networking/introduction to the Polish shale markets. www.pacwestcp.com PwC provides cleantech companies with services in assurance, advisory and tax & legal. A global services company, PwC has been in Poland for 20 years. Locally, there are 46 partners and more than half of employees are female. Al. Armii Ludowej 14, 00-638, Warsaw. www.pwc.pl
www.cleantechpoland.com | 9
pa r t n e r s pa g e
“We are happy to welcome DMS law firm as our partner, who recently picked up a renewable energy practice. Combined with their oil & gas business, DMS is an independent with a powerful combo.” - Parker Snyder, Cleantech Poland
leader
Local Communities
Count Environmental issues are no longer only the domain of polarizing radicals. An environmental consciousness has become a staple in many rural Polish communities. Oil and gas companies better come to terms with that. By Wojciech Kosc The times, they are a-changing. Or they have changed. Many of the drillers who are prodding the Polish soil looking for shale gas would have been much better off if the shale fever gripped Poland in early 1990s.
tough questions. In 2011, Geofizyka Toruƒ had to fix what some called flawed agreements after local protesters tried to stop seismic trucks from entering their land.
In those (some would say golden) days of laissez-faire business, when fortunes came from from selling shoes off roll-away cots and unemployment reached 20 percent, rigs would be a welcome sight pretty much anywhere. Jobs was a word that worked miracles.
Communities are completely right to demand extra effort before their roads are trampled upon by seismic trucks and their landscapes are altered by drilling rigs. It’s not cheap environmentalism either, because wind farms - the symbol of clean energy - have to answer to similar demands.
Jobs are still high on the agenda today, but they have made room for competing values. In Poland, where all that’s underground is state-owned, including mineral resources like sand or stone, state enterprises and big business cannot have things the way they want.
Local communities, sometimes in accord with authorities, sometimes against them, are learning that environmental issues are no longer the domain of Greenpeace radicals chaining themselves to trees. These issues have become the staple of daily lives: it’s how you manage waste, save energy and treat water that has enormous influence on quality of life.
After little more than a year or two on the ground, operators and service companies in the upstream exploration value chain are learning a lesson that in today’s Poland, wealth has risen to a level at which people recognize priorities other than financial rewards. Shale gas’ potential to increase incomes can only be a part of the package they sell to communities. As living standards increase, invariably difficult questions are more likely to arise, something that not everyone has taken into account. Chevron representatives reportedly walked out of a local meeting upon seeing that the locals brought the media along with a few protesters to ask some
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It doesn’t work to go about business while disregarding community concerns. Therefore, a few lessons learned: don’t walk out of meetings; don’t lure landowners into signing discriminatory agreements; and don’t play the patriotic national energy security card too often. Most Poles care more about their backyard than a distant Russia. Addressing potential benefits, and being transparent to risk factors, will work better by putting everyone on the same page, even if the result would be one less fracking program.
opinion
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Making the news Some of our favorite stories from H1 2012
January 4, 2012 Cuadrilla’s farm-in attempt falls through Cuadrilla said in January it had been talking to DPV about joint operations on the latter’s concessions and/or other forms of cooperation but had failed to reach a final agreement and that the project had been dropped. DPV is a company registered in Poland controlled by Russian investors. The company was previously owned by Emfesz, a Hungarian company, who recently have sold their control package to a Russian investor. They hold 16 concessions in Poland, some for conventional oil and gas while others for shale/tight gas. “Right now we are preparing ourselves to execute seismic works on our two existing concessions and have submitted the prepared environmental protection report for our third (on-going process) concession. In the meantime we will be preparing the first location for a test well, with an expected time of spud date the end of 2012 or beginning 2013,” Marek Madeja, head of Cuadrilla in Poland told Cleantech Poland. Madeja said the delays were to do with meeting Natura 2000 stipulations. “We were requested to do a very thorough study,” he said. Cuadrilla has its our own equipment - drilling and hydraulic fracturing - but said it is still uncertain whether it would be taking it to Poland or employing local contractors.
January 13, 2012 Dart Energy spins off European shale subsidiary Australia-based Dart Energy has formed a new subsidiary, Dart Energy International Shale, which the company said would manage its growing European shale gas business. Dart has a large portfolio of unconventional assets, owned and under option, in the UK, Poland and Germany, including two permits with shale gas potential of 12 Tcf (28 billion cubic meters) and 15 shale gas exploration licenses. Dart executive chairman Nick Davies, said that the company had been looking to expand into shale gas for some time. “We have now assembled an initial shale gas portfolio that, although highly prospective, requires relatively low capital commitment over the next two to three years, and is well suited to Dart’s experience and capabilities,” he said, as reported on the company website.
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January 19, 2012 After shale gas, shale oil? A report by geologists claims that deposits of shale oil are present in several regions across Poland, the largest ones located in the vicinities of Warsaw, Radom and Elblàg. Several international companies already have concessions in the regions highlighted in the initial report. In particular, shale gas exploration concessions of Petrolinvest, ExxonMobil and PGNiG offer good prospects for shale oil extraction. “We hope that these studies are confirmed in the course of further work, thus enabling us to extract oil from shale in the future,” Joanna Zakrzewska, a spokesperson for Polish oil and gas company PGNiG told Dziennik Gazeta Prawna. Estimates regarding the extent of the resources are due to be announced in March. The companies may expect the value of their acreage to rise significantly, if shale oil deposits are confirmed alongside shale gas ones. If its production proves commercially viable, shale oil could help limit Poland’s oil imports. Meanwhile, the leader in shale explorations, United States already plans to reduce oil imports considerably by 2020 thanks to shale oil exploration.
Oil production from major US shale basins Woodford Marcellus 300
Eagle Ford
250
Barnett Bakken (North Dakota)
200 150 100 50 0
2005
Source: HPDI.com
2006
2007
2008
2009
2010
news
December 15, 2011 Ceramic proppant plant underway LST Capital announced that it will work with two of its subsidiaries, LZMO and SOL Ventures, to develop a ceramic proppant production plant and then divest it to a shale gas operator. Ceramic proppant could be used instead of sand in hydraulic fracturing. The first stage of the investment will be to develop a ceramic proppant production plant, which would produce 40,000 tons of ceramic proppant per year in 2014, the first year of operations. LST Capital aims, however, to increase production to 200,000 tons annually by 2020. SOL Ventures will be the project leader, tasked with developing ceramic proppant production, patenting the technology worldwide, and applying for EU financing of PLN 20 million (¤4.38 million) or two thirds of the project’s investment value. SOL Ventures, originally a solar company, will eventually change its name to Ceramics Ventures. LZMO will bring in just over 23 hectares of land rich in kaolinites, necessary for production of the proppant. The production plant will be located in the powiat (county) of ˚ary, western Poland.
January 10, 2012 Aurelian and CIOC enter shale gas game British oil and gas company Aurelian received its first shale gas exploration concession in Poland, in the Wrocław province, south western Poland. Aurelian, so far, has been involved in exploring for tight gas only in Poland. The company’s shale gas concession covers the area of 728 sqm and is located nearby to acreage of another oil and gas company looking for shale gas, San Leon Energy. Aurelian undertook to collect seismic data on the concession in the next three years. The company also informed that it would seek a partner for its explorations in the area. Meanwhile, Canadian International Oil Corp (CIOC) filed two applications for exploration concessions in Poland, near the towns of Ostrowiec Âwi´tokrzyski and Skar˝ysko Kamienna, in the Kielce province, as part of its wider European concession strategy. CIOC joins the large group of mostly international firms
active in exploring for shale gas in Poland. The list includes PGNiG, Lotos Petrobaltic, 3Legs Resources, Mazovia Energy Resources, Pro Energis, Petrolinvest, Baltic Energy Resources, BNK Petroleum and Cuadrilla Polska.
January 10, 2012 Corruption suspected in shale gas concession process Poland’s Internal Security Agency (ABW) detained seven people in connection to a corruption case in the process of granting exploratory concessions for shale gas in Poland. Among the detainees was the CEO of Silurian, a shale gas subsidiary of the Petrolinvest Group. According to the ABW, other detainees were three officials from the ministry of environment and an employee of the State Geological Institute (PGI). The ABW also said that the three environment ministry officials were employed at the ministry’s department of geology and geological concessions. The agency did not provide further details. Two days later, the public prosecutor’s office in Warsaw moved on to arrest six detainees, except for the PGI employee. The court, however, dismissed the move, ordering that the detainees be released on bail instead. Silurian owns nine concessions for shale gas in Poland. According to a statement by Petrolinvest, Silurian will “cooperate to clear any issues connected with the investigation.” “While we are not determining anyone’s guilt, we are working to make sure that in any case the management of our subsidiaries will work as usual,” Petrolinvest’s CEO Bertrand Le Guern wrote in the statement. Mr. Le Guern also wrote that even in the case that anyone is found guilty at Silurian, the process of concessions’ development would not “slow down.”
BUSINESS INTELLIGENCE REPORT www.cleantechpoland.com/newsletter/ Do you have news to report? Write to the Editor Wojciech@CleantechPoland.com or call (+48) 602 458 099
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December 10, 2011 Schlumberger readying take overs in Poland
January 25, 2012 Polish report to give lower shale gas estimate
Schlumberger, the listed oilfield services company supplier for the oil and gas sector, is seeking buys in Poland’s shale gas sector over the next two years, Kyel Hodenfield, vice president of unconventional resources at Schlumberger, told Cleantech Poland. “We are actively looking at possible JV partners and companies developing innovative technology in Poland in which we would make equity investments,” Mr. Hodenfield said. In some cases Schlumberger has already got as far as talking with potential acquisition targets and talks with one are very close to completion, he said. The company is looking specifically at the manufacturers of sensors, power supply and distribution solutions. “We think that shale gas production can start within the next five years in Poland and we are now working on building a solid base here,” Mr Hodenfield said.
Polish Geological Institute (PGI) announced that the official report estimating shale gas reserves in Poland will be made public in March. The report will adopt new methodology, which is expected to yield smaller estimates than in the reports published so far. The new approach will use the history of mining activity in shale plays similar to the Polish ones. Previous reports were based upon characteristics and volume of shale rock. The PGI report will be the first official recoverable shale gas estimate done by a Polish institution. So far, the potential of the shale gas market in Poland has been measured by US estimates. In 2009 Polish shale gas deposits were evaluated by consulting companies Wood Mackenzie, which released an estimate 1.4 trillion cubic meters, and Advanced Resources International that came up with a 3 trillion cubic meters estimate. The market, however, has largely lived by US’ Energy Information Agency’s report, which put the figure at 5.3 trillion cubic meters of recoverable shale gas. If the EIA’s report proved correct, Poland would have a 300-year supply of gas at current demand rates.
January 16, 2012 Chevron fails to overcome local concerns Representatives of US oil and gas major Chevron walked out of a meeting with local community of ˚urawlów, south-east Poland, reportedly to avoid questions about ecological impact of shale gas exploration in the area. The company said that it had expected only local residents to turn up. “Unfortunately, a direct dialog with residents of the [˚urawlów] community was made impossible by organized protests groups and people from outside of ˚urawlów,” Chevron claimed in a statement sent to the media. This was the second time Chevron faced questions from locals concerned about possible ecological damage from shale gas operations. Over 500 people have already signed a petition against the company’s plans. Chevron had previously tried to look for shale gas in the vicinity of the nearby village of Rogów, but, again, the company could not secure local support. The local residents were mostly concerned about the impact that hydraulic fracturing, or fracking, may have on water resources, how the water would be sourced and treated, procedures in case of accidents, as well as potential financial gain to the community if shale gas production would begin.
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January 17, 2012 Bulgaria bans hydraulic fracturing The Bulgarian government cancelled Chevron’s permit for the exploration of shale gas, citing lack of data to ensure the environmental safety of fracking. The decision followed protests in several Bulgarian cities, where participants called for a ban on hydraulic fracturing on the grounds that it would pollute underground water reservoirs. The government’s decision preceded by a day a resolution of the Bulgarian parliament, according to which shale gas exploration could be allowed if a technology other than hydraulic fracturing was used. The government’s decision and parliamentary resolution signal a U-turn on Bulgaria’s previous position on shale gas exploration, which, until now, has been considered a means to diversify energy sources. Bulgaria relies 100 percent on gas imports from Russia. After bans on fracking in Bulgaria and earlier in France, Poland remains the only member of the European Union where the government is consistently backing shale gas exploration. Reacting to the Bulgarian decision, Polish president Bronisław Komorowski said that “shale gas is a great opportunity for Poland” and that Poland would continue looking for “allies to fight with those who - for various reasons - would like to limit that opportunity”.
news
January 20, 2012 Lotos starts shale gas campaign in Lithuania
February 10, 2012 San Leon and Talisman hit gas in Poland
The Lithuanian oil and gas company Nafta Minijos will spend €2.8 million in 2012 for the search of shale gas in Lithuania, Lietuvos Rytas daily reported on January 20. Nafta Minijos is owned in 50 percent by Geonafta, which in turn is controlled by Polish oil and gas group Lotos. Lithuania is still to grant first shale gas concessions, but Nafta Minijos hopes that the concession process will be swift enough for the company to start drilling still in 2012. According to a research from the US Energy Information Administration, shale gas may be found in rock formations 1.5 to 2 kilometers deep, located in south-western Lithuania and stretching westwards to Poland and the Kaliningrad region of Russia. There are an estimated 113 billion cubic meters of shale gas in Lithuania that could cover the country’s energy needs for 30 to 50 years.
Talisman Energy and San Leon announced a successful completion of a shale gas exploratory well Rogity-1 on the Braniewo S concession. “During drilling continuous gas shows were encountered over more than 500 meters of the Lower Silurian, Ordovician, and Middle Cambrian sections. The rich gas shows consisted of heavy hydrocarbons, including C1nC8,” San Leon wrote in a statement for London’s AIM stock exchange market. San Leon CEO Oising Fanning said that systematic efforts to evaluate unconventional gas resources in Poland was “paying off”. The Rogity gas find comes after an earlier gas discovery in Lewino, Gdaƒsk W concession, in 2011. The Rogity-1 well was completed and cased for future operations, which could include pressure testing of the formations and a possible vertical frac across several intervals, San Leon said. The company also informed that future operations in the Braniewo S concession are expected January 4, 2012 PGNiG signs with G.EN for local to include a long offset horizontal well as well as a multiuse of shale gas stage frac. Talisman Energy now plans to move the rig to Szczawno concession to drill the Szymkowo-1 well. PGNiG, which announced promising test well results on the Lubocino well in 2011, is now teaming up with Germany company G.EN to sell the gas from Lubocino to the local market. G.EN, a subsidiary of Verbundnetz Gas (VNG) is local gas distribution and retail company, with infrastructure in the vicinity of seaside towns of Puck and Władysławowo, close to the Lubocino test well. G.EN wants to buy gas from Lubocino, where PGNiG is going to follow up on discovery of promising gas shows by starting production tests in the second half of 2012. In total, shale gas could reach about 3,500 G.EN’s customers. PGNiG appears to be at the forefront of shale gas developments in Poland. It has been the only concession operator so far to come up with a particular date when commerBUSINESS INTELLIGENCE REPORT cial shale gas extraction and sales will start. According to www.cleantechpoland.com/newsletter/ PGNiG, the date is 2014, a commitment that has been put into question by industry insiders and experts in the conDo you have news to report? text of the slow pace of drilling in Poland.
Write to the Editor Wojciech@CleantechPoland.com or call (+48) 602 458 099
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Well Results to Date Mark Gordon, portfolio manager for Soros Fund Management, works in a high tower across from Central Park in New York. He’s the one overseeing the hedge fund’s investments in unconventional gas. By Parker Snyder and Wojciech Kosc p h o t o g r a p h y by Ł u k a s z O s ta l s k i / R e p o rt e r
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“While we did find gas, it did not flow in commercial quantities in either of those two wells.” – David Rosenthal, ExxonMobil.
Of the independents operating acreage over the past year, Soros Fund Management has exposure to at least three: San Leon, BNK Petroleum and Cuadrilla. (Realm as well, but it was acquired in November by San Leon.) Mr. Gordon is in charge of evaluating the hedge fund’s investments in an upstream unconventional portfolio. In October of 2011, after Lane Energy’s first horizontal well was fractured, he was quick to express frustration at the results when Cleantech Poland met up with Mr. Gordon in New York. Citing problems from the first few fracs, his sentiments were shared by other fund managers at institutions such as Blackrock, Quantum Part-
ners, Vanguard and Fidelity, because that hoped-for early shale gas boom never happened. These funds have upstream exposure, either through private placements or in a position taken post-IPO. Although most industry participants agree it will take 20-30 wells before early results can be said to be decisive, certain actors in the investment community have spoken early and loudly about the difficulty of getting gas from shales to flow in commercial quantities. Sanford Bernstein, a sell-side research firm for private equity clients, led the chorus with a bearish desktop-report, citing problematic geology. “Recent data from Poland’s shale
gas wells validate our concerns about European shale gas: poor flow rates in over-pressured, hard-to-develop shales,” wrote Bernstein analyst Oswald Clint. At the start of Q1 2012, all five of the large publicly traded independents were trading at one-third to one-fifth of their peak share price. The small cap independents are a litmus test for market confidence. If they’re down, confidence is down. In total, just over a dozen wells have been drilled and between 6-8 have been hydraulically stimulated. What follows is an overview of what information has been made public from the operators at work in Poland’s shale basins.
Unconventional gas wells drilled to date in Poland Operator
Well
Results
3Legs/ConocoPhllips 3Legs/ConocoPhllips 3Legs/ConocoPhllips BNK Petroleum BNK Petroleum BNK Petroleum PGNiG PGNiG Orlen Upstream Orlen Upstream ExxonMobil ExxonMobil San Leon/Talisman San Leon/Talisman
ŁEBIEN LE-1 Ł¢GOWO LE-1 ŁEBIEN LE-2 WYTOWNO - 1 L¢BORK S-1 STAROGARD - 1 LUBOCINO - 1 MARKOWOLA - 1 SYCZYN OU-1 BEREJOWO OU- 1 KRUPE - 1 SIENNICA - 1 LEWINO 1G-2 ROGITY - 1
Gas shows Gas shows Flared Gas shows Gas shows Gas show Flared No commercial gas Drilled to depth Drilled to depth No commercial gas No commercial gas Gas shows Gas & liquid shows
Source: company press releases, Cleantech Poland research
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Source: Łukasz Ostalski/Reporter
Ta b l ero e f s uClotnst e n t s
www.cleantechpoland.com | 19
Prime minister Donald Tusk
BALTIC BASIN (north Poland) In north Poland, targeting the Silurian, Ordovician and Cambrian shales, at least six modern exploratory wells have been drilled to date. The first to drill in the basin was 3Legs Resources (Lane Energy) working in partnership with ConocoPhillips. Although limited data has been released from operators other than 3Legs, the basics are fairly well known: gas shows were encountered in all six wells drilled in the Baltic, although hydraulic stimulation failed to flow gas at commercial quantities. ŁEBIE¡ LE-1 was drilled by 3Legs to a depth of 3085 meters. A core section of approximately 215 meters was recovered; 200 meters were gas bearing. DFIT (diagnostic fracture injection testing) was done on Ordovician and Silurian shales, and a single stage frac on Silurian, where gas flowed to the surface. Ł¢GOWO LE-1 In August 2010, 3Legs began drilling on a second test vertical well to a depth of 3580 meters, and encountered gas shows of 220 meters in lower Silurian, Ordo-
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SOURCE: PRIME MINISTER’S OFFICE
SOURCE: PRIME MINISTER’S OFFICE
“We took samples from over 2,500 meters. In five to six months, we will make a decision whether or not to drill horizontally.” – Wiesław Prugar, Orlen Upstream
Prime Minster Tusk with Marek Karabuła of PGNiG
vician and Cambrian shales, mostly methane, but also a small percentage of ethane and propane. ŁEBIE¡ LE-2 Then 3Legs moved to drill a second horizontal section of some 1000 meters at 4080 meters in depth in a target zone that was approximately 5 meters. When this horizontal well was stimulated in Q3 of 2011, the results were moderate but not commercial: using nitrogren lift, the well recorded an initial production (IP) on September 8, 2011 of about 2,200 mscf/day, which declined to 500 mscf/day on September 13th. Also with the aid of nitrogen lift, the well continued to flow 450-520 mscf/ day, but was soon shut-in pending further analysis. WYTOWNO - 1 This well was operated by BNK Petroleum, in partnership with several other companies. It was drilled to a depth of 3580 meters, and encountered gas shows of 220 meters in lower Silurian, Ordovician and Cambrian shales, mostly methane, but a small percentage ethane and propane.
L¢BORK S-1 Operated also by BNK, this well was drilled to a depth of 3590 meters with over 220 meters of core taken. Gas shows were recorded over 285 meters in lower Silurian and Cambrian shales, mostly methane. BNK was not able to successfully keep proppant in place during the fracture stimulation. “The reservoir was over pressured but it took even higher pressures to stimulate the shales than anticipated. It appears that both the Ordovician and Alum shales have complex fracture matrices, which were predominantly responsible for the reduced amount of proppant placed,” the company said in a release. BNK plans to restimulate the L´bork well in 2012. STAROGARD - 1 Spudded on July 16, 2011, this well was operated by BNK Petroleum and LNG Energy. It was drilled to a depth of 3524 meters, while numerous gas shows were encountered over 250 meters in lower Silurian, Ordovician and Cambrian shales including methane, ethane, propane, butane and pentane. The presence of heavier hydrocarbons, according to David Afseth president of
Ta b l ero e f s uClotnst e n t s
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LNG Energy, is “consistent with Saponis’ thermal maturity mapping of the Baltic Basin.” BNK Petroleum’s country manager Jacek Wróblewski says that the gas shows encountered on all three locations do give a positive outlook on the commercial viability of the wells. “We are now analyzing the data in a US lab, after which we will be able to speak on commercial potential of the wells,” he said. LUBOCINO - 1 This well was drilled and operated by PGNiG, the Polish state owned oil and gas company. Although little data was released, according to a press spokesperon, “Analysis of the gas confirms very good energy characteristics, absence of hydrogen sulfide, and low nitrogen content.” Images of the gas flare were released by the prime minister’s office, as this well was drilled previous to the elections held in October 2011. LEWINO 1G-2 Talisman in cooperation with San Leon drilled this well on the Gdansk West concession to 3,600 meters. Gas shows were encountered over 1,000 meters in the middle and lower Silurian shales, Ordovician and upper Cambrian, mostly methane, but also a small amount of ethane, propane, butane and pentane. Over 300 meters of core were taken for evaluation. ROGITY - 1 Talisman in cooperation with San Leon announced gas shows of over 500 meters in Lower Silurian, Ordovician, and Middle Cambrian sections. The gas shows consisted of heavy hydrocarbons, including C1nC8. The richness of the gas shows is consistent with a wet gas system, according to a company press release.
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PODLASIE BASIN (Central Poland) Comparatively less is known about the subsurface in the Podlasie region than in north and south Poland. The first modern well was drilled by ExxonMobil in February of 2010. Although well results were not made public, David Rosenthal, vice president for investor relations, was quoted on a Q1 2012 earnings call saying the gas quantities were insufficient to justify bringing it into commercial production. Marathon Oil, who holds 7 concessions of about 1.5 million acres (6000 km2), including acreage in the Podlasie basin, had begun drilling. Another 6-7 wells are planned, according to a press release issued by the company. LUBLIN BASIN (South-east Poland) The Markowola -1 well, drilled by PGNiG, in the Lublin basin near Kozienice, southeast of Poland, may have been the first shale gas well drilled (mid 2010), although PGNiG’s annual report refered to it as a tight gas. No commercial gas flows were recorded, although details have not been released to the public. Orlen Upstream announced the completion of two wells in the Lublin basin: Syczyn OU-1 and Berejowo OU-1. According to CEO Wiesław Prugar, “[Orlen] took samples from over 2,500 m deep, and will have them analysed in the lab. In five to six months, we will make a decision wether or not to drill horizontally.” ExxonMobil also drilled in the Lublin basin at a depth of 3807 meters. Although the results are not public, an early 2012 earnings call confirmed that no commercial quantities of gas
were found. “While we did find gas, it did not flow in commercial quantities, so we’ll be analyzing that, [and] evaluating the various characteristics of the shale there and working on our go-forward plans,” Mr. Rosenthal added. At the time of printing, other operators were at work on wells sites: Chevron spudded the first of what could be 6-7 wells in November of 2011. ENI was about to get underway with its first of several exploratory wells. MEDIUM TERM? According to oil and gas expert Grzegorz Pytel, Sobieski Institute, an oilfield takes some time to be developed. As for the first few wells, it’s just a matter of luck whether they are successful. “With respect to the resource base, we don’t know. If we look at North Sea estimates, back in the 1980s, the Norwegians estimated the resource base to be zero. The question is whether or not the companies will find certain low-hanging fruit to give the investors early pay off. It’s a question of luck,” Mr. Pytel said. In the meantime, companies may go elsewhere if the opportunities are better. Take for instance, ExxonMobil in Hungary, who after drilling just a few wells, left to explore elsewhere. In the meantime, the Hungarian unconventional resource base was developed by others who stayed when ExxonMobil left. “Also, there’s always the possibility that they don’t talk about what they have found,” according to Mr. Pytel. “There is a kind of game of play, how companies interpret results. Is it good for companies to say, we have good results, or is better for these companies to be cautious?”
Ta b l ero e f s uClotnst e n t s
PGNiG’s Lubocino well site in North Poland. SOURCE: Prime Minister’s office
Stock price of five independents on Polish market Company San Leon Talisman 3Legs Resources LNG Energy BNK Petroleum
Ticker SLE:LONDON TLM:NYSE 3LEG:LN LNG:VENTURE BKX:CN
1/1/2011 24.75 22.25 - 0.46 -
4/1/2011 36 25 - 0.5 4.9
7/1/2011 28 20.3 215 0.4 4.6
10/1/2011 14 11.3 187 0.2 2.4
1/1/2012 8 12.15 71.5 0.13 1.5
Current 12 13 71.5 0.14 1.5
1/1/2012 100.00% 100.00% 100.00% 100.00% 100.00%
Current 150.00% 107.00% 100.00% 107.69% 100.00%
Normalized to January 1, 2012 price of five independents on Polish market Company San Leon Talisman 3Legs Resources LNG Energy BNK Petroleum
Ticker 1/1/2011 4/1/2011 SLE:LONDON 309.38% 450.00% TLM:NYSE 183.13% 205.76% 3LEG:LN LNG:VENTURE 53.85% 384.62% BKX:CN 326.67%
7/1/2011 350.00% 167.08% 300.70% 307.69% 306.67%
10/1/2011 175.00% 93.00% 261.54% 153.85% 160.00%
Stock Price of Independents on Polish Market Normalized to Jan 1, 2012
450.00%
SLE:LONDON TLM:NYSE
300.00%
3 LEG:LN LNG:VENTURE
150.00% 0.00%
BKX:CN Jan 2011
July 2011 Jan 2012 Apr 2011 Sept 2011 Current
Source: company press releases, Cleantech Poland research
www.cleantechpoland.com | 23
De-Risking Polish Shale An investor’s point of view Parker Snyder, Director Cleantech Poland
Commodities exploration is a game of risk. Shale gas, especially so, as basins are not continuous and homogeneous, but rather uncommunicative and anisotropic. That’s what makes de-risking a shale play challenging, and even more challenging in Poland where subsurface information is little known. In shale gas exploration, the results from one well are no guarantor of wells adjacent, even in the most productive parts of the Barnett, Haynesville and Marcellus. In these rather prolific basins, only 30% of wells produced at all, meaning 2 of every 3 wells were duds, dry wells or not commercial, no matter how successful overall production. The risk inherent in shale gas exploration makes it a game that has been historically taken up by independent wildcat drillers like George Mitchell, the father of the Barnett in Central Texas. He succeeded where others failed because he had the fortitude (and long term contract commitments) that kept him pursuing the “prize” when others pulled out or closed shop. Industry analysts have sometimes noted few majors have helped to prove a shale basin. In the last few years, the majors have usually entered a basin by acquiring an independent, as in the $41 billion purchase of Houstonbased XTO by ExxonMobil in late 2009.
DE-RISKING THE INVESTMENT Let’s switch to Poland. Clients based in North America who have set up shop here in Central Europe to operate acreage have been asking these questions: how much is my acreage worth? How will an exploration program de-risk my acreage? Does drill-
the business case for an early-stage farm-in. In North America, the cost per acre can be characterized according to a basic model: as the value per acre increases, the net present value (NPV) goes from a nominal value, usually the cost of acquiring the rights, and it increases in stages as the basin is de-risked from $500 to $1000 to $10,000 or more as subsequent wells bring the play into production. As operators drill in Poland, investors will ask: were there gas shows? How long were the shale sections? What type of hydrocarbons were found? If the well was stimulated, what was the initial production? How long was this production sustained?
Were there gas shows? How long were the shale sections? What type of hydrocarbons were found? If the well was stimulated, what was the initial production?
24 | shale gas investment guide | spring 2012
ing on an adjacent concession, given the lack of seismic and subsurface data, do much to increase my valuation? Cleantech Poland, as an alternative energy consultancy, works for E&P companies to help them assess risk. One client had us do a basin-wide study of certain value chain verticals including pressure pumping. Another client asked us to evaluate the potential for mid-stream gathering networks, while another had us look into
POLAND SPECIFIC To date, the first few Batlic wells experienced gas shows. [See Results, p. 16] The gas shows generally went from gas to condensates/liquids as the drilling across the Basin went from west to east. The shale sections were rather large, from 100 meters to 500 meters.
However, when the 3Legs well was fractured, the initial production was low and the decline rapid, from an IP of 2 mmcf/day to 0.5 mmcf/day in just five days, which is well below the IP of a typical production well in the Barnett and Haynesville which can measure 4 to 7 mmcf/day and have estimated ultimate recoveries (EUR) of 1 Bcf or more. The BNK well that was fractured screened out and failed to hold the proppant in place. The results of other hydraulic fracturing programs were not reported publicly. Investors took a dismal view of these first wells, especially on the back of news that dry holes were drilled by ExxonMobil in the Lubin and Podlasie basins, and all five independents trading on public exchanges were significantly down off their early peak when this publication went to press. WHY DE-RISKING MATTERS It matters for two reasons: the cost of drilling and the cost of raising capital. Drilling for shale gas in Poland is expensive, around $10 million per well. Let’s say a typical private placement for an independent un-listed operator fetches $30-70 million. Factoring administrative overhead, that may be enough to drill 2-5 wells, certainly not enough to de-risk much of a given geographical area, especially when considering a typical number of wells drilled each year by an independent operator in the Barnett can be as many as 50. Fewer wells means a longer derisking scenario. But what will that mean to operators in Poland? Well, if an operator’s first results are poor, and the operator has a large exposure to upstream unconventional, then the value per share will go down, making
the terms for subsequent investment rounds disadvantageous. In short, an operator will have to give away more of the company to raise more equity to drill more wells. This could make the market even more dependent on risk dilution through farm-ins or ripe for acquisitions. Analysts have noted the differences between Poland and North America:
the availability of rigs, the proximity of gathering networks, a more efficient supply chain. What hasn’t been discussed is how a protracted de-risking scenario will alter the structure of a market that favored independents in North America but may come to favor hybrid state-owned entities who can finance exploration from their balance sheets.
Valuation over time across a generic basin $10,000/acre
$1,000/acre $400/acre $1/acre $300,000
$120,000,00
$300,000,000
$3,000,000,000
Fig 1. Approximate valuation over time increases as basin is de-risked
Risk profile of play across a generic basin $1/acre $400/acre $1,000/acre
$10,000/acre
VERY HIGH
HIGH
MEDIUM
LOW
Fig 2. Risk profile decreases as knowledge about basin increases Source: Cleantech Poland research
www.cleantechpoland.com | 25
Ta b lien t o ef rCvoi n ew tents
“The market was still bullish on Polish shale when San Leon bought out Realm; the average value per acre paid for Realm’s European assets was around $525, a premium even on un-risked acreage in North America. “
DOUBLE DOWN ON
BALTIC FLARES Who’s Who in concessions
p h o t o g r a p h y b y i STOC K PHOTO 26 | shale gas investment guide | spring 2012
Aurelian BNK Petroleum Chevron Cuadrilla Dart DPV|emfesh ENI ExxonMobil Hutton Energy Lane Energy (3Legs) LNG Energy Lotos Petrobaltic Marathon Oil Mitsui Nexen Orlen Upstream PGNIG San Leon Energy Silurian-Hallwood Talisman Energy Total
27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47
Corporate Presentation February 2012 Plans for current year
The commercialisation decision for the Krzesiƒki-1 discovery made on Poznaƒ Block 207 will be made once the well tests have been completed in Q1 2012; Drill Karpaty East-1 Q4 2012. Plans for next 3 years
Drill Karpaty East-2, Trzek 4 and Bieszczady 2 (depending on outcome of previous wells) in 2013. Needs for Services (Water, waste, legal, accounting, etc)
We are commercialising gas from Trzek-2 and Trzek-3. Via a low pressure, low methane tie in and a “gas to wire” option as a smaller pilot development, with first gas expected at the end of 2013, requiring capital expenditure of approximately €12 mln net to Aurelian.
Holding Companies Energia Cybinka Sp.z o.o. Energia Torzym Sp. z o.o. Energia Kalisz Sp. z o.o. Energia Zachod Holdings Sp. z o.o. Energia Karpaty Zachodnie Sp. z o.o. Energia Karpaty Wschodnie Sp. z o.o. Aurelian Oil and Gas Sp. z o.o.
Board Members HARTLEY, Roy BAINBRIDGE, Rowen CHAŁUPKA, Paweł SMALLWOOD, John STOREY, Robin
who’s who
Aurelian Oil & Gas (AIM:AUL) Anna Srokowska Okonska Country Manager ul. Âniadeckich 17 00-654, Warszawa (+48) 22 629 90 37 www.aurelianoil.com
Concessions Name
Concessions Acreage
Block Numbers
Concessions Name
Cybinka
700
202, 222
Cieszyn
410, 430
Torzym
600
203, 223
Por´ba
413
Kalisz
965
249
Jordanów
Poznaƒ Płónoc
1200
206
Mszana Dolna
207
Prusice
4/03/p (East of
Concessions Acreage
1043
Block Numbers
432 433
758
Poznaƒ)
286, 287, 306, 307
5/03/p (East of
208
Poznaƒ) 2562
Wetlina
446
477, 478
Bieszczady
3520
416, 417, 436,
411, 431
437, 438, 456,
Budzów
412
457, 458
Bestwina
410, 411
Strumieƒ-K´ty
410
Bielsko-Biała
“Licences with high working interests will be farmed out in the coming year, where appropriate, for example: Karpaty East and West. Candidates also include Siekierki.” – Corporate presentation
www.cleantechpoland.com | 27
BNK Petroleum (TSX:BKX) Mr. Kelly Brezger General Manager pl. Piłsudskiego 1, 00-078, Warszawa (+48) 22 540 17 30 www.bnkpetroleum.com
Press Release
Holding Companies Saponis Investments Sp. z o.o. Indiana Investments Sp. z o.o.
Have to drill and test 2nd well by June 2014 on each concession.”
Plans for current year
“The re-stimulation and testing of the Lebork S-1 well is planned for the spring 2012, when temperatures are warmer. [We are] building out the well pad for the Trzebielino concession; drilling is expected to begin by the end of February, 2012. After completion of the first Trzebielino well, the rig is scheduled to move to the first Indiana (Bytów) concession drilling.” Plans for next 3 years
Indiana concessions: “Begin drilling 1st Q1 2012, requirement to begin operations by Sept 2012 for 1st wells and drill & test 2nd well on each concession by June 2014.; Saponis:
“The re-stimulation and testing of the Lebork S-1 well is planned for the spring 2012, when temperatures are warmer.“ – Press release
28 | shale gas investment guide | spring 2012
Needs for Services (Water, waste, legal, accounting, etc)
“The 2D seismic program is progressing with approximately 50% of the data acquired. The program consists of about 407 km on the Saponis concessions and 333 km on the Indiana concessions.”
Board Members REGENER, Wolf NELSON, Warren
Concessions Name
Concessions Acreage
Block Numbers
Starograd
900
70, 90
Słupsk
1050
47, 48
Sławno
950
26, 46
Darłowo
1200
45, 65, 66
Bytów
1200
48, 67, 68
Trzebielino
1200
47, 66, 67
Holding Companies Chevron Polska Energy Resources Sp. z o.o.
Interview with John claussen country manager Plans for current year
Board Members JONES, David SEWERSKI, Marian CLAUSSEN, John PSEFTEAS, George ROMERO, Andres
Concessions Name
Concessions Area (km2)
Block Numbers
Zwierzyniec
1000
338, 339, 358,
“We are doing 2D seismic right now; we plan on 3D seismic next year.”
Ta b lw e hoof ’ sC o wnhtoe n t s
Chevron (NYSE: CVX) John Claussen, Country Manager Aleja Wyscigowa 6, 02-681, Waszawa (+48) 22 460 100 www.chevron.com
359, 379
KranÊnik
900
336, 337, 357
Frampol
800
337, 338, 357,
Plans for next 3 years
358
“We expect pilot commercial production to go online as soon as 2013 or 2014.”
Grabowiec
1210
339, 340
Needs for Services (Water, waste, legal, accounting, etc)
“Land permitting and land access in general in Poland is a huge issue. Also sub-surface information is scarce.”
“Chevron has a 6-7 well program planned for the coming months.” – SGIG
www.cleantechpoland.com | 29
CUADRILLA RESOURCES Marek Madeja Country Manager ul. Syrokomili 5C 03-335, Warszawa (+48) 22 818 97 www.cuadrillaresources.com
Interview with Marek Madeja, Country Manager Plans for current year
Marek Madeja: “We are in the early stages, and are currently going through seismic; this will be completed by end of first quarter 2012, and drilling is to commence by end of 2012.” Needs for Services (Water, waste, legal, accounting, etc)
MM: “Our own Cuadrilla rig is currently drilling in the Midlands concession in the UK, and has found shale gas between Birmingham and Manchester. Cuadrilla is now drilling a third well there.”
“Our own Cuadrilla rig is currently drilling in the Midlands concession in the UK.” – Marek Madeja
30 | shale gas investment guide | spring 2012
Holding Companies Cuadrilla Poland Sp. z o.o.
Board Members MILLER, Mark TURNER, Peter MADEJA, Marek
Concessions Name
Concessions Acreage
Block Numbers
Mi´dzyrzec
1000
238, 258
660
257, 237
Podlaski Łuków
Interview with Zbigniew Zuk, Country Manager Plans for current year
Ta b lw e hoof ’ sC o wnhtoe n t s
DART LTD Holding Companies Country Manager Dart Energy (Poland) Sp. z o.o. al. Jerozolimskie 56C Chelm LLP Sp. o. z o.o. 00-803, Warszawa (+48) 22 630 22 90 www.dartenergy.com.au
Board Members ROLES, Peter ULIEL, Eytan BAIN, Douglas
Concessions Name
Concessions Acreage
Block Numbers
Milejów
372
298, 299, 318, 319
Zbigniew Zuk: “We plan to complete processing and interpreting the 2D seismic done last summer on our Milejow concession. We are aslo planning 2 wells in 2012 on the USCB and Chelm concessions.”
USCB
323
390, 391, 410
Chełm
760
300, 319, 320
Looking for a partner or want to do a JV?
SGIG: Formerly known as Composite, the concessions are now 100% owned by Dart Energy.
“Dart’s coal bed methane concession is located on the same block as ExxonMobil; Dart has permission to explore the coal bed, whereas Exxon has permission to explore the shale.” – SGIG
www.cleantechpoland.com | 31
EMFESZ NG Sp. z o.o. Michał Kołodziejek Country Manger al. Ujazdowskie 41 00-540, Warszawa (+48) 22 319 57 20 www.emfesz.hu
Plans for current year
SGIG: According to other operator’s familiar with DPV’s plans, they are at the stage of seismic and geological research.
Holding Companies DPV Service Sp. z o.o.
Concessions Name
Concessions Acreage
Block Numbers
Concessions Name
Concessions Acreage
Block Numbers
Białobrzegi-
724
294, 274
54-61/98/Ł
4870
272, 273, 291, 292, 293, 311,
Rusinów 629
318, 338, 339
Lipsko
1192
315, 316
Kraszewice
610
269
Radom
895
295, 296, 275
Wieruszów
560
289
Opole
338
316, 296
Mi´dzybórz
440
288
3/2007/p
963
233
4/2007/p
958
253
Deblin-
420
297, 276, 277
˚yrzyn
32 | shale gas investment guide | spring 2012
312, 313
Korczmin
Lubelskie
“DPV is owned by Hungarian Emfesz, which in turn is owned by the the Ukrainian Firtash Group of Companies (GDF).” – SGIG
Board Members CHILKIEWICZ, Jurij KARDAPOLTSEV, Dimitry KASATKIN, Kirill
Holding Companies ENI POLSKA Sp. z o.o.
press release Plans for current year
The acreage is located in the north-east of Poland and consists of 1,967 square kilometers. Drilling operations were expected to start in 2011, with a total exploration commitment of 6 wells.
Ta b lw e hoof ’ sC o wnhtoe n t s
Eni S.p.a Al. Jerozolimskie 30/7 00-024, Warszawa (+39) (0) 252 031 875 fabio.cesaro@eni.com www.eni.com
Board Members CINGOLANI, Enrico CASTRIOTA, Roberto NAPOLITANO, Aldo
Concessions Name
Concessions Acreage
Block Numbers
Malbork
850
70, 71, 90, 91
Elblàg
550
71, 91, 92
Młynary
600
51, 52, 72
Looking for a partner or want to do a JV?
Eni has reached an agreement for the acquisition of Minsk Energy Resources and to become operator of 3 licences in the Polish Baltic Basin, a highly prospective shale gas play.
“The acreage is located in the north-east of Poland and consists of 1,967 square kilometers.” – SGIG
www.cleantechpoland.com | 33
ExxonMobil (NYSE:XOM) Adam KopyÊç Public & Govt Affairs Advisor Ul. Chmielna 85/87 00-805, Warszawa (+48) 604 490 056 www.exxonmobil.com
Interview with Adam Kopysc, Public affairs Plans for current year
Adam Kopysc: “In 2011, ExxonMobil Exploration and Production Poland (EMEPP) safely completed: three 3D seismic surveys in Wołomin, Chełm and Werbkowice concessions; drilling and fracturing operations on two shale gas wells: Krupe-1 in the Chełm concession and Siennica-1 in the Miƒsk Mazowiecki concession.” Looking for a partner or want to do a JV?
AK: “In 2011, EMEPP signed two farm-out agreements, with Hutton Energy for four Podlasie Basin concessions (Legionowo,
“In 2011, ExxonMobil completed two farm out agreements. Subject to Polish regulatory approvals, EMEPP will retain a 51% interest and operatorship of all concessions.” - Adam Kopysc
34 | shale gas investment guide | spring 2012
Holding Companies ExxonMobil Exploration and Production Poland Sp. z o.o. ExxonMobil Exploration and Production Poland Energia Chelm Sp. j. ExxonMobil Exploration and Production Poland Energia ZamoÊç Sp. j.
Miƒsk Mazowiecki, Wodynie-Łuków and Wołomin) and with Total for two Lublin Basin concessions (Chełm and Werbkowice). Subject to Polish regulatory approvals, EMEPP will retain a 51% interest and operatorship of all concessions. These deals do not indicate any shift in EMEPP’s interest in Polish shale gas opportunities.” Jim Johnson, ExxonMobil General Manager, Krakow, Sept 2011:
“On our well site, we tried to reduce truck traffic to a minimum. We have not run across public protests regarding site issues.”
Board Members BENAVIDES, Armando JOHNSTON, James BIDDLE, Kevin Thomas
Concessions Name
Concessions Acreage
Block Numbers
Wołomin
1030
215, 216, 235, 236, 256
Legionowo
730
194, 195, 196, 214, 215, 235
Miƒsk
1030
Mazowiecki Wodynie-
215, 216, 235, 236
1120
Łuków
216, 217, 236, 237, 256, 257, 258, 277, 278
“319-320”
1162
319, 320
995
359, 360
(Chełm) “359-360” (Werbkowice)
Plans for current year
Anna Maio, Corporate Communications Manager: “Within 24 months, between 2012 and 2013, Hutton will complete at least one borehole on the South Prabuty concession at a sufficient depth to confirm presence and thickness of Silurian and Ordovician shales. The company will also be undertaking an extensive seismic acquisition and interpretation programme across its wholly owned Jurassic and Carboniferous concessions.” Plans for next 3 years
Frank Maio, Exploration Director: “ Most countries in Europe don’t have 3D, which puts these places back in 1985. This means that there is a whole world of potential. We plan to do 15000 acres of seismic in 2012 and complete another borehole within the next 24 months.”
Holding Companies STRZELECKI ENERGIA Sp. z o.o.
Needs for Services (Water, waste, legal, accounting, etc)
David Messina, Commercial Director: “The problem is waiting time and high costs. There needs to be more drilling equipment in Poland. There is a technical and implementation gap in completions. Up till now some operations were compromised because of the lack of proper equipment. In our business we don’t want to just frack a well and get poor results – we need to be able to complete.” Looking for a partner or want to do a JV?
Ta b lw e hoof ’ sC o wnhtoe n t s
HUTTON ENERGY Anna Maio Corporate Communications Manager Al. Jerozolimskie 81 02-001, Warsaw (+48) 22 695 02 70 (+44) (0)203 586 1005 info@huttonenergy.com www.huttonenergy.com
Board Members MESSINA, David MAIO, Frank
Concessions Name
Concessions Acreage
Block Numbers
Prabuty
481
112, 132
1189
189, 190, 209,
Południowe Koło
210, 230 Podd´bice
645
230, 231, 250
Łódê Zachód
809
251, 252
OleÊnica
1160
307, 308
Wieluƒ
888
290, 310
AM: “Current activity spans Poland, Ukraine, Czech Republic, France, Spain and the Netherlands. Through its subsidiary Strzelecki Energia, Hutton is the 100% owner of six concessions in Poland totaling approximately 1.3m acres.”
“Through its subsidiary Strzelecki Energia, Hutton is the 100% owner of six concessions in Poland totaling approximately 1.3m acres.” - Anna Maio
www.cleantechpoland.com | 35
3Legs Resources Plc Kamlesh Parmar, Commercial Director ul. Chmielna 13A, 02-001, Warszawa (+48) 22 505 91 77 info@laneenergy.eu www.3legsresources.com /lane-energy
Plans for current year
SGIG: Lane Energy (3Legs Resources) drilled the vertical Łebien LE-1 test well to a depth of 3085 m in 2011, recovered 215 m of core, and found approximately 200 m to be gas bearing. The Łegowo well was drilled to a depth of 3430 m. In late 2011, the Łebien-LE2 well was horizontall fractured (the first in Poland); the well achieved 2.2 mmcf initial production, which quickly fell off to 500 mscf/d; aided by nitrogen lift, the well continued to flow 450-520 mscf/d. Plans for next 3 years
Peter Clutterbuck, Chief Executive of 3Legs (Press release - 16/11/2011): “Our primary focus now is on developing improvements in hydraulic fracture and completion design which will further enhance well production rates, in addition to consid-
“The benefits of developing a domestic energy supply from a clean fuel such as natural gas are potentially very significant, particularly in the prevailing economic climate.” – Peter Clutterbuck
36 | shale gas investment guide | spring 2012
Holding Companies Lane Energy Poland Sp. z o.o. Lane Resources Poland Sp. z o.o.
ering the acquisition of new 2D and 3D seismic and the drilling of a number of new wells in the near term. This is critical in order to convert this very large gas in place volume into commercial reserves.” Looking for a partner or want to do a JV?
Kamlesh Parmar Commercial Director: “The farm in by ConocoPhillips was a great way for our business to secure funding - via a carry - for the initial field operations (3D seismic and up to three exploration wells), with the added benefit of access to their technical expertise in shale projects in the US. In return, they have the right to acquire a 70% interest in our Baltic concessions, so long as they give us notice to do so by March this year.”
Board Members PARMAR, Kamlesh NEEDHAM, Clive Ronald HOLT, Christine
Concessions Name
Concessions Acreage
Block Numbers
Damnica
965
7, 27, 28
Lebork
1000
8, 28
Karwia
350
8, 9
Cedry Wielkie
800
50, 70
St´gna
600
51, 71
Godkowo
750
72, 92
Glinica-Psary
1100
350, 351
Bytom-Gliwice
400
370
Dàbie-Laski
800
371, 372, 391, 392
Interview with Patrycja Kujawa, Development Director Plans for current year
Patrycja Kujawa: “We’ll be shooting 50 km of seismic in Iława in early 2012, one well in W´grow in 2012. Next three years we plan on drilling two wells in Iława and potentially more seismic on both concessions.”
Holding Companies LNG ENERGY LIMITED. Sp. z o.o.
LNG Corporate presentation:
“Poland is attractive to us because of the large resource base (risked GIP of 792 Tcf), superior economics (oil-linked gas prices), attractive fiscal regime (19% corporate tax, about a 1% royalty), and a developed local gas market with infrastructure.”
Ta b lw e hoof ’ sC o wnhtoe n t s
LNG Energy LTD. Patrycja Kujawa Development Director ul. Bagno 2/225 00-112, Warszawa (+1) 403-457-3398 info@lngenergyltd.com www.lngenergyltd.com/ s/Poland.asp
Board Members AFSETH, Dave GAYTON, Robert LARKIN, Paul GREEN, Richard
Concessions Name
Concessions Acreage
Block Numbers
Starograd
900
70, 90
Słupsk
1050
47, 48
Sławno
950
26, 46
W´grów
729
195, 196, 216, 217
Iława
652
91, 92, 112
Looking for a partner or want to do a JV?
PK: “LNG Energy has 50% interest in Maryiani Sp. Zo.o and Joyce Sp. Zo.o., LNG also has a minority interest in Saponis Sp. z o.o.”
“Poland is attractive to us because of the large resource base.” – LNG Corporate presentation
www.cleantechpoland.com | 37
Interview with John Porretto, External Communications Specialist Plans for current year
John Porretto: “In 2012, we plan to drill 6-7 wells. Marathon Oil has drilled, cored and logged its first well in Poland, and is evaluating the data. The Company plans to drill and core three additional vertical wells over the next few months, and drill a total of six to seven wells by the end of 2012.” Plans for next 3 years
JP: “Poland’s geologic basins could hold significant natural gas resources which, if proven to exist and deemed commercial, could have a very positive impact on Poland in terms of employment, economic growth and increased energy security. Marathon Oil, along with our partners, is in the early stages of exploring and evaluating the full potential of our significant holdings. Any development
Holding Companies Marathon Oil Area A Sp. z o.o. Marathon Oil Area B Sp. z o.o. Marathon Oil Area C Sp. z o.o. Marathon Oil Area D Sp. z o.o. Marathon Oil Area E Sp. z o.o. Marathon Oil Area F Sp. z o.o. Marathon Oil Area G Sp. z o.o. Marathon Oil Area H Sp. z o.o. Marathon Oil Area I Sp. z o.o. Marathon Oil Area J Sp. z o.o.
decisions will be based on these exploration/data-gathering activities in the months ahead.” Needs for Services (Water, waste, legal, accounting, etc)
JP: “Poland’s Lower Paleozoic shale gas objective is similar to many North American plays, including those where Marathon Oil is active, and we plan to transfer those skills to this exciting new business in Poland.” Looking for a partner or want to do a JV?
Editor’s note: According to a company press release, Mitsui has acquired a 9% interest by paying $61 mln, with an implied valuation of $340/acre. Nexen acquired a 40% working interest in Marathon’s 10 concessions covering 2.3 million acres.
Ta b lw e hoof ’ sC o wnhtoe n t s
Marathon Oil (NYSE:MRO) John Porretto External Communications Specialist ul. Złota 59 00-120, Warszawa (+48) 22 379 94 40 (+1) 713 629 66 00 www.marathon.com
Board Members HUBACHER, Carl LANDRY, Stephen
Concessions Name
Concessions Acreage
Block Numbers
Kwidzyƒ
1200
110, 111
Brodnice
1200
131, 132
Orzechów
1200
179, 280, 299, 300
Płoƒsk S
360
213, 214
Płoƒsk SE
247
194, 214
Rypin
672
151, 152
Lidzbark
980
92, 112, 132, 152
Ciechanów
1189
174, 194, 195
Sokołów
690
196, 197, 216,
Podlaski Siedlce
237 680
217, 237
“This partnership [Nexen] provides not only financial risk mitigation but combines the extensive unconventional drilling and completion experience of Marathon and Nexen to fully evaluate the potential of these concessions.” – Annell Bay
www.cleantechpoland.com | 39
MITSUI & CO. LTD. Al. Jerozolimskie 65/79 00-697, Warszawa (+81) 3 3285 7540 www.mitsui.com
Holding Companies MITSUI E&P POLAND Sp. z o.o.
Press release
Looking for a partner or want to do a JV?
Plans for current year
“Mitsui & Co., Ltd. (“Mitsui”) has entered into a definitive agreement with subsidiaries of Marathon Oil Corporation (NYSE: MRO) to acquire a 9% working interest in 10 of Marathon’s Paleozoic shale gas exploration concessions. Another partner is a subsidiary of Nexen Inc., which owns a 40% working interest of the concessions.”
“Seismic and other geological analysis, as well as drilling of exploration wells to evaluate technical potential of the concessions will be carried out over the next 5 years.” Plans for next 3 years
“Poland is considered to be one of the most attractive shale gas potential areas in Europe, where the development of shale gas by the major oil and gas companies is expected to accelerate.”
Board Members OKANO, Hideki TSURUGI, Hiroyuki
Concessions Name
Concessions Acreage
Block Numbers
Kwidzyƒ
1200
110, 111
Brodnice
1200
131, 132
Orzechów
1200
179, 280, 299, 300
Płoƒsk S
360
213, 214
Płoƒsk SE
247
194, 214
Rypin
672
151, 152
Lidzbark
980
92, 112, 132, 152
Ciechanów
1189
174, 194, 195
Sokołów
690
196, 197, 216, 237
Podlaski Siedlce
“Poland is considered to be one of the most attractive shale gas potential areas in Europe.” – Press release
40 | shale gas investment guide | spring 2012
680
217, 237
Interview with JarosŁaw Raczynski, General Manager Plans for current year
Jarosław Raczynski: “We are an experienced shale gas operator in Canada. It’s good for people to understand that we are in Poland for a reason: we have experience and we are using this experience in Europe.”
Holding Companies NEXEN PETROLEUM POLAND Sp.z o.o.
Looking for a partner or want to do a JV?
JR: “We are a non-operator on our acreage but we are working close with Marathon. We have a technical (UK based) team and they are cooperating with Marathon.”
Ta b lw e hoof ’ sC o wnhtoe n t s
NEXEN INC Jarosław Raczynski General Manager ul. Wiejska 17/5 00-480, Warszawa (+1) 403 470 9184 www.nexeninc.com
Board Members FTORKOVA, Petra HARVEY, Lewis BURGESS, Karen QUARLES VAN UFFORD, Andrew
Concessions Name
Concessions Acreage
Block Numbers
Kwidzyƒ
1200
110, 111
Brodnice
1200
131, 132
Orzechów
1200
179, 280, 299, 300
SGIG: NEXEN has 40% interest in 10 out of 11 Marathon concessions.
Plans for next 3 years
JR: “The challenge in North America is the gas price. The rocks are good. The potential for production, especially in British Columbia, is fantastic, but the prices are quite depressed (...) Lot’s of people expect the price to be stronger in Europe in the future.”
Płoƒsk S
360
213, 214
Płoƒsk SE
247
194, 214
Rypin
672
151, 152
Lidzbark
980
92, 112, 132, 152
Ciechanów
1189
174, 194, 195
Sokołów
690
196, 197, 216, 237
Podlaski Siedlce
680
217, 237
“We are in Poland for a reason: we have experience and we are using this experience in Europe.” – Jarosław Raczynski
www.cleantechpoland.com | 41
O
Holding Companies Silurian Energy Services Sp. z o.o. Silurian Sp. z o.o
Interview with William Marble, COO
Looking for a partner or want to do a JV?
Plans for current year
SGIG: “Silurian-Hallwood is a joint venture between Petrolinvest owned Silurian and N. American operator Hallwood. In the fall of 2011, after a private placement investment round, SilurianHallwood successfully raised $20 mln for their exploration program.”
William Marble: “Currently, we are preparing to do two exploration wells on our acreage in N. Poland. At present, we have no plans for seismic.”
Ta b lw e hoof ’ sC o wnhtoe n t s
SILURIAN HALLWOOD PLC William Marble Chief Operating Officer ul. GórnoÊlàska 16/17 00-432, Warszawa (+48) 22 412 0511 info@silurianhallwoodplc.com silurianhallwoodplc.com
Board Members SKROBOWSKI, Wieslaw SUTHERLAND, Munro MARBLE, William GUZZETTI, Bill MEDUNA, Russell
Concessions Name
Concessions Acreage
Block Numbers
Lidzbark
895
73, 74
W´gorzewo
130
56
Goldap
620
57, 58, 59
Warmiƒski
Plans for next 3 years
WM: “We are very enthusiastic about Polish shales, and about shale in general. We are developing a business plan anticipating 40 years of production.”
“I’m not worried about Polish shale. In my entire career, I’ve only seen one shale, in Texas, that we weren’t able to produce.” – William Marble
www.cleantechpoland.com | 45
Talisman (NYSE:TLM) Holding Companies Tomasz Gryzewski Talisman Energy Polska Sp. z o.o. Corporate Affairs ul. Emilii Plater 53 00-113, Warszawa (+48) 22 370 60 70 warsaw@talisman-energy.com www.talisman-energy.com
Interview with Tomasz Gryzewski, Corporate Affairs Plans for current year
Tomasz Gryzewski: “We plan on 3 vertical wells, and a horizontal well based on one of the vertical wells.” Plans for next 3 years
TG: “In North Poland, we’ve proven that the gas exists. Companies are starting to think about mid-stream. We’re well positioned because the Pomerania region seems to be more developed than central Poland.”
“In North Poland, we’ve proven that the gas exists.” – Tomasz Gryzewski
46 | shale gas investment guide | spring 2012
Miscellaneous
TG: “The Polish government is not likely to invest in numerous transmission and refining projects. Likely operators will have to think about developing their own solutions on a smaller scale.”
Board Members KUIJPER, Rene VAN SANDICK, Leonard
Concessions Name
Concessions Acreage
Block Numbers
Gdaƒsk W
780
48, 49
Braniewo S
1043
52, 72, 73, 92, 93
Szczawno
603
151, 152
TOTAL
DOUBLE DOWN ON
BALTIC FLARES Who’s Who in services
Baker Hughes Halliburton Schlumberger Weatherford
p h o t o g r a p h y b y i STOC K PHOTO
50 51 52 53
Baker Hughes EUROPE HEADQUARTERS: Baker Hughes GmbH Baker Hughes Strasse 1 29221 Celle, Germany PERSONEL: Adrian Topham, Business Development Jens Rodiek, Country Manager MANAGEMENT BOARD: Frank Koehrmann Ronnie MacGregor
ABOUT US: Baker Hughes was established in Germany in 1957, as Christensen Diamond Products. Baker Hughes International (BHI) formed in 1987 after a merger between Baker International and Hughes Tool Company.
KIT STORAGE: During Q2 2012 Baker Hughes Poland Sp z.o.o will open an operational support base near Warsaw to reduce mobilisation times and costs. COMPETITIVE ADVANTAGE: Baker is moving away from legacy product lines and will likely simplify their branding to BHI over the coming months. Internationally recognized, BHI has been operating in cooperation with several Polish oilfield service companies.
The baker hughes headquarters in celle germany supports 1200 people and a range of produCTS
50 | shale gas investment guide | spring 2012
POLAND: Regus Metropolitan PL. Piłsudskiego 3 00-078 Warsaw, Poland Direct: +48 22 449 0111 NIP: 5252471931 KRS: 0000325223 CLIENTS INCLUDE: Marathon ExxonMobil PGNiG Aurelian
ON PERSONNEL: Baker Hughes is established in Poland, and has trained employees at local companies including Diament and ZRG Krosno. GOOD TO KNOW: Baker Hughes provided the pumping equipment on the PGNiG tight gas well Niebieszczany- 1 along with ZRG Krosno. IN THEIR WORDS: “Both the U.S. and European regulatory systems are fairly onerous, so it’s likely both US and European chemicals can be used interchangeably.” – Adrian Topham, April 2011 in Warsaw
PERSONEL: Mark Swift, Business Development Jerzy Wozniak, Country Manager
ABOUT US: One of the largest oilfield services companies worldwide, based in Houston and Dubai, Halliburton has chosen to locate their European base of operations in Warsaw.
POLAND OPERATIONS: Halliburton operates in Poland from a base in Teresin, 40 km west of Warsaw. Halliburton services supported from this facility include Directional Drilling, MWD, LWD, Cementing, Coil Tubing, Pressure Pumping and Stimulation, Wireline, drill bits and coring and completions. COMPETITIVE ADVANTAGE: Halliburton has over 50 years of European experience in pressure pumping and stimulation. The technology used by Halliburton to unlock North American shales has now been deployed to Poland to help operators develop local shale opportunities.
MANAGEMENT BOARD: Jerzy Wozniak Tako Jan Kremer Werner Christian Donke CLIENTS INCLUDE: BNK/Saponis Marathon Chevron ENI PGNiG Aurelian
ON PERSONNEL: At year-end 2011, Halliburton employed 100 Polish nationals in Poland and across Europe. Many have been sent to North America to train in the shale basins. Polish trained specialists include the disciplines of geomechanics, petrophysics and stimulation engineering. GOOD TO KNOW: In 2010, they completed the first hydraulic shale fracturing program in Poland working for PGNiG, the state oil and gas operator. IN THEIR WORDS: “Halliburton has been active in Poland for close to two decades. What began with software, well logging and equipment sales has grown to include the full suite of Halliburton services.” - Mark Swift, Continental Europe Manager, December 2011interchangeably.”
An artist’s rendering of the forthcoming storage kit and maintenance facility based in Teresin.
www.cleantechpoland.com | 51
SER V I C ES
Halliburton Halliburton Company Germany Gmbh Sp. z o.o. Lubicz 23 31-503 Kraków, Poland tel: (+48) 22 470 7900 NIP: 526-106-28-30 KRS: 0000333519
Schlumberger Oilfield Eastern Limited Sp. z o.o. Aleja Jana Pawła II 25, 7th floor 00-854 Warsaw, Poland tel: (+48) 22 526 20 60 NIP: 107-001-64-55 KRS: 0000352578
Ali Hariki Keng Heng Ang Michael Tjahjana Ivana Vuckovic Vivien Chan Abraham Verburg Saul Laureles
PERSONEL: Doug Bentley, Business Development Stanisław Zwolan, Country Manager
CLIENTS INCLUDE: Marathon Lane Energy/ConocoPhillips San Leon Talisman BNK/Realm Chevron
MANAGEMENT BOARD: Amr Essawi Eileen Hardell Hichem Ben Mohamed
ABOUT US: Schlumberger is the world’s largest oilfield services company in operation since 1926. In Poland, they operate a full range of drilling and completion services.
PLANS FOR POLAND: Although there is no public estimate of Schlumberger’s spending program, likely they will make Warsaw the base for their Central European operations.
COMPETITIVE ADVANTAGE: Internationally known as one of the big four oilfield services companies, Schlumberger was the quickest to scale their operations, and now operate a full staff out of an office tower in Warsaw.
GOOD TO KNOW: Schlumberger did the hydraulic fracturing on Lane Energy’s ŁEBIEN LE-2 well, the first horizontal well to be fractured in Poland.
KIT STORAGE: Previous to the Polish shale boom, Bucharest, Romania was Schlumberger’s main base of operations. In 2012, Schlumberger will open a facility in Wołomin, north-east of Warsaw.
Schlumberger was arguably the quickest to scale their Poland based operations.
52 | shale gas investment guide | spring 2012
IN THEIR WORDS: “Natural gas is a growth business everywhere because it is environmentally sensitive. It will come out as a bridging fuel.” – Doug Bentley, Business Development, Schlumberger, Nov 2011
Weatherford in Poland
Weatherford’s commitment to its Polish partners and clients was recently show cased at an event near Zielona Góra , where, on the 14th of September 2011, Weatherford co-organized the Diament Open Day outdoor event together with the Poszukiwania Naftowe Diament Company.
Rafał Fryzowicz, Business Development Manager Poland
adv e r t o r i al
Unconventional resources are an extension of Weatherford’s existing core capabilities. Weatherford has recently opened a brand new 400 sq meter office in downtown Warsaw as well as a new 5,000 m² base due
Logging Unit during Diament Open Day event near Zielona Góra.
to be completed in Q2 2012. Weatherford is now firmly established in Poland. We offer all the services to deploy strategies for Reservoir Quality – “Geographic Sweet Spot” (Core labs,
lab for unconventional and seismic interpretation) increasing Drilling Quality – “Vertical Sweet spot” (surface logging, directional drilling, LWD/MWD, logging and interpretation) and deploying Completion Quality – “Lateral Sweep Spot” (stimulation, flow back, micro seismic, completion tools and water and solid management). FULL RANGE
Today we are creating a new benchmark by answering Poland’s call for high-quality products, services and efficiency in conjunction with a focus on advanced technology. We are taking the opportunity to round out our core service offerings to provide integrated solutions from reservoir to wellhead; from core sampling and analysis in our lab in Hannover, to integrated completions with our 20,000 HHP frac fleet; micro seismic and Zone SelectTM multistage tool; from our assure conveyance options for logging to the GC TracerTM for productivity prediction, and from our MotarySteerableTM and cementing services to flow back testing and water management equipment, all are available in Poland in 2012. On the evaluation side of the equation, Weatherford, has amassed a complete tool kit for meeting the highly data intensive exploration and evaluation needs in the market. From Microseismic, Compact logging, LWD, Mud Logging, and RockWise, Weatherford offers a comprehensive package of high end technology custom fit for unconventional Source: Weatherford
54 | shale gas investment guide | spring 2012
BUSINESS
Source: Weatherford
plays. Those high end services are supported with extensive 24 hour expertise in unconventional formation evaluation and interpretation products add tremendous value to any project. Furthermore, the Weatherford value added package, also includes two important points during the design phase: reduce foot print and minimize environmental impact. Specifically, Weatherford has implemented a specific methodology within Continental Europe by introducing low emissions, low noise pollution, and small footprint equipment. With these and other initiatives, Weatherford keeps evolving within the market where the sole objective is to deliver the highest quality services while offering the most flexible options to our client base. The drilling, completion and logistic challenges are great but the rewards will be greater and Weath-
erford will participate in all the stages to meet and exceed expectations. All with the same endurance, persistence and hard work that have shaped the country’s own identity, Weatherford has come to stay in Poland. OPEN DAY
Weatherford’s commitment to its Polish partners and clients was recently show cased at an event near Zielona Góra , where, on the 14th of September 2011, Weatherford coorganized the Diament Open Day outdoor event together with the Poszukiwania Naftowe Diament Company. Several of Weatherford’s product lines were invited to show their equipment and services in a large outdoor opening in the polish country side. The following Weatherford product lines participated in the show and presented their equipment: Directional Drilling, Liner Hang-
ers, Completions, Wireline Logging including 2 Wireline Trucks, Fracturing Equipment including Blender and Hydration Unit. During the event Diament also displayed their complementary equipment. All our equipment was accompanied by skilled personnel and experts providing explanations to interested customers with regards to the benefits and features of our equipment as well as the operations in question. Our well versed experts provided power point presentations to the attending audience, presenting approximately 5 hours of high tech knowledge to the satisfaction of our customers. Some of topics presented including a comprehensive introduction to Weatherford, Directional Drilling, Shale Completions, Wireline Logging & Microseismic, Fracturing, Frac Water Management and Project Management.
www.cleantechpoland.com | 55
adv e r t o r i al
Hydration Unit during Diament Open Day event near Zielona Góra.
By the numbers
Country by country comparison of Poland with respect to other European and North American countries
SOURCES: World Bank statistics, CIA World Factbook, (PA gas production from PA Geological Survey, TX production from Texas Railroad Commission) NORTH AMERICA
FISCAL REGIME *
USA (TX)
USA (PA)
CANADA
Royalty Rate **
7.5%+ $0.0003/mcf
10-20%
5% (Alberta)
Corporate Income Tax ***
franchise tax
10%
15% (Alberta)
Income Tax Loss Treatment
carry forward
carry forward
carry forward
varies
varies
20%
Government Take ****
GAS PRODUCTION Annual Production (BCM)
160
5
178
Domestic Consumption (BCM)
95
22
92
Net Exports (Imports)
65
(-17)
86
Gas Price ($/MMBtu) †
$4.20
$4.20
$4.20
GDP/Capita (2010 $USD)
46,000
46,000
40,000
Roadways (km)
405,000
156,000
1,042,000
Roads (km/capita)
0.017
0.013
0.032
Population
24,000,000
12,000,000
33,000,000
Land Area (sq km)
696,000
119,000
9,900,000
Population Density (pop/sq km)
34
101
3
COUNTRY INDICATORS
* Methods of calculating fiscal regimes vary. For instance, Germany gives a preferential royalty to coal bed methane. Poland has a royalty rate that varies from high to low methane and might be revised under the new geology and mining law. France has both “community” and “department” royalties. In the US, royalty rates are negotiated with the landowner. In Alberta, the government has a low royalty rate to attract investment.
INTERPRETATION: poland pays a higher price for gas than other eu countries Poland has a royalty regime that is among the most favor able the largest economies in the eu are net gas importers MEMBER COUNTRIES OF THE EUROPEAN UNION
POLAND
GERMANY
FRANCE
UK
TURKEY
$0.05 / mcf
9-35%
$0.05 / mcf
20-30%
12.5%
19%
31%
34%
30%
28%
carry forward
carry forward
carry forward indefinitely
carry forward
carry forward 5 years
20-45%
35-50%
30-40%
60%
40%
5
20
2
84
1
16
97
47
91
26
(-11)
(-77)
(-45)
(-7)
(-25)
$14.60
$8.80
$8.80
$5.80
$5.60
11,200
40,600
41,000
35,000
8,200
424,000
644,000
951,000
398,000
426,000
0.011
0.008
0.015
0.007
0.006
38,400,000
82,000,000
64,000,000
61,000,000
76,000,000
312,000
357,000
640,000
242,000
783,000
123
230
100
252
97
** Royalties in the U.S. are agreed upon between gas company and landowner. *** France has an income tax deduction that is either 23% of revenue or 50% of profit. **** Government take is an estimate of total royalties and taxes †Gas Prices (2010) in USA & Canada given by average Henry Hub price on USMEX, EU countries from energy portal (www.energy.eu) for industrial users. Turkey price of gas from current contract price with Azerbaijan. Poland from negotiated price with Gazprom.
58 | shale gas investment guide | spring 2012
profile
CR Profile:
It Takes a Village
To raise a drilling rig
What keeps LNG Energy’s Patrycja Kujawa busy in her travels through Poland? A lot of listening to what local communities have to say. By Parker Snyder It’s Saturday evening, deep December. The mayor of Jadów, a village an hour outside Warsaw, holds up a shot of twice-distilled Kentucky bourbon and encourages everyone at the table to join him: “Here’s to shale gas!” What’s not really quite clear at the start of the dinner is whether he’s drinking to the future of the village or thanking one of his guests: Patrycja Kujawa, the business development manager for LNG Energy. Ms. Kujawa’s company sponsored the party
photography by szymon szczesniak to celebrate the opening of the community’s first cultural center. Last year, Ms. Kujawa was hired by the listed Canadian junior to oversee the company’s Polish interests, particularly two concession blocks held jointly with San Leon Energy in the Baltic and Podlasie basins. The company also has a 20 per cent stake in the BNK-operated Saponis group that holds three Baltic basin concessions. Since then, Ms. Kujawa has been responsible in part for mediating between the needs of oil and gas com-
panies and the communities where they’ll locate their wells. Jadów is one of the locations where LNG Energy is thinking of drilling. Community relations is just part of her job. Ms. Kujawa is away most weekends. This time, she’s in Jadów to accept the mayor’s toast. CR IN PRACTICE Ms. Kujawa is no stranger to the oil patch, having worked in Alberta, Canada - home to the oil sands and Canada’s largest conventional depos-
www.cleantechpoland.com | 59
“These guys have my cell phone number, and they call if they need anything. That’s what community relations is about: getting out there and putting yourself in front of the people who live where you want to drill.” – Patrycja Kujawa, LNG Energy
its. First she covered Canada’s northern oilfield as a reporter, then as the editor of an oil magazine, and then as graduate student of natural resource economics at the University of Alberta. Though she may have sharpened her teeth reporting from the oil sands, she learned the trade first hand from her father, a mining engineer who’s career took him from the Polish coal mines to mining towns in Canada. Ms. Kujawa grew up in the far north in places dependent upon resource extraction – from gold to iron ore to uranium. Upon moving to Poland, she went “I’m an environmentalist who loves nature.”
to work for LNG Energy, grooming communities for the sight of drilling rigs and pump trucks. Her employer might never drill in Jadów, or a number of the dozen or so locations Ms. Kujawa has visited over the last year. But in the event they do, the local sołtys (village administrator) and mayor will know what to expect before a large drilling rig dots the skyline. At a recent shale gas conference in November 2011, Ms. Kujawa shared her perspectives on community relations, while showing a photo from a newspaper in one of the communities where LNG Energy is drilling. The
company’s president and CEO, David Afseth, was photographed among local villagers trying to drive a nail in with the sharp edge of an axe in a ritual that involves taking a shot of vodka each time you miss. “These guys have my cell phone number, and they call if they need anything. That’s what community relations is about: getting out there and putting yourself in front of the people who live where you want to drill,” Ms. Kujawa says. Her efforts have born some interesting fruit: one gentleman called her to ask for a job, another to describe seismic work going on in his backyard. Occasionally, as in Jadów, LNG Energy will be asked to show its support by sponsoring a cultural event. BEEN THERE, SEEN THAT Although Ms. Kujawa was born in Poland, she grew up in Canada. After receiving a two-year diploma in journalism, she worked in Fort McMurray, in northern Canada, far away from the city life in Edmonton and Calgary. Ms. Kujawa lived there, absorbing the life of a work camp, where she witnessed firsthand the cultural devastation of a boom town. In her view, Ft. McMurray was poorly equipped to handle the influx of oil workers. Partly as a result of the transient nature of their jobs, Ms. Kujawa saw the alcoholism and broken families the workers left behind.
Source: Patrycja Kujawa
60 | shale gas investment guide | spring 2012
As a journalist, she wrote about the oil patch for magazines and newspapers reporting on industry hot topics: the effects of sour gas, the debate on seismic vibrators, the social impact of the oil sands. After completing her master’s thesis, she wrote an energy economics column for an industry publication where she reported on the shale boom in the country of her birth. After moving to Poland, Ms. Kujawa started traveling through the country, keeping a watchful eye on the communities she promises will share in the benefits. Having sharpened her sense of fairness, Ms. Kujawa is quite convinced that Jadów will not be another Ft. McMurray. “Gas extraction is not as exhaustive and locally concentrated as production from the oil sands. Company towns won’t spring up around gas rigs. It’s rather that people living close to drilling operations are going to see increased demand for services and labour at certain times of the year. This is much easier for communities to absorb and adapt to in a positive way,” Ms. Kujawa says. An avid triathlete and a long distance runner, now she spends most of her time running between various government offices. “I’m an environmentalist who loves nature,” she says. “But I also have a pragmatic point of view. I believe economic development depends on the efficient use of natural resources.”
0
200km
200 Miles
Source: New World Atlas, reprinted with permission
www.cleantechpoland.com | 61
profile
Oil sands in Alberta, Canada
game
The farm-in
After the land grab, the next stage of market development dictates de-risking the acreage by farm-in agreements. As seismic and drilling program increase, farm-ins will play a more important role. By Jo Harper
p h o t o g r a p h y b y M i c h a ł N i w i N s k i & B o g d a n N i e z n a n y 1 LOT. PL
In shale gas markets, there is a gap between parties that hold prospective acreage and those with technology and access to financing. The bulk of the acreage has now been distributed in Poland. The next step will be reshuffling it so that the acreage holders and the companies with know-how can team up to produce the actual gas. An early example of this in Poland was the ConocoPhilips and 3Legs Resources farm-in agreement from 2009. ConocoPhilips would fund seis-
62 | shale gas investment guide | spring 2012
mic exploration and the drilling of up to three wells in return for the right to acquire a 70 percent interest in 3Legs’ Baltic acreage of 4,000 square kilometers, or 1 million acres. ConocoPhilips has until March to produce a notice to acquire 70 percent interest in 3Legs’ acreage. “This farm-in was a great way for our business to secure funding, via a carry, for the initial field operations - 3D seismic and up to three exploration wells - with the added benefit of access to [Conoco’s] technical exper-
tise in shale projects in the US,” said Kamlesh Parmar, 3Leg’s country manager in Poland. Following the farm-in, the development of 3Legs acreage’s got underway. Two vertical well tests were drilled in 2010, both of which encountered organic rich shale. Last year the venture also drilled two horizontal shale test wells – believed to be the first horizontal wells targeted at shales in Europe. “We are at the forefront of this activity in Poland and already have a
couple of laterals down, while the other operators in Poland are all at various stages of their own drilling campaigns. All of Poland’s acreage that has shale gas potential now looks to be licensed up so the initial grab for acreage is now almost over,” Parmar said. Farm-ins may be industry standard but are not easy to implement in Poland. “As far as I’m aware, there is no legal basis for farm-ins in Poland,” said Greg Pytel of the Sobieski Institute in Warsaw. He adds, however, that companies are finding ways for actual farm-in agreements. “Legally no license can be just shared with anyone and it cannot be split into what are essentially equity stakes in a new enterprise. Companies have been trying to solve this by keeping one licence, or very few licenses, per one registered subsidiary of the mother firm and then sharing the shareholding out at the subsidiary level. This may lead to ownership ambiguities,” Mr Pytel said. Apparently, operators remain unfazed about how much mess farm-ins could cause in the ownership structure on each operator’s acreage. “The shale gas industry is relatively new in Poland and there are still a lot of unknowns, so anything that enables participation by multiple operators has got to be a good thing,” Mr. Parmar said. “Farm-ins facilitate sharing and leveraging up of know-how.” “There are standard farm-ins and de facto farm-ins, the difference being the legal status of ownership of the license, which could be problematic in the future, but at this stage provides some flexibility,” said one industry source who preferred to remain anonymous.
Standard farm-ins are more clearly defined financial contracts, while their de facto sibling can evolve, the source said, within a less structured, open-ended format. “This is a suck it and see style of cooperation,” the source said, noting that flexibility could be both an advantage and potentially a downside. “The unknowns are still large in terms of what is possible at most levels in this industry, so the openended arrangement could leave some of these entities - on both sides - looking for tighter arrangements down the line, but by then it could be too late for them. It all depends at this stage on how much risk they want built into the initial
I BUSINESS nterview
“The shale gas industry is relatively new in Poland and there are still a lot of unknowns, so anything that enables participation by multiple operators has got to be a good thing.” – Kamlesh Parmar, 3Legs Resources agreement,” the source said. According to Henryk Szlajfer, who is conducting independent research into shale gas in Poland, another key factor in farm-ins and cooperation is how much of the future revenues from shale gas production stay in Poland. “Wherever capital comes from at this stage is less important than where it ends up once production begins on an industrial scale,” Mr. Szlajfer said. How Poland will manage the shale gas revenue stream is still being worked out, which adds to the margins of error in estimating technical, political and economic outcomes that farm-ins attempt to narrow.
Selected Polish farm-in deals 3 Legs/ Conoco Phillips
BNK/ RAG&Sorgenia
San Leon/ TLM
Date announced Gros acreage Interest aquired Cash paid ($m)
August 6, 2009 1,0078,000 70% 7
October 13, 2009 720,000 53.23% 3
March 1, 2010 598,000 60% 2.14
Program cost paid Carry ratio Program details
100% 1.43x Seismic & 3 wells (1 horizontal) ConocoPhillips* Up to $38m
73.33% 1.38x Undefinied
Operatorship Estimated gross Program cost (US$m)
Implied value of carry ($m) Implied value – $/acre
18.4 24
BNK $25
8 21
Marathon/ Mitsu
June 9, 2011 2,100,000 9% 61 (as reported by press) 100% Na 1.67x Na Seismic up to 6 wells NA (up to 3 horizontal) Talisman Marathon $80-120m NA
42.14 117
NA 340
*3Legs currently operator; Operatorship transfers to ConocoPhillips if they esercise their option to take 70%.
Source: Jefferies
www.cleantechpoland.com | 63
New Entrants No longer are the upstream markets in Poland dominated by state-owned companies like Nafta Piła and Geofizyka Kraków. The last twelve months have seen a number of new entrants in oilfield services.
Cea vollut parunt dis rereper uptatiaepere volent et is enim suqu
By Parker Snyder
64 | shale gas investment guide | spring 2012
P h o t o g r a p h y by Ł u k a s z O s ta l s k i / R e p o rt e r
According to Radovan Jedlicka, business development manager for MND Drilling, the services market has changed considerably in the last 12 months. “Last year’s story was the challenge getting access to the market. This year, it’s about market share,” he said at a November 2011 conference in Warsaw. MND Drilling, a Czech based company, moved into the market to drill for ExxonMobil. In addition to the Czech company, two drilling contractors, KCA Deutag and Drilltech, are other two new entrants who made inroads with Polandbased operators. KCA Deutag is drilling on Marathon’s acreage, in a program that may complete six wells by the end of 2012. Drilltech picked up the contract for ENI, the Italian operator at work in North Poland on a fivewell program. Among seismic companies, Global Geophysical set up shop in Warsaw after coming to Poland to do the seismic work for Marathon Oil. Acoustic Geophysical, moved into the market by securing the seismic work for Lane Energy, operating acreage in northern Poland in partnership with ConocoPhillips.
GOING BIGGER The big four are expanding to new markets. Weatherford began in Poland with well testing and is now offering a full suite of services from wireline to mud logging to completions. “In the fall we held an open day in west Poland and got the operators out to see all our equipment,” said Rafał Fryzowicz, Weatherford’s business development manager. Staging formerly out of Germany, new kit is on order for the Polish market. Schlumberger and Halliburton have both chosen Poland as the center for their pan-European operations. Looking to be kept busy in Poland for several years, Schlumberger bought and remodeled a storage/maintenance facility in Wołomin. Baker Hughes is opening a staging and maintenance facility, which will be located 15 km northwest Wasraw. Halliburton will also open a new facility in Teresin, 40 km west of Warsaw. Some entrants are new to Poland altogether. Viking, owned by Transatlantic, won the ION operated Ministry of Environment 2D seismic contract and aims to shoot over 1500 km across Poland.
“The bottom line is: I’m an engineer by trade and I see great opportunity here.” – Dennis McKee, United Oilfield Services.”
United Oilfield Services (UOS), a Soros-backed startup, raised tens of millions in private equity, and is trying to land their first contract in Poland. Cezary Filipowicz, a former Orlen executive who hired the current CEO Wiesław Prugar, was brought on as a business development manager. NOT JUST OILFIELD UOS president Dennis McKee sees the kind of opportunity in Poland that he formerly saw in the U.S. basins where he worked for a decade. “The bottom line is I’m an engineer by trade and I see great opportunity here. I’ve built four different service companies over the last ten years, and our hope is to bring the right technology and equipment to drill and complete wells in Poland,” Mr. McKee said. Other companies whose core business is not in the oilfield are expanding to target unconventionals. NTS, a construction company, will put its graders and stabilizers to work building well pads. LST Capital, a fund, announced plans in the fall to construct a ceramic proppant factory. The first stage of the investment will be to develop a production plant, which would produce 40,000 tons of ceramic proppant per year in 2014, the first year of the plant’s operations. Stakeholders in the project aim, however, to increase proppant production to 200,000 tons annually by 2020. The proppant production plant will be located in the powiat (county) of ˚ary, in the Gorzów Wielkopolski/Zielona Góra province.
www.cleantechpoland.com | 65
I BUSINESS nterview
“Last year’s story was the challenge getting access to the market. This year, it’s about market share.” – Radovan Jedlicka, MND Drilling
Packers Plus Open Hole Multi-Stage Completions
From the first well results obtained from Poland shales, it’s clear that different approaches will be needed in order to optimally exploit the significant reserves. Packers Plus specializes in open hole multi-stage fracturing systems and is well positioned to enable operators to realize the potential of these reserves.
How to maximize recovery from unconventional reservoirs Packers Plus
It is well known that the reservoir properties of shales found in Poland are very similar to those of the Barnett Shale in the United States. The Barnett Shale has been labeled the grandfather of shale reservoirs where “shale as a source rock” was first established. The Montney, Haynesville and Marcellus formations can also be used as close comparisons as shown in the table below.
adv e r t o r i al
Comparison of shale basins in North America and Poland
Canada USA
Montney
Barnett
Haynesville
Marcellus Carboniferous Baltic Basin
Depth, ft
6,500 - 11,000
6,500 - 8,500
11,000 - 13,000
4,000 - 8,000
6,500 - 10,000
7,000 - 14,500
Gross Thickness, ft
1,000 - 1,400
150 - 700
1,200 - 1,300
50 - 300
2,600 - 3,200
500 - 2,500
Net Thickness, ft
450 - 525
100 - 600
200 - 350
50 - 250
200 - 600
200 - 800
Thermal Maturity (Ro), % 2.2 - 3.8
0.8 - 1.3
1.8 - 2.5
0.7 - 2.15
1.3 - 2.0
1.2 - 2.6
TOC, %
1.0 - 5.0
4.5
0.5 - 4
1.0 - 5.0
1.0 - 5.0
0.7 - 9.9
Silica Content, %
45 - 60
35 - 50
34
20 - 60
20 - 60
25 - 63
Clay Content, %
< 35
33
20 - 35
34 – 44
Total Porosity, %
2.0 - 4.5
4.5
8 - 15
1.6 - 7.0
4-8
Permeability, nD
250 - 450
70 - 500
377
50 - 150 0.46 - 0.50
200 - 250 40 - 130 Over pressured 0.45 - 0.60
Gas-In-Place, BCF/Section 130 - 320 Pressure Gradient, psi/ft 0.65 Source: company data
Case Study - Barnett Shale Newark East Field This case study compares open hole and cased hole completions in the Barnett Shale. Many such comparisons are available for various tight oil and gas formations, all of which share a common theme: open hole completions outperform cased hole completions (Snyder and Seale, 2011; Wilson et al., 2011).
Source: company data
66 | shale gas investment guide | spring 2012
Poland
0.45 - 0.60
200 0.40 - 0.60
SEAL® II packers instead of cement to isolate sections of the wellbore, and FracPORT™ sleeves to create openings in between the packers for fracture treatment. Size-specific actuation balls are injected into the system to allow for hydraulic opening of the FracPORT
a characteristic of shale rock. On earlier cemented liner treatments, it was common that some hydraulic fracture treatments could not be initiated on some stages simply due to excessively high breakdown pressure. Long-term production from StageFRAC completed wells was compared with all non-vertical wells in Denton County completed from 2004 to 2005 (Lohoefer et al., 2010). Up to 60 months of production from over 200 wells were evaluated. One, two and five year cumulative gas values were determined for each non-vertical well completed from 2004 to 2005 and then averaged to determine the production for the field at each time point. Similarly, cumulative production values were calculated for five StageFRAC wells and averaged for each time point. At each time point the StageFRAC completed wells outperformed the non-vertical offsets for production increases of between 25% and 37% (Figure 2). Therefore, the StageFRAC completions accomplished all initial efficiency objectives and, after five years of long-term production history, the additional benefit of improved production.
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BACKGROUND Located in the Fort Worth Basin and covering approximately 5,000 square miles of north-central Texas, the Barnett represents the grandfather of shale reservoirs where the necessary set of technologies were developed to make hydrocarbon extraction economically feasible in shale. These technologies include horizontal drilling and multi-stage fracturing, which together have allowed for economic exploitation of this very tight gas reserve (<0.5 microdarcy permeability, 3 to 5% porosity). A number of fracturing methods have been attempted in the Barnett Shale including open hole, single stage “Hail Mary” fracturing; cemented liner, limited entry fracturing; cemented liner, multistage fracturing; and open hole, multi-stage fracturing.
Cumulative production for StageFRAC and non-vertical offset wells in Denton County
REFERENCES Lohoefer, D., Snyder, D.J. and Seale, R. 2010. Snyder, D. and Seale, R. 2011. Wilson, B., Lui, D., Kim, J., Kenyon, M, McCaffrey, M. 2011. For more information visit www.packersplus.com
*StageFRAC is a mark of Schlumberger Limited; all remaining marks are proprietary to Packers Plus Energy Services Inc. Some or all of the systems, methods or products discussed herein may be covered by one or more patents, or patents pending. © 2011 Packers Plus Energy Services Inc. All rights reserved.
www.cleantechpoland.com | 67
adv e r t o r i al
THE CHALLENGE An operator working in the Newark East Field in the core area of the Barnett Shale (Figure 1) had used the convenSource: company data tional cemented liner “plug and perf” method multi-stage fracture their horizontal wellbores. sleeves. The balls create internal Due to the numerous operations and isolation from stage to stage, elimiequipment required for this method, nating the need for bridge plugs. The the operator sought a more effective major advantage of the StageFRAC multi-stage fracturing solution. The system is that all the fracture treatoperator’s goals were to reduce costs, ments can be performed in a single, simplify the completion process and continuous pumping operation witheliminate long standby time during out the need for a drilling rig, saving fracture treatments. The hope was time and costs. Once stimulation to at least maintain equivalent well treatment is complete, the well can productivity achieved with the con- be immediately flowed back and proventional cemented liner, plug and duction brought on line. perf methodology. THE RESULTS THE SOLUTION The StageFRAC completed wells Between 2004 and 2006, the opera- achieved the operator’s goals by tor chose to run Packers Plus Stage- eliminating two weeks of compleFRAC* systems to complete their tion operation time. An unexpected wells in Denton County, Texas. benefit of the StageFRAC compleStageFRAC is an open hole, multi- tions was a dramatic reduction of stage fracturing system that uses excessive fracture initiation preshydraulically set, mechanical Rock- sure, as high fracture gradients are
State
keepers
The overall imagery of the potential shale boom in Poland has been thoroughly North American, but as the Polish government is pushing to get shale gas production going, state-owned operators may hold the keys to the market.
By Jo Harper The state-owned Polish Oil and Gas Company (PGNiG) and PKN Orlen - via its subsidiary Orlen Upstream - have both secured sizeable acreage along Poland’s shale belt from Gdaƒsk to Lublin. In a short time, both will be looking to de-risk the holdings and build value upon them. Both companies might consider farming out their acreage or farming in into others’ concessions. Super majors such as Exxon Mobil and Chevron, or smaller players like BNK Petroleum, are already reported to mull over going into business with the two treasury owned companies.
Upstream swap some of its Polish shale licences in exchange for an interest in Encana’s shale acreage in
pany seeks no farm out, but is looking to increase its shale gas acreage further. PGNiG confirmed in late 2011 an interest in the holdings of BNK Petroleum, with over 4,000 square kilometers (a million acres) in the Baltic basin with 20 percent of its Polish interests shared with LNG Energy and 53 percent with RAG/ Sorgenia. Polish operators could, however, be pushed into quite other direction with their strategies. Owning a large number of shale gas concessions, these state-owned companies, instead of looking for international partners, may have to respond to the government’s pressure to become responsible to get the gas flowing fast and control as much market as possible (see story on page 70).
“The proposed deal would see Orlen Upstream swap some of its Polish licences in exchange for an interest in Encana’s acreage.”
DON’T GO IT ALONE Orlen Upstream will spend PLN 500 million ($159 mln) over the next two years on shale gas exploration in Poland. “One of the possible directions in which our shale gas exploration projects could develop is cooperation with a partner having a relevant track record and know-how in the area of shale gas production,” said an Orlen press spokesperson in a written reply to Cleantech Poland. The company holds eight licenses on its own and one license together with PGNiG. A spokesman for Canada’s Encana Corporation said the company had been in talks with Orlen Upstream on a possible deal on shale gas exploration and exploitation, but that no agreement had been reached. “It’s correct that we have had talks, but until we have an agreement we do not have anything,” said Alan Boras, a spokesperson for Encana. The proposed deal would see Orlen
68 | shale gas investment guide | spring 2012
the U.S. and Canada. Since Orlen Upstream wants to keep its upstream and downstream activities in balance, it seems that the Polish company will farm in into some of Encana’s developed and producing acreage in the US. BEYOND THE BIGGEST PGNiG, which holds 15 unconventional gas concessions, the most in Poland, has a different strategy. The com-
Encana’s acreage in North America: 11.7 million net acres
Dry Gas Land os at December 31, 2010 Source: Encana Corporation
Liquids Rich Oil
www.cleantechpoland.com | 69
PGNiG
2.0
Calls from the government have not only spurred Poland’s biggest concession holder to announce a more ambitious development program, but had it join forces with other state-owned giants in an attempt to dominate the market.
By Wojciech Kosc
As approximations of shale gas resources are whetting political appetites for extra income streams to the budget, state-owned energy and mining companies are finding themselves under pressure. The Polish leader in shale gas exploration, the Polish Oil and Gas Company (PGNiG) is teaming up with other state players hoping to produce an ambitious development program on the Wejherowo concession, northern Poland. In late January, PGNiG signed letters of intent with stateowned energy utilities Polska Grupa Energetyczna (PGE) and Tauron, and one of the world’s biggest producers of electrolytic copper and metallic silver, KGHM. The signing of the letter followed a call from the ministry of the treasury that Polish companies should take a decisive lead in shale gas exploration in Poland. “Polish companies should sign agreements regarding exploration of shale gas in April 2012. If we could intensify activity and level the chances of the Polish industry against the European competition, then we can do it only here an now,” treasury minister Mikołaj Budzanowski told a conference in Warsaw, referring to differences in gas prices in the US and Poland. None of the companies that signed
the letters have experience in gas E&P. However, all three could, in theory, be looking for gas to be an important energy source as the Polish coal has been on the defensive recently, owing to the European Union’s restrictive policy on CO2 emissions. PGNiG is also moving forward with a €500 million bonds issue program that will support shale gas exploration in Wejherowo and 14 other concessions, as the biggest acreage holder in Poland, that the company operates on. PGNiG’s investment strategy for years 2011-2015 foresees investment expenditure of nearly PLN 26 billion (€6.2 billion), with PLN 15 billion (€3.6 billion) earmarked for oil and gas exploration, including an unspecified amount of capital going into shale gas exploration. All in all, there is a change compared to the 2012 shale gas exploration plans that the company made public last year, foreseeing exploration expenditure of just PLN 200 million (€47 million). “Compared to the company’s total capex running into billions, the market could guess that shale gas was not high on PGNIG’s agenda,” said Łukasz Prokopiuk, an analyst for PGNiG at IDM brokerage house. Mr. Prokopiuk adds that investors in PGNiG’s stock have been neutral so
“PGNiG’s turn to fellow state-owned companies could mean that the rumored farm-in deals between Polish players and US or Canadian corporations are not going to happen.”
70 | shale gas investment guide | spring 2012
far to the company’s shale gas plans. “Usually, mere prospects of positive market developments are reflected early on the stock exchange. I haven’t seen anything to that tune related to PGNiG’s shale gas exploration,” Mr. Prokopiuk said. PGNiG’s turn to fellow stateowned companies could mean that the rumored farm-in deals between Polish players and US or Canadian corporations (see page 68) are not going to happen. A farm-in deal between another state-owned concessions operator, Orlen Upstream, and Canada’s Encana is now viewed as “doubtful” by market observers, owing to Poland’s ambitions to divide and conquer the market.
PGNiG capital expenditure 2011-2015 PLN 25.96 billion (€6.2 billion) Wholesale trading (1.8%) Sales (0.4%) Others (1.8%) Storage New business areas
6% 11%
22%
Distribution Source: PGNiG
57%
Exploration and production
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What Are The Bottlenecks? As a new industry, shale gas production will face challenges. Operators are confident theyâ&#x20AC;&#x2122;ll produce gas, but big questions remain with how theyâ&#x20AC;&#x2122;re going to bring it to market.
By Wojciech Kosc
Photography by szymon szczesniak
www.cleantechpoland.com | 71
Unconventionals’ no man’s land – that’s what Poland used to be a mere few years ago, when the first concessions to look for shale gas were granted. Then the news disseminated quickly and the shale potential was boosted by the context in which energy issues have been discussed. In some ways, shale gas has been presented as a miracle solution to Polish energy challenges. It’s expected to let the economy kick the addiction to coal right at a time when coal’s CO2 emissions rate make it a rather undesired component of the energy mix, according to the European Commission. Shale gas is expected to free Poland from Russian energy dependence, a problem of other Central European countries (see page 80 for Romania’s troubles). In Poland, the feeling that Russia is up to no good when it comes to gas has been a suspicion especially since Nord Stream became operational, a pipeline linking Russia to Germany via the Baltic Sea. It’s easy to forget, though, that the grand vision of Poland’s becoming a local gas superpower, exporting the resource to all neighbors currently
depending on exports from its historical foe, is going to require clearing high hurdles. Getting anyone to indentify which hurdles was usually preceded by the remark: “yes, there are bottlenecks operators are facing but it would be good to know if there’s gas there at all...” Such a skeptic tone gives one an
servicing company looking to make inroads into the Polish shale gas market, they key bottleneck is people. “Let’s face it. There is no trained personnel on the ground with skills and experience in unconventionals,” he said, preferring to remain anonymous. “The industry relies on expats that do the work to help train a new generation of specialists,” he added. “While we would like to get to a level where our entire staff is made of Polish employees, it typically takes 10,000 hours, or four years to train them,” he said. Personnel shortages are likely a kind of bottleneck that will indeed take a long time to address. Other bottlenecks that the industry has been facing are being removed faster, according to Tomasz A. Gry˝ewski, corporate affairs director at Talisman Energy. “Just twelve months ago, there were problems everywhere you looked. There were no specialist services. Now, companies are coming in on an increasing scale, providing geophysical research, water treatment, water management or taking care of waste from drilling,” said Mr.
“Just 12 months ago, there were problems everywhere you looked. Now, companies are providing geophysical research, water treatment, water management and taking care of waste.” – Tomasz A. Gryzewski, Talisman Energy
72 | shale gas investment guide | spring 2012
idea where the industry is: few well results have been made public and what few were have been lackluster. While fundamental unknowns are challenging the market, companies spending capital will have to solve the challenges soon, as exploration is a period when no cash coming in to pay the bills. According to one manager from a
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Gry˝ewski. “As hydraulic fracturing will be done more and more often, the choice in who will provide it will become bigger as well,” he added. According to Mr. Gry˝ewski, the overall situation in Poland about a year ago was that just about every aspect of it was a big problem to solve. The companies that have moved in in the meantime pushed a great deal forward and it’s time for the officials to catch up. Mr. Gry˝ewski’s words are echoed by Maciej Wesołowski, a lawyer
with law firm DLA Piper Wiater. Mr. Wesołowski dismisses operational problems as anything that will hinder operators more than it should, pointing to other problems that are far more likely to be long-standing. Unfortunately, he adds, these issues are deciding for the entire sector to take off. “Operators and anyone involved will have to face up to problems created by the obsolete transmission and distribution infrastructure,” said Mr. Wesołowski.
According to Mr. Gry˝ewski, there’s only so much shale gas companies will be able to do if infrastructure does not live up to the needs of increased production. “Even taking all the unknowns into account, companies are already developing strategies for the next couple years in terms what will happen once production makes business sense,” said Mr Gry˝ewski. “You can only haul so much gas to individual recipients like, for example, thermal power plants. Several
www.cleantechpoland.com | 73
In an optimistic scenario, the potential of growth in demand for gas in Poland could exceed 15 billion cubic meters annually. Achieving such level of demand would take switching the entire economy to gas, an unlikely development.
companies have secured deals to sell gas in such a way but once you’re past certain amounts of gas, there has to be a system in place,” he added. However, political decision makers might have their own rationale when they’re not focused on tailoring the gas infrastructure. According to a last year’s study prepared jointly by the ministry of economy and the Faculty of Drilling, Oil and Gas at AGH University of Science and Technology, there are obstacles here and now for the development of an energy system based on gas. The study says that, first of all, even if the decisions about development of gas-fired power plants should be made now or in the near future, they are not going to be made before shale gas is ultimately proven in commercial quantities. Secondly, the costs of CO2 emissions are far from certain and if Poland’s ongoing attempts for a less radical CO2 policy in the EU take effect, their effect will be gas’ reduced cost competitiveness and therefore less demand and even smaller incentive for new gas infrastructure. “In an optimistic scenario, the potential of growth in demand for gas in Poland could exceed 15 billion cubic meters annually, which would represent a 100 percent growth in de-
74 | shale gas investment guide | spring 2012
mand or 40-80 billion cubic meters per annum. Achieving such level of demand would take switching the entire economy to gas, a completely unlikely development,” the study said. “In an intermediate scenario, the
growth in demand for gas is just below 5 billion cubic meters annually, meaning that the market potential would become a major obstacle for the development of unconventional gas,” the study concluded.
Forecast of natural gas consumption in Poland 2012-2035
SOURCE: ISE, Kraków University of Economics
It’s not just farm-in deals that push forward the nascent Polish shale gas market. Silurian Hallwood, a joint-venture of Poland’s Petrolinvest and US Hallwood Energy Group, went down perhaps a more rocky road last fall to attract capital via a private placement with foreign investors. While the company targeted PLN 113 million (GBP 23 million) and the private placement yielded slightly over half of the target sum, or PLN 66 million (13.3 million), the company’s executives were rather happy with the result. “The process of raising the capital by Silurian Hallwood was carried out in a very difficult time for the capital markets in the world. Investors are cautious on one hand, while on the other hand they seem interested in investment in the Polish shale gas,” Petrolinvest’s CEO Bertrand Le Guern said in a press release. Mr. Le Guern has a valid point,
The interest of the capital markets in taking on upstream exploration risk might be declining, and Silurian Hallwood’s private placement of shares late last year did not produce the expected results, but the company says E&P will soon make investors happy.
when saying that late 2011 was not the best time to raise capital. Generally, investor interest in the sector is said to have been declining since 2009. According to the Financial Times, the shale gas sector managed to attract USD 27 billion from capital markets in 2009, a figure that declined to USD 21 billion in 2010, and just USD 8 billion in 2011.
exploration and production as fast as possible. The acreage the joint-venture will operate is located in northeastern Poland, along the border with Russia’s Kaliningrad region, and totals 2,333 square kilometers, divided into four concession areas. The company, while looking to discover shale gas also mentions oil as a primary target for exploration. The oil hopes are based on the fact that on the other side of the border, Russians are extracting oil from rock of essentially the same geological profile. “Silurian Hallwood has a very differentiated story from other shale plays in Poland due to the high probability of oil in our acreage, which is of a similar size to the entire Bakken shale play in the US,” said Wes Skrobowski, CEO of Silurian Hallwood, in a company press release. He added that the oil prospects would “add significant value to the proposition on the route to IPO.” The IPO date of Silurian Hallwood is still to be determined.
“Silurian Hallwood has a very differentiated story from other shale plays in Poland due to the high probability of oil in our acreage, which is of a similar size to the entire Bakken shale play.” –Wes Skrobowski, Silurian-Hallwood The fundraising effort was undertaken by Chrystal Capital Partners, a corporate finance boutique. According to Chrystal Capital, the SilurianHallwood shares were placed with “with a large European family office and three additional smaller family offices.” Happy to secure what they could, Silurian Hallwood is now set to start
www.cleantechpoland.com | 75
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Silurian- Hallwood Private Placement
Bill Marble gave up his life long dream to tour on a Harley, just to come to Poland and operate shale acreage.
76 | shale gas investment guide | spring 2012
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Shale Secrets If you’re lucky, William Marble will take out a piece of paper and explain a few of the techniques that earned him a reputation in the Barnett. During an exclusive interview with Cleantech Poland, we got lucky.
by Parker Snyder
“When I got the call I was on my motorcycle,” says William Marble, chief operating officer for SilurianHallwood, a joint venture exploring for shale oil and gas in northern Poland. “It was Tony, my old boss and good friend. My wife and I were in Seattle on our way to visit every national park in the United States. Tony said drop everything and come to Poland. The next day I was on a plane,” he concludes. His kids thought he was crazy, and for good reason. Mr. Marble has
Photography by szymon szczesniak
little to prove. He has “retired” twice from the oil and gas business after 35 years working as an engineer in some of the most demanding basins in North America. Regularly his wells outperformed the competition and he earned for his efforts. Mr. Marble first cut his teeth in shale working for Hallwood Energy in the Barnett. The company began small, but by the time it was sold to Chesapeake in 2005, the buyout was valued at close to $565 million. Mr. Marble and his colleagues had figured out how to unlock the secrets of the
shale. By the time the company was sold, Hallwood had raised the average initial production of their wells from 1 million cubic feet (mmcf) to between 3 and 7 (mmcf). When Mr. Marble and his wife started to criss-cross the United States on a Harley, Mr. Marble had convinced himself he was done exploring. But now he’s back in school (to learn Polish) and will begin operation on concessions held in joint venture with the Polish-based operator Silurian. According to predictions, he’ll be exploring in the oil window.
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Bill Marble and his wife road thousands of miles before making it to the edge of the Article Circle.
Photo courtesy of Bill Marble
Paweł Poprawa, a geologist witih Polish Geological Institute, has independently estimated the resource base to be 37 billion barrels of oil in place with an estimated 3.7 billion barrels recoverable, on four concessions: Lidzbark Warmiƒski, K´trzyn, W´gorzewo and Gołdap. THIEF ZONE Mr. Marble has a philosophy for operating shale: 1. design with the best technical expertise you can, 2. apply the best human experience you can, and 3. learn again and again from your mistakes. As a rule of thumb, during fracturing, when the pressure downhole reaches 5,000 - 6,000 psi, Mr. Marble
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says he will maintain pressure, staying close to the maximum allowable. “If an operator hits a thief zone, most will back off, even stop operations. But not me. I’ll continue to pump and stress the rock,” Mr. Marble says. In a shale, a thief zone is an area of the reservoir with a higher permeability that tends to “steal” pressure. “In the Barnett, we would constantly ask ourselves what would happen if you stressed the rock differently. We were willing to experiment more than others. Sand for instance, is more important as a diverter than as a proppant. You can use sand to jam up the thief zone, pack it full, and reduce the permeability of what was an open conduit.”
“After all, you don’t have to open the shale up too much. How wide is a water molecule? How wide is a methane molecule? Here’s some more things to consider...” Scan the QR code to read more of Bill Marble’s secrets.
BEEN THERE, SOLD THAT In 2002, Hallwood saw the Barnett south of Fort Worth as a missed opportunity that most others had avoided up until then. Mr. Marble and his colleague Russ Meduna, an engineer, went about exploring shale and building infrastructure in an area which had never seen commercial production. According to Mr. Marble, “In the core area, the gas-producing shale was bounded on the bottom by the Viola, a limestone barrier that tended to help control the frac, making the wells produce more gas and less water. But in Johnson county there was no Viola barrier and the typical shale fracs of-
ten yielded water with little gas.” Apparently, his methods worked. In 2002, Hallwood began with just four wells. By June of 2004, they had 35 vertical wells and 6 horizontal wells and had cut their drilling time in half. Anthony Gumbiner, President of Hallwood Energy, has known Bill Marble since the 1980s, when he restructured Saxon Oil. In the Barnett, Mr. Marble worked for Mr. Gumbiner, who is now on the management board of the Silurian-Hallwood joint venture operating Polish Baltic acreage. According to Mr. Gumbiner, “After we sold the company to Chesapeake, Bill could live out his dreams, driving his wife around the U.S. on a Harley.
Of course, I had to track him down on his motorbike. It didn’t take much convincing to get him to Poland. Bill is always up for a challenge. Mr. Marble was the Vice President for Hallwood Energy Corporation and has 32 years experience in the oil and gas industry. He worked with Schlumberger, Texas American Bank and various Permian basin independents. Mr. Marble received a BS in Petroleum Engineering from the New Mexico Institute of Mining and Technology. He is a registered engineer in the State of Colorado, and a member of the Society of Petroleum Engineers.
In his own words Geologists ponder maps, logs and other data in search of prospective hydrocarbon traps. Then they put a dot on a map and gives it to the engineers. In the past, the well was designed, drilled and completed in the targeted formation. The geologists would exchange information to ensure that the target was hit in an optimal position. Once drilled, log readings were made to estimate potential reserves, and to verify additional drilling opportunities.
Although this is a simplification, often the communication was limited between the rock-focused geologist and the math-focused engineer. But no more, not in the age of unconventional gas. While the basic needs for geologic analysis remain unchanged, there is a significant increase in the need for communication and coordination between these two disciplines. Communication between these groups is essential to promote innovation and optimization in these technologically
challenging unconventional plays. The geologist is no longer relegated to placing a dot on a map and waiting to see if the engineer finds the target trapped, sourced and sealed. Now the geologist’s work continues, and in more detail than before. Rock mechanics, mineralogy, clay content, secondary mineralization, Young’s Modulus and Poisson’s Ration have become everyday terminology that all disciplines must work to understand. – WILLIAM MARBLE, ENGINEER
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BUSINESS
“Bill could live out his dreams, driving his wife around the U.S. on a Harley. It didn’t take much convincing to get him to Poland. Bill is always up for a challenge.” – Anthony Gumbiner, Silurian-Hallwood
Escaping
the Hook
The winding mountain roads
Mirona Hritcu
Photography by szymon szczesniak
There are no figures calculating Romania’s shale gas potential, nor laws regulating it. But shale gas is on everyone’s lips in a country that’s facing a depleted well of conventional gas resources.
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Romania should have started looking for new energy solutions a long time ago. The country’s proven gas resources will run dry in the early 2020s, leaving the country entirely dependent on Russia, even if nowadays only 20 percent of gas supplies come from Russian resources. In 2009, Romanian authorities realized that the country’s assumed shale gas potential might save it from the Russian energy hook. However, the size of Romania’s shale gas reserves remains unproven. “Rough estimates are based on the evolution of the sedimentary basin and on the assumption that, since some rocks used to generate hydrocarbons at one point, they might still produce,” said Mihail Batistatu, associate professor at the National Institute of Oil and Gas. Gheorghe Buliga, former president of the National Agency of Mineral Resources (NAMR), values the country’s shale gas potential at about 1,000 billion cubic meters. His estimate is more courageous than the one from the US Energy Information Agency from 2011, which put technically recoverable shale gas resources of Romania, Hungary, and Bulgaria combined at 500 billion cubic feet. SHY SHALE PLAY The Romanian government has neither the money, nor the know-how to explore the resources and is hoping that oil and gas firms will do the job instead. But the activity in Romania’s potential shale plays have been rather timid. US major Chevron is probably
leading the pack. In February 2011, Chevron completed a USD 25 million takeover of a concession in the Barlad area from British Regal Petroleum. Chevron showed a bit of confidence towards the region’s prospects, after British Regal gave up on it after some test wells didn’t perform. Chevron also won concessions for three more areas, totaling 2,700 square kilometers, in south eastern Romania. The company says it will get going with exploratory work in 2012. There are hopes attached to Chevron’s results. “We have a broad estimate of unconventional gas resources, but we wait for the exploration works by Chevron to confirm them,” said the NAMR president, Alexandru Patruti. Apart from Chevron, there are other active companies. In October 2011, representatives of Sterling Resources announced they would invest
up to USD 1 bln in the exploration of two blocks in the Dobrogea area. Other potential investors are Hungary’s MOL and Canada’s East West Petroleum. RESIGNED TO DEPENDENCY In Romania, even the 2011-2035 National Energy Strategy, the main energy policy document, doesn’t mention shale gas, conceding that “once the internal conventional gas reserves are exhausted, Romania will rely entirely on imports.” It’s not clear, either, what the Romanian authorities are planning to do about regulating the industry. The NAMR president thinks that specific regulations will surely occur, but rather at the European Union level than at a national one. Most probably, however, the change will come once the potential of Romania will be confirmed by the coming years drilling.
Romania Concessions Company
Concession name Acreage
Chevron România Holding BV
Barlad Block EV-2
Development
6,284 km2 104.7 km of 2D seismic measurements
Chevron România Holding BV 17 Costinesti
~1,000 km2
No measurements
Chevron România Holding BV 18 Vama Veche
~1,000 km2
No measurements
Chevron România Holding BV 19 Adamclisi
~1,000 km2
No measurements
MOL
EX 1 Voivozi
~1,000 km2 2D and 3D seismic measurements
East West Petroleum
2 Tria
~1,000 km2
No measurements
East West Petroleum
3 BâÉile Felix
~1,000 km2
No measurements
East West Petroleum
7 Perian
~1,000 km2
No measurements
East West Petroleum
8 Biled
~1,000 km2
No measurements
Source: company data
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BUSINESS
Only in 2009, did Romanian authorities realize that the country’s assumed shale gas potential might save it from the Russian energy hook.
Faces
No one wants poor for their community, not the operators, not the protestors, not the politicians, not the pundits. Why then is shale presented as a dichotomy between us and them: yes we want it or no we donâ&#x20AC;&#x2122;t? To get beyond the irrational and find a moderate between extremes, we reached out to local protestors, international operators, and Brussels politicians to give our photographer an assignment: shoot the movement through an agnostic lens. Enjoy FACES, a few of which are helping to define - depending on your point of view - Europeâ&#x20AC;&#x2122;s present day opportunity or flop-ortunity. What do you see? Photography by szymon szczesniak
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Adam
Ta b l e o fac f Ceosn t e n t s Patrycja
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DAVID
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Jose
BOGUSﾅ、W
Tomasz
DAN
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hieronim
bill
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beata
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roman
doug
paweĹ&#x201A;
jens
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bogdan
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dariusz
rafaĹ&#x201A;
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jerzy
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marian
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fac e s
Kamlesh Parmar, 3Legs Resources
Adam Sochaczewski, Gas Plus International
Patrycja Kujawa, LNG Energy
David DeBenedetti, DeBenedetti Majewski SzczeÊniak
Jose Bove, Member of the European Parliament
Bogusław Sonik, Member of the European Parliament
Tomasz Goskowski, wójt (administrator) of St´˝yca
Dan White, Global Geophysical
Bill Marble, Silurian Hallwood
Hieronim Wi´cek, local objector
Beata Stelmach, deputy minister of foreign affairs
Roman Rewald, Weil Gotshal & Manges
Doug Bentley, Schlumberger
Jens Rodiek, Baker Hughes
Paweł Poprawa, Polish Geological Institute
Bogdan Marcinkiewicz, Member of the European Parliament
Rafał Fryzowicz, Weatherford
Dariusz Kokoszka, wójt (administrator) of Jadów
Jerzy Buzek, Memeber of the European Parliament
Marian Cichosz, local objector
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Brussels, at odds Poland would like to see the EU embrace shale gas to improve the energy security of Europe. Skeptics say it’s a cover-up, because Polish interests are rather at odds with the EU’s. Sonja van Renssen reports from Brussels. S o n j a va n R e n s s e n Poland wants to sell shale gas potential to boost the European Union’s energy security. Reactions from members of the European Parliament (MEPs) to a recent shale gas report ordered by the European Commission show that not everybody is buying their side of the story. In late January, the Commission unveiled a study which concluded that there are no “significant gaps” in current EU laws for the development of shale gas. In the Commission’s view, there’s no need to change the law, should Poland or any other country wish to develop its resource base. In reaction, Green MEPs accused the Commission of distorting its own research. “Innumerable reports have highlighted the negative impacts of shale gas exploitation on land, water resources and greenhouse gas emissions, as well as the potential of a new financial bubble. The Commission should follow the recommendations of its own research and come forward with proposals to adapt the relevant EU legislation,” said French Green MEP José Bové. In a letter sent to Mr. Oettinger, the Greens point out that the study, by law firm Philippe & Partners, also warns there “is no reason for complacency” and that “some adjustments to legislation should be further considered”. Indeed, the new study mirrors concerns set out in a report for the Parliament last year that the relatively small scale of shale gas exploration would be mostly exempted from environmental impact assessments (EIAs), and as a consequence, from public consultation. This opens the door to environmental damage and public opposition,
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Photography by szymon szczesniak especially when these projects are later scaled up. Two centre-right Polish MEPs welcomed the Philippe & Partners’ study, however. “Today it is quite clear that current EU legislation is sufficient,” said Jerzy Buzek, former president of the European Parliament. “We may need to specify issues related to environmental protection and the necessity of public consultation,” said Bogdan
Europe isn’t the place for hydraulic fracturing, says José Bové
Marcinkiewicz. More tussling over shale gas exploration is still coming up in Brussels. The Parliament is starting work on two reports on shale gas. One will be led by another Polish centre-right MEP, Bogusław Sonik, in the environment committee and the other will be led by right-of-centre Greek MEP Niki Tzavela in the energy committee. First drafts are due in the spring time.
Negotiations are likely to be tough. “Sonik will be advocating for his country’s energy independence and not for the EU public interest,” says French Green MEP Michèle Rivasi, a member of the environment committee. The committee will have to hammer out a joint position on the report before it is submitted for approval by the parliament.
“The EU debate should be based on facts and scientific research, not on prejudice and groundless fears,” Mr. Marcinkiewicz countered. A difficult issue will be the value of shale gas in tackling climate change. “If we do not convince the Americans to invest in Poland, then the enormous costs of exceeding CO2 limits will be shifted onto the individual cus-
tomer. Shale gas is a kind of hope carrier within the scope of CO2 emission reductions,” said Mr. Marcinkiewicz. Ms. Rivasi believes the opposite: “Development of shale gas in Europe could go against our ambitious climate scenario,” she warns. “Instead of investing in dirty energy, let’s focus on energy efficiency as well as clean and renewable technologies.”
Shale gas is Europe’s opportunity, says Bogusław Sonik
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policy
“Innumerable reports have highlighted the negative impacts of shale gas exploitation on land, water resources and greenhouse gas emissions, as well as the potential of a new financial bubble.” – José Bové, MEP
Royalty rate, rising? An opposition partyâ&#x20AC;&#x2122;s idea on how to secure the stateâ&#x20AC;&#x2122;s revenue is just one of many to come as shale gas exploration speeds up. Problem: shale gas companies do not have a clue yet about the economics of their activity. By Wojciech Kosc
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Photography by szymon szczesniak
A year ago, Polish politicians appeared to be fully supportive of the developing shale gas industry in Poland. The mood is changing to be less positive however, as a discussion gets underway on how much of shale gas revenue will end up in the state’s coffers. New ideas for changes in the current royalty regime are surfacing, but operators say that the discussion is premature and abstract. “It’s best to wait until the economics of shall gas exploration become clear. We won’t know anything about costs and profitability until there are more well results,” said Tomasz Maj, general manager of Talisman Energy in Poland. “Otherwise, operators might find out that the proposed royalty scheme or anything to secure the state’s revenue from shale gas production just renders the entire sector uneconomical and the opportunities will end before they really begin,” Mr Maj added. Poland’s current royalty regime (about 20% of gross revenue including corporate taxes) appears so favorable to operators, however, that it has been only a question of time when the first ideas on how to change it will surface. The government and the opposition are in agreement that the Polish state should be an important beneficiary of the expected shale gas bonanza, a logical consequence of natural resources being state-owned. The Citizens’ Platform-led government has only said so far that it was important that the state benefits from shale gas exploration and the relevant regulations are expected to see daylight in early 2012. The main opposition party, Law and Justice (PiS), came up with particulars more quickly. The PiS proposition builds upon the
- far from confirmed - Energy Information Administration (EIA) estimate of 5.3 trillion cubic meters of recoverable shale gas in Poland. The proposition goes even deeper into speculative territory by saying that “there are clear signs that the extraction of hydrocarbons in Poland will be highly profitable.” According to a draft law authored by PiS, the royalty fee will should be at least 40 percent of the value of extracted gas, a significant hike in comparison to today’s rate of 1-2.5 percent, depending on the scale of production. According to Tomasz Chmal, the current low rate is a legacy of the Polish
gas market dominated by the stateowned Polish Oil and Gas Company (PGNiG). The draft law - if it ever becomes binding to businesses - will also make operators to farm out a stake in each concession area to a state-owned company. “The royalty rate is bound to go up, but instead of dropping abstract numbers, there should be a debate involving operators about a model that Poland will be implementing,” Mr Chmal said. “Hiking the royalty rate and making the state a stakeholder in each concession resembles the Norwegian model - only it took Norway decades to arrive at it,” he added.
Norway, No Way? Polish politicians like to refer to Norway as a model country in terms of how it has been managing the enormous wealth from exploration of natural resources. Simplyfying a bit, Norway’s Oil Fund, which manages well over USD 500 billion, invested this capital in European and US stocks and bonds. According to a 2011 study from Levy Economic Institute of Bard College in the US, however, the strategy isn’t all that perfect. “For the past generation Norway has supplied Europe and other regions with oil, taking payment in euros or dollars. It then sends nearly all this foreign exchange abroad, sequestering its oil-export receipts to invest mainly in European and US stocks and bonds,” the study said. “It is claimed that treating these savings as a mutual fund invested in
a wide array of US, European, and other stocks and bonds (and now real estate) avoids domestic inflation that would result from spending more than 4 percent of the returns to this fund at home. But the experience of sovereign wealth funds in China, Singapore, and other countries has been that investing in domestic infrastructure serves to lower the cost of living and doing business, making the domestic economy more competitive, not less,” the study also said. If Poland ever creates anything like the Norwegian Oil Fund, the decision makers might want to think twice before the shale gas income props up foreign stock and bond markets. Even more so because some of Poland’s economic goals are exactly what the Levy Institute’s suggests Norway could improve.
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policy
“Operators might find out that the proposed royalty scheme or anything to secure the state’s revenue from shale gas production just renders the entire sector uneconomical.” – Tomasz Maj, Talisman Energy
Beata Stelmach, deputy foreign minister, says Poland will use shale gas to improve its energy security.
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policy
Interview: Beata Stelmach
Security
Concerns Poland wants to go ahead and develop its shale resources to cover its energy needs, before it will attempt to change the international rules of the game. By Wojciech Kosc The shale gas message from Warsaw has changed. In the early days of the concession process, the government was going to great lengths calling for international support for the development of shale gas in Poland. Recently, however, the tone has switched, with the government now pushing state-owned companies to scoop up the lion’s share of the market. The bottom line remains the same: a functioning shale gas sector will address some of Poland’s most important energy woes and improve the country’s geopolitical standing. “The strategic goal that Poland would like to achieve taking advantage of shale gas sector is to improve Poland’s energy security,” Barbara Stelmach, deputy foreign minister, told Cleantech Poland during an interview at the foreign ministry. “Poland will use any opportunity to ensure its energy security, and if shale gas is going to help, we will certainly take care of it,” she added.
Photography by szymon szczesniak “Under the Lisbon Treaty, each member state of the European Union has the right to create and pursue its own policy regarding the energy mix,” Ms. Stelmach said, referring to concerns that the controversial shale gas extraction technique of hydraulic fracturing could prompt the European Commission to draft legislation that
“It’s not true that the climate for shale gas in the EU is negative. Majority of the MEPs are for it, with an exception of those representing the lobby of environmental protection, like the Greens. They’re giving in to the arguments that shale gas extraction means environmental damage,” Ms. Stelmach said. “It’s our job, then, to present analyses, organize events and workshops with experts and companies to educate people about shale gas,” she said. “In Bulgaria, for example, the opposition to shale gas was due to lack of proper information about it rather than having quality information about shale gas’ harmfulness,” Ms. Stelmach said. Bulgaria banned hydraulic fracturing in January, foiling plans of oil and gas companies like Chevron to develop their acreage. “If we don’t develop shale gas in Poland, a member of the EU, the sector will develop outside of Poland and outside of the EU. So that would have been a wasted chance to make the EU more
“There’s still a great margin of error regarding how much gas there is and whether it’s going to be profitable.” – Beata Stelmach would render shale gas market unprofitable or simply ban the extraction on environmental grounds. These concerns are not well grounded, according to the minister. In contrast to what some members of the European Parliament are saying [see story on page 94], Poland’s success in shale gas will be the success of the European Union, she said.
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“It’s not true that the climate for shale gas in the EU is negative. The majority of MEPs are for it, with the exception of those representing the lobby of environmental protection, like the Greens.” – Beata Stelmach
competitive globally,” Ms. Stelmach said. When asked, however, how shale gas might improve Poland’s geopolitical position, the minister was more cautious in her remarks. If the resources are confirmed, would Poland try to get into markets that are currently 100 percent dependent on gas imports from Russia? According to Ms. Stelmach, meeting Poland’s own demands should come first. “We want to minimise risks coming from imports of energy sources,” she added, dismissing reports like the 2010 analysis from the Oxford Institute of Energy Studies predicting
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that conventional gas imports from Algeria, Qatar or Russia’s Yamal pipeline will still be cheaper than shale gas in 2020. “The costs of shale gas production have been driven down to a great extent. We are now benefiting from the decades of development of the shale gas industry in the US,” Ms. Stelmach said. “There also is a benefit in sight for the treasury but Poland will approach this issue with care. We want to ensure that the Polish treasury benefits from shale gas but we don’t want to scare companies away by unreasonable fiscal and taxation regime.” She added, however, that at the cur-
rent stage, making shale gas a line item in any long term energy security policy is premature. “There’s still a great margin of error regarding how much gas there is and whether it’s going to be profitable,” Ms. Stelmach said. According to the minister, neither is there any reason to think that shale gas will become the new coal - the dominant fuel these days - of the Polish economy. “Poland will do its best to develop the shale gas sector, but the energy mix will remain, made up of coal as well as renewables, and we will not give up on the nuclear program,” Ms. Stelmach said.
Are shale development costs too high? Polish deputy prime minister and minister of economy Waldemar Pawlak says that once estimates of shale gas resources are proven, the economics of shale will make sense. By Wojciech Kosc photography by szymon szczesniak
RE : SHAL e
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policy
Minister Pawlak
Source: press office
How would you justify the economic sense of shale gas development, given that production in Polish conditions will be more expensive than in the U.S. Further more, there are many countries that could sell gas to Poland at competitive prices. At the current stage of exploration, it’s difficult to estimate the cost of acquiring gas from shale formations. However, comparing the geological conditions of unconventional natural gas deposits in North America and Poland, the market for drilling services and population density, we expect that the cost of gas production from unconventional plays will be higher than in the US or from Poland’s conventional
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deposits. But recent changes in the gas market in the U.S. provide some grounds for optimism. In the US, production of gas from shale formations is causing prices to drop. Gas prices in the US are already about three times lower than in the EU. What are the necessary investments in infrastructure to help develop the shale gas market? At the current stage of exploration we will certainly have to bet on the development of the market for services. An important step will include service companies’ purchasing new drilling equipment. Once producton starts, investments to expand the gas transmission network will be necessary.
What are the benefits of shale gas that Poland presents to the EU? Are Poland’s arguments acknowledged in any way? Gas is going to be a very promising source of energy in the coming years, something that the EU is well aware of. There’s a need to produce more gas from available conventional fields as well as to seek new sources of gas. Also, the scenarios of the International Energy Agency are predicting an increased use of gas for electricity generation. Development of shale gas production will reduce the EU’s dependency on external gas supplies, thus reinforcing the European countries’ energy security.
Does Poland intend to negotiate the price of gas from Russia, if Polish shale gas tesources are proven to be as big as in the estimates of the Energy Information Agency? Natural gas price negotiations were conducted in 2011 at the level of involved companies. Unfortunately, no agreement was reached. The issue is now with the Court of Arbitration in Stockholm. You recently told the Polish Press Agency that the Ministry of Economy will begin cooperation with the treasury and the ministry of environment so as to coordinate activities related to shale gas throughout the government administration. What is that for? Seeking unconventional gas resources is a strategic project for the Polish economy and it has to require a concerted action across the government. There’s an ongoing work to establish the government proxy for the development of hydrocarbon production. I hope that the institutionalization of government support for shale gas production will accelerate the development of this prospective sector in Poland. The current idea in the government is that the chief geologist should be the proxy for shale gas (editor’s note: Piotr Woêniak is the chief geologist as of December 2011).
Pawlak’s long shadow Waldemar Pawlak is in charge at the ministry of economy, whose competences have long been related to those of the ministry of environment. For example, while the ministry of economy is responsible for the energy sector, it is the ministry of environment responsible for CO2 emission permits and environmental impact assessments. Recently, the lines have blurred a bit. Following last year’s parliamentary elections, Pawlak’s ministry has stepped in to “cast a long shadow” on the ministry of the environment. Not officially, but due to changes in the ministry of environment’s leadership: four out of six key positions have been filled by former ministry of economy officials. The minister of environment, Marcin Korolec was an under secretary of state responsible for energy during Mr. Pawlak’s previous term at the ministry of economy in 20072011. The director of Mr. Korolec’s political office is Wojciech SaryuszWolski, who coordinated the ministry of economy’s activities during Poland’s EU presidency last year.
Three key under-secretaries of state in the ministry of environment also worked for the ministry of economy, often in a position where environmental policies were more often than not seen as hindrance. Piotr Woêniak, now an under-secretary of state, and the country’s chief geologist, was minister of economy from 2005 to 2007. He’s a likely appointee to a position seen as a government proxy for shale gas development. Two under-secretaries of state in the ministry of environment, Beata Jaczewska and Aneta Wilmaƒska, had worked for ten years or so in the ministry of economy’s department of economic development. Ms. Jaczewska is now responsible for climate policy. Ms Wilmaƒska supervises the Infrastructure and Environment Program and NFOÂiGW, the National Fund for Environmental Protection and Water Management. Finally, Sylwia WaÊniewska, the current head of the National Centre for Emissions Management, a body implementing regulations on greenhouse gases, used to work as deputy director in the Ministry of Economy.
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policy
Are shale development costs too high? Polish deputy prime minister and minister of economy Waldemar Pawlak says that once estimates of shale gas resources are proven, the economics of shale will make sense.
NO
(go somewhere else) By Wojciech Kosc
Operators who think that the new geology and mining law allows them to pay little attention to public protests, could find themselves alienated from the local communities where they want to drill.
p h o t o g r a p h y b y W o j c i e c h D r e wk a / E x p r e s s K a s z u b s k i . p l
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Poland has not seen many protests against shale gas exploration. What few have taken place however, have left both sides of the conflict in a state of deep mistrust. Operators claim that they’re going to great lengths to explain what shale gas E&P is about, but too often from the point of view of local residents, they seem to parachute into communities not recognizing how deeply skeptical are some local residents. Recently, they’ve found themselves up against an opposition. At these meetings, residents usually come to meet operators with difficult questions, some related to waste management and water sourcing. Tomasz Brzoskowski, administrator of the gmina St´˝yca where BNK Petroleum is drilling, isn’t surprised to hear they meet protest. “The government has failed completely to deliver any information down to the local level when the concessions process was going on. So I have to do the job myself now,” he said. In the last few months, operators have clashed with locals in two encounters that were publicized in the Polish media. In early 2012, executives of Chevron walked out of a meeting in ˚urawlów, eastern Poland, reportedly on seeing that local residents attended along with experts, journalists and environmental activists.
In October 2011, a meeting took place between local authorities of St´˝yca and Sul´cino communes and representatives of BNK Petroleum. BNK reportedly failed to convince the attendees that shale gas operations bear little risk while holding big perspectives for the locals. BNK’s country manager Jacek Wróblewski claims that the October 2011 meeting wasn’t a sign that there’s an anti-shale gas attitude on the ground. “Objectors speak up loud and get most of the attention but they’re not representative of the people,” he said. “These objectors are people who bought summer houses in the area. People who actually live there have
The association is taking on shale gas now, but Mr Wiƒcek appears to have lost faith. “We feel completely sidelined with regard to anything that concerns shale gas,” he said. Mr Brzoskowski admits local authorities and residents represent little firepower, when faced with the Polish state’s goal of energy independence. He cites the new law on geology and mining that seems to strip local authorities of influence on land use studies in case mineral resource deposits are discovered. “You either push through a land use study, mapping the resources, or the governor of the province will do it instead, but the costs will still be on the commune,” Ms Brzoskowski said. According to Mr. Brzoskowski, however, there’s a way out of every situation. As much as he understands the objectors, he also says that an indiscrimnatory ‘no’ isn’t way to go. “We’ve talked a lot already and we will get to a point where our concerns are addressed at no harm to what BNK is planning to do,” Mr. Brzoskowski said. For BNK’s country manager Mr. Wróblewski, the grievances he had heard last year are a thing of the past as the company would like to move on exploring. Mr Wiƒcek seems to agree, with his tongue in his cheek: “There’s nothing that BNK can offer us and we know they are not going to listen to us.”
“Objectors speak up loud and get most of the attention but they’re not representative of the population.” – Jacek Wróblewski, BNK Petroleum a more positive attitude,” Mr Wróblewski said. Hieronim Wiƒcek however disagrees with Mr. Wróblewski’s point of view. Where BNK has been working, he has lived for 20 years. “This is a recreational area. People have houses and land here because it’s a perfect place to get away from the city, like I did. This is no place for industry,” said Mr Wiƒcek, who heads an association of local residents that have successfully battled against the opening of a gravel quarry.
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EN V IRONMENT
“We feel completely sidelined with regard to anything that concerns shale gas.” – Hieronim Wiecek, local resident
Frack, treat,
Frack again
By Wojciech Kosc
photography by szymon szczesniak
In Poland, one doesnâ&#x20AC;&#x2122;t need to haul water long-distance in hundreds of trucks. Still, spending resources on mandatory water treatment without re-using the resource would be a gross inefficiency.
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In shale gas exploration, water is a key resource. Sourcing water and treating it post-use is a crucial element of the exploration process and one that is going to receive a lot of attention, not least from the environmentally-oriented shale gas objectors. Once and if the Polish shale gas market moves from exploration to production, water will become an important cost due to sheer amounts that need to be used for hydraulic fracturing (fracking), as well as costs of transport and treatment. Treating water is a requirement of environmental regulations and companies don’t have much choice but to observe them. There also is a business sense to treating water, as costs involved in treatment of so-called flowback, or hydrofrac, water, which is water coming back from the well during fracking, makes re-using the resource a logical next step. Even in country that’s nowhere near as arid as Texas. There are no universal estimates of how much water an operator will need to execute a single fracking job on a single well. According to information circulated in the public domain by US company Chesapeake, hydraulic fracturing of a typical horizontal deep shale natural gas or oil well requires an average of 4.5 million gallons [about 17 million liters] of water. On the other hand, the Polish operator Orlen Upstream assesses water use per well at 7.5-11.3 million liters. Flowback water that comes back up the well during fracking adds some elements of waste management to the exploration process, owing to saline
qualities or heavy metals that could be brought up to the surface. “Flowback water is typically 10 to 50 percent of the total water used. It comes back during well testing over 5-30 days and before the well goes into production,” said Adam Locke, a hydrogeologist with US environmental services company CDM. Flowback water tends to be all re-used for more fracking, following on-site filtration and dilution. Together with production, a new aspect of water treatment will come into light. “Small quantities of water, called “produced water”, are produced along with the gas. “Produced water it is often hauled to a centralized facility, though there are many operators [in the US] that are reusing produced water as well,” said Mr Locke. Over time the flow back/produced water rate of return drops while the water quality decreases, especially the total
dissolved solids ratio, which makes treatment more difficult. An extra difficulty in handling flow-back and produced water is still to come, according to Paweł Poprawa, a geologist with the Polish Geological Institute. Mr Poprawa says that once drilling and fracking is launched on hundreds, maybe thousands, of wells across Poland, the very amount of water that will need shipped to and from well pads will mean new challenges in logistics, efficiency and capacity of services and infrastructure needed for water treatment. “Transportation to treatment facilities involves costly trucking and tends to cause controversy with the locally increased truck traffic. Water collection pipelines are best but will take some time to develop in Poland once we move from exploration to production,” said Mr Locke.
Water resources per capita by country 20 303
Sweden 10412
Austria 6622
Lithuania 3265
France
2825
Spain Germany
2232
Poland
1632
Czech Republic
1554 0
5000
m3/inhabitant 10 000
15 000
20 000
25 000
Source: Eurostat
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EN V IRONMENT
“Over time, the flow back/produced water quality decreases, especially the total dissolved solids ratio, which makes treatment more difficult.” – Adam Locke, hydrogeologist
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Leasing a drilling rig in Poland
As a “permanent expat” (or “lifer” when the temperature goes below -10 C), I get to see how the square peg of shale gas deals has to fit into the round hole of Polish law. Let’s take a look at lease agreements for a real world example of jurisprudence in action.
D av i d D e B e n e d e t t i is transferred from the bank to the rig operator at the conclusion of the lease agreement. That way, the rig operator incurs costs on an ongoing basis and
to a structured finance, which require a longer checklist in the event a rig operator were to default in its payment obligations. Even so, don’t be surprised if your bank requires a shareholder guarantee or further security. After all, a bank will not want to actually come and take your rig: as it should be: they’re just in it to make money. As you go forward with your investments, remember that a certain type of practice in lending has developed and it may be just a question of adjusting your vocabulary and expectations to Poland. It’s a great place with a sound financial system: the bureaucracy may be burdensome, but once the bureaucratic machine is fed, the rule of law in Poland makes it a good place to be.
“Lease agreements will generally be structured as financial or operational leases with the key difference being tax treatment.” then acquires the rig at the end of the lease agreement. In an operational lease, the agreement is entered into for a term less than the rig’s amortization period (the useful economic life), which means that the lease payments generally do not cover the full costs of the rig. So, if the rig operator wants to buy the rig at the end of the lease period, the price will usually depend on the residual value of the rig. Also, an operational lease means that the bank amortizes the rig in its books, which is a key distinction from a financial lease. Lease agreements have been more popular in Poland than perhaps elsewhere given VAT issues but historically, I would point to easier enforcement by banks than under standard structured finance arrangements. A lease allows the bank to be the owner, making enforcement of its rights easier compared
David DeBenedetti NY Attorney, Partner at DeBenedetti Majewski SzczeÊniak Law Firm. He specializes in issues related to green energy law. In the field of non-conventional (shale) gas, he works with strategic and financial investors in planning and structuring their investments. He is founding co-chair of the AmCham unconventional gas working group, which was set up to help bring together American investors to address common issues.
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adv e r t o r i al
At the risk of over-generalizing, banks worldwide and in Poland in particular, are not good at financing new ventures. Banks by their nature are risk averse, especially in the current climate for financing. So, the best way to approach a bank with a shale gas project will be to make sure it fits into their standard view of how financing can be done. With that in mind, in the first of a series of articles, I want to look at how banks like to finance investments in Poland, and perhaps the best structure to first examine is a Polish lease agreement. Poland has developed a fairly standard practice for structured finance projects, with leasing playing a greater role in financing than new arrivals may be used to. Other than leasing, there will be a more standard structured finance, with security documentation to be put in place, including a pledge on hard assets, a pledge on financial assets, a shareholder guarantee, or a promissory note. But I want to focus for the time being on lease agreements. Lease agreements will generally be structured as financial or operational leases with the key difference being tax treatment. In a financial lease, the property (let’s call it a “rig”) is held by the lessee (the “rig operator”) while being owned by the lessor (the “bank”). The rig operator can amortize the rig, and a financial lease usually requires that ownership
Itâ&#x20AC;&#x2122;s a long road from here to there.
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l e g al
Legal
Barriers To Shale Gas Development
By Wojciech Kosc
photography by szymon szczesniak
Like it or not, one of the first questions asked when shale gas became a hot topic: how will it be regulated? Cleantech Poland asked five Warsaw lawyers to frame a discussion on the barriers to development. The geological and mining law, though recently amended, is the work of legislators who had no idea about unconventional hydrocarbon production. When drafted, it didn’t take into consideration that Poland could one day be Europe’s hottest shale play. When news started circulating about North American energy majors obtaining concession rights, there were calls to put in place regulations concerning shale gas exploration and
production before a fast developing market spins out of control. What ‘out of control’ means is subject to interpretation. Certainly, environmental issues and royalty rates loom large. Most people agree that the regulatory framework should ensure shale gas development has the least possible environmental impact, and that Poland, where all resources are state-owned, manages to secure a decent income from production.
The approach in Poland is quite the opposite of what happened in the US, where the development of shale gas preceded state regulations that sought to exert some measure of control over the process. With the top-down approach typical of Poland (and the European Union), operators are anxious to identify current barriers to development. With that in mind, Cleantech Poland asked representatives of law firms what are those barriers?
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“Potential legal disputes will be reviewed by common courts, creating a risk that the proceedings will take an excessively long time.” – Tomasz Dobrowolski tion (created during the exploration process) expires, the concession may be granted to a third party. There also are significant concerns regarding the lack of an express regulation regarding what a mining usufruct entails. The terms of the agreement that establish a mining usufruct are to be determined by the parties and it cannot be ruled out that entities may find themselves in conflict with the minister of environment regarding, for example, the duration of the mining usufruct or the mining usufruct fees. This may considerably extend the time necessary for the preparatory stages of investments. David DeBenedetti, DeBenedetti, Majewski, SzczeÂniak From the most recent conversations I had with my clients, the greatest barrier to the market seems to be the fundamentals of the legal system on which shale gas exploration and production rest. Businesses want to know: is the royalty system going to be three percent, like Texas, or 80 percent, like Norway? Will the government say ‘thank you’ to current operators of exploratory concessions and grant the actual production licenses according to the usual public procurement practice? I hope that there’s an understanding that in order to have true production, one’s efforts in exploration must conclude with moving on to production without having to go through the tendering process. People spend USD 50-100 million to make a billion. No one does exploration for fun, or for the benefit of the community at large.
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Roman Rewald, Weil, Gotshal & Manges The new geological and mining law does not fully implement directive 94/22/EC into the Polish legal system. The new law has been drafted and passed without taking into account the needs of upstream producers. For example, here’s a question: who owns the right to produce once the resources are identified? The current law provides for the right of first refusal with respect to the establishment of a mining usufruct for the company that discovers and documents the resources. This right of first refusal applies to the establishment of a mining usufruct and not to the granting of an extraction concession. In addition, the law provides that the minister of environment may, but is not required to, grant the extraction concession to the holder of the right of first refusal. This means that once the right to the geological documenta-
Maciej Wesołowski, DLA Piper Wiater Environmental regulations could be problematic. One possible interpretation of the law is that investments in shale gas production could be regarded as having a significant, or potentially significant environmental im-
pact, with investors obliged to obtain an environmental decision before any operations could begin. Knowing that some of the exploration concessions entail areas under special nature protection regimes, including landscape parks or Natura 2000 areas, it is likely that obtaining permits to carry out work there could prove difficult or impossible. Local policy could present a barrier. Production of shale gas is only possible on land with an appropriate master plan or land use study in place. In communes without areas designated for this purpose, local authorities will be able to block operations.
Tomasz Dobrowolski, KL Gates
it will allow investors to assess business risks with regard to shale in Poland. There are a few potential drawbacks in the recently adopted geological and mining law. The new regulation has changed the regime of granting concessions so that there might be problems with those concession holders who contest the result of tender proceedings for production concessions. Potential legal disputes will be reviewed by common courts, creating a risk that the proceedings will take an excessively long time. Such disputes should better be reviewed by specialist courts, for example, the anti-monopoly court. The criteria for exploration and production tenders are supposed to be non-discriminatory and give priority to “best systems of exploration or production of hydrocarbons.” The winning tender will be decided by a three-person commission, but how such a commission is going to proceed is unclear. The tender criteria, as given in the geological and mining law, are quite general and could give grounds for doubts regarding interpretation unless a planned governmental decree on hydrocarbon exploration and production enters into force. When the market will move from exploration to production, someone will have to reconcile the confusion on upholding one’s right of first refusal.
A new law should be on the table in about two months. Once it emerges, the draft law and the discussion about
Maciej Jóèwiak, Wierzbowski Eversheds In my opinion, both the EU and Polish regulations are sufficient and comprehensive to regulated both exploration and production, particularly in terms of the environment. That being said, Polish regulations do need ammended. For example with respect to the length of administration procedures. Administrative regulations may seem clear, but there’s too much leeway in terms of the time in which an administration is obliged to issue decisions. Companies might, then, have difficulties in scheduling their work and planning their costs. Poland should consider establishing one, specialist body working under the ministry of environment and in cooperation with local governments, which would be competent in all procedures relating to oil and gas.
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l e g al
“ Poland should consider establishing one, specialist body which would be competent in all procedures relating to oil and gas.” – Maciej Józwiak
Small Earthquakes,
Not Big Ones UK based Cuadrilla admits to causing earthquakes in the vicinity of their natural gas drilling operations in an area prone to seismic activity. But whatâ&#x20AC;&#x2122;s that mean for Poland? By Parker Snyder
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p h o t o g r a p h y b y i STOC K PHOTO
In the spring of 2011, Cuadrilla Resources recorded several seismic events of 1.5 and 2.3 on the Richter scale in the vicinity of their drilling operations in the United Kingdom. The company immediately stopped operations, acknowledging that the events seemed to coincide with the pressure pumping in their stimulation program, at a time when large amounts of chemicals and water were being pumped up to 3 kilometers beneath the surface to induce tiny fractures in shale formations. After the seismic events, the operator commissioned a study to assess the cause of the earthquakes and released the results of the study in November 2011. Cuadrilla Resources, also operating acreage in Poland, concluded that the seismic events were indeed caused by their hydraulic fracturing program. The CEO of Cuadrilla Mark Miller said, “We unequivocally accept the findings of this independent report and are pleased that the report concludes that there is no threat to people or property in the local area from our operations.” The Cuadrilla report added, “This unusual combination of factors, including specific geology of the well site, coupled with the presser exerted by water injection, is highly unlikely to occur again.” According to Paweł Poprawa, a geologist with Polish Geological Institute, “The seismic experience of Cuadrilla is just a small occurrence in a huge industry that operates all over the world. Triggering seismic tremors is very rare. It happens but not often.” Mr. Poprawa maintains that the experience of Cuadrilla are not likely to be repeated in Poland. “In Poland, we
don’t worry about it at all because Poland is aseismic, in other words, it is not an area of seismic activity.” When asked what might have caused the seismic tremors in the UK, Mr. Poprawa said, “In Blackpool, there’s a couple of earthquakes a year, so seismic events happen there naturally. There’s never been a considerable earthquake caused by hydraulic fracturing.” Although the UK incident caused no structural damage, some people at the surface reported to have felt the tremors, and the story went viral supporting the claim that “fracking causes earthquakes.” A local newspaper published a photograph of a large crack in the asphalt
pavement of a street in vicinity of the Cuadrilla operations, even though the crack had not been caused by the seismic event. The Cuadrilla Seismic Report, which was done in consultation with the Department of Energy and Climate Change, proposed monitoring future drilling operations, concluding that pressure pumping should be stopped if a seismic event of 1.7 on the Richter scale were to be reached. According to Paweł Poprawa, of the Polish Geological Institute, “In Poland, we monitor big fracturing operations. Overall, I don’t think we need new regulations. We just need to keep checking empirical data against our assumptions.”
From the Cuadrilla report: Geomechanical Study of Bowland Shale Seismicity The report concludes that it is highly probable that the fracing at Preese Hall-1 well triggered the recorded seismic events. This was due to an unusual combination of factors including the specific geology of the well site, coupled with the pressure exerted by water injection. This combination of geological factors was rare and would be unlikely to occur together again at future well sites. If these factors were to combine again in the future, local geology would likely limit seismic events to around magnitude 3 on the Richter scale in a worst-case scenario. Cuadrilla’s water injection operations take place over 3 km below the earth’s surface. This significantly reduces the likelihood of a seismic event of magnitude 3 or less on the Richter scale having any impact at all at the surface.
The report sets out an early detection system to monitor seismic activity at Cuadrilla’s drilling site and. The early detection system proposed in the report is as follows: Level 1: If no seismic events above magnitude 0 are recorded, regular operation can continue Level 2: If an event of between 0 and 1.7 is encountered the company should continue monitoring seismicity after injection until seismicity falls back to lower levels. Level 3: If a seismic event of more than 1.7 is encountered, the company should stop water injection and release pressure in the well, to reduce the pressure it exerts, while continuing to monitor.
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GEO L OGY
“In Poland, we don’t worry about it at all because Poland is aseismic, in other words, it is not an area of seismic activity.” – Paweł Poprawa, Polish Geological Institute
The Polish Geological Institute is soon to publish itâ&#x20AC;&#x2122;s own estimate, which will likely be lower.
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Gas
Paweł Poprawa of PGI, the Polish Geological Institute, says an accurate shale gas estimate must be lower than estimates in circulation so far. And risks to the public? Here’s a few that should get your attention.
Paweł Poprawa is one of Poland’s principal voices on shale gas. So far, in spite having access to a great wealth of data, he has resisted the temptation to estimate how much gas the rocks might contain. This spring, however, as he finishes up work on the first official Polish report on the resource base, his and his team’s findings will be the new benchmark against which actual gas shows, if there are any, will be measured. The report, being put together by PGI in cooperation with the US Geological Survey (USGS), uses a methodology that could actually be more informative to operators than the one used in the analysis of world’s shale gas resources from the US Energy Information Agency (EIA). “The EIA report simply looked at the basic characteristics of rock formations, like their volume or thickness, and made an assumption of how
By Wojciech Kosc
much gas there is based on analogous information from the US basins,” Mr. Poprawa said. A CONSERVATIVE APPROACH “The approach this time is different. We will single out a shale basin in the US that’s closest to what we know about Polish basins and look at its historic shale gas production profiles to relate them to the Polish acreage,” Mr. Poprawa said. The result will be, Mr. Poprawa says, a definitely lower but more realistic estimate of recoverable gas in place. The report will also take into account the actual net acreage that could be developed, instead of the total area that the EIA report considered. “We’re adopting a more conservative approach and the result will show the minimum that Poland might have. Looking at research projects done by USGS in the US that em-
ployed the same methodology, we can clearly see that several basins were estimated to have recoverable shale gas reserves a few times smaller than what the EIA report calculated using the volumetric method,” Mr. Poprawa said. According to Mr. Poprawa, small scale shale gas operations carried out so far in Poland, even if not viable commercially, have helped to establish that there is gas indeed in the Polish shale. “Early on, these gas shows were sometimes analyzed as gas seeping from conventional resources, but now we know it’s gas shows from Silurian shales. That means there are geological reserves of gas. The question is whether or not it is commercially recoverable,” Mr. Poprawa said. It will be some time before operators unfold acreage development programs on a larger scale, but, according to Mr. Poprawa, rushing them to do
photography by szymon szczesniak
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Ta b l eg o eo f lCoognyt e n t s
Less
There will be
“The public says: we need to know how much gas there is and fast. But operators want to prove their acreage in a step-by-step process so that if there’s nothing to prove they will not have risked too much.” – Paweł Poprawa, Polish Geological Institute
that makes little sense. “There’s a lot of interest from the public, which says: we need to know how much gas there is - and fast. From the business point of view, however, operators want to prove their acreage in a step-by-step process so that in the case there’s nothing to prove they will not have risked too much,” Mr. Poprawa said. REAL RISKS ARE ELSEWHERE Business risk is there, of course, but the public would also like to know about environmental risks due to shale gas development. Mr. Poprawa said that a lot of energy and time have been wasted to look for risks where they hardly exist. “There are no risks involved in seismic research. In most locations where people are currently afraid of seismic research, such research was already done years ago. The probability of anything happening is close to zero,” Mr. Poprawa said. Drilling and fracking, especially the aspects that are routinely discussed as potentially problematic are not problematic at all. “The concentration of chemicals used in fracking is minute. At 100 percent concentration, even oxygen is poisonous, so if one is talking about fracking chemicals, they have to talk their concentration, otherwise the discussion is pointless,” Mr. Poprawa said. Mr. Poprawa says that the real risks are elsewhere: like in the quality of cementing of the well bore. “The majority of problems with drilling in the US were due to poor quality of cementing, which is a pro-
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cess that should be supervised closely and subject to regulations,” Mr. Poprawa said. The other risk is in flow-back water, or rather the sheer volume of it once operations increase in scale, the Polish geologist added. “You can assume that on average there’s 3,000-5,000 cubic meters of flow-back water per each frack, coming back up with material from underground: brine, mud, rock bits, or heavy metals. We must prepare to treat large amounts of different kinds of waste coming from thousands of wells in Poland,” Mr. Poprawa said. These risks will occur only if the production does get underway “In order to get the real picture of produc-
Paweł poprawa
tion potential, you need to carry out several more fracks,” Mr Poprawa said, referring to the unsuccessful hydraulic stimulation from 3Legs Resources’ well. The well drilled by 3Legs he looked at with a personal interest as well, having invested some capital in the company’s stock. “3Legs’ shares have fallen dramatically in price. It’s true that their two fracks were not impressive but the more fracks will be carried out, the less impact on stock price the nonperforming wells will have. Right now, it’s two out of two, so it’s not a suprise that shares took a hit,” Mr. Poprawa said.
e d u ca t i o n
Mapping
the Baltic Basin
Polish law requires an environmental impact study for each geological concession, which makes an analysis of the spatial constraints an indispensable part of the planning process.
Shale gas basins and the wells drilled in Poland until February 2012 on top of the ecological network.
SOURCE: UNEP/GRID-WARSAW ON THE BASIS OF THE POLISH GEOLOGICAL INSTITUTE AND THE GENERAL DIRECTORATE FOR ENVIRONMENTAL PROTECTION.
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Baltic Basin
On 27 January 2012, the European Commission announced there’s no immediate need to change EU legislation on shale gas exploration. Sounds encouraging, especially for those investors who were concerned that the EC could follow a more conservative approach which led to banning shale gas exploration in France. In the light of the Commission’s findings, one could say Polish environmental legislation is sufficient to prevent or mitigate possible environmental threats, especially those perceived to have a significant impact.
SOURCE: UNEP/GRID-WARSAW OWN DATA AND INFORMATION FROM THE GENERAL DIRECTORATE FOR ENVIRONMENTAL PROTECTION.
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The mandatory screening of potential environmental impacts includes an assessment of effects on Natura 2000 sites and other protected areas. Moreover, forestry areas, agricultural land and water sources for fracturing (both surface and aquifer) are also granted certain legal protection. Thus, investors need to prove that their planned shale gas developments can proceed in an environmentally responsible manner, leaving almost no footprint on the landscape of the region.
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E D U C A TION
The northern part of the Baltic Basin, the most promising of three prospective basins, and its mosaic pattern of protected areas and forests.
Baltic Basin Fortunately, the general public attitude in Poland is much less sceptical towards shale gas activities than in France. However, due to the spatial distribution of shale gas resources - each project would bring drilling and production to regions that have seen little or no activity in the past. Moreover, exploration and production may come into conflict with the local zoning/spatial plan, if there is one. Therefore, a pre-requisite for success is an analysis of socio-economic and legal features, such as land ownership and population density.
Population density in the Northern Baltic Basin.
SOURCE: UNEP/GRID-WARSAW, STATISTICAL DATA FROM THE CENTRAL STATISTICAL OFFICE OF POLAND AS OF DEC. 31, 2010.
Legowo well drilling pad, surveying and presentation of spatial data by Geopanel application (thematic layers: areas threatened by water inundation, topographic map, physical planning, orthophotomap).
SOURCE: UNEP/GRID-WARSAW GEOPANEL APPLICATION.
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Legowo well drilling pad, surveying and presentation of spatial data by Geopanel application (thematic layers: satellite image, Open Street Map, land records data).
SOURCE: UNEP/GRID-WARSAW GEOPANEL APPLICATION.
Environmental Information Centre UNEP/GRID-Warsaw est. 1991, is part of the Global Resource Information Database network, an UN-affiliated agency collecting, processing, and disseminating environmental information. Areas of our expertise include computerassisted thematic cartography and mapping, spatial data analyses, remote sensing and mobile GIS-
based tools and techniques for data acquisition and rapid mapping, development of web-GIS applications and geoportals. Our activities cover a wide range of topics, including nature protection, agriculture, and spatial planning. We cooperate with the European Environment Agency (EEA) and other foreign and national partners.
Maria Andrzejewska Director UNEP/GRIDWarsaw Centre ul. 8 Sobieszyƒska 00-764 Warsaw maria.andrzejewska@gridw.pl
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E D U C A TION
The use of the GIS (Geographic Information System) and geo-information techniques allows an operator to acquire, analyze, process and disseminate spatial information in digital form, for the purposes of spatial management planning and decision-making. The techniques shown here help to compile and analyze overlapping ‘information layers. Sophisticated? Complicated? Not really. It’s just a simple tool for decision making.
Picking
While graduates in geology and oil & gas EP are now seeing their competences in big demand, companies are on the lookout for fresh blood. Internships, stipends, job offers are available for the best Polish students.
Brains
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E D U C A TION
p h o t o g r a p h y b y M ATEUSZ S W I D ER
By Wojciech Kosc
It could be that the future of the Polish shale gas rests not on well pads, but in the corridors of the Polish universities, where oil and gas companies are trying to fish out the best students. “The gas sector is suffering from lack of fresh blood. Your typical gas professional has aged considerably,” said Joanna Dłu˝niewska of Polish Oil and Gas Company (PGNiG), where she heads a stipend program aimed at top students in Polish universities. PGNiG is offering a sum of money - usually a few thousand Polish złoty - in a one-off payment to 10 students, singled out from candidates suggested by professors at a few top universities. One such student is Dawid Wojaczek who won the PGNiG’s stipend in the 2011/2012 edition. He’s only 22 and while still more than two years before graduation from the Kraków-based University of Science and Technology (AGH), he has already been gaining experience at internships in companies like Lotos Petrobaltic for example. At AGH, he’s a member of a scientific club, whose members discuss subjects like the potential of shale gas in Poland, technologies of coal gasification or geothermal energy.
ences. A stipend from PGNiG doesn’t guarantee a job with us but is certainly a help,” said Ms Dłu˝niewska. Another Polish operator, Orlen Upstream, part of PKN Orlen, has been extending the potential benefit of working in exploration and production as well. Particularly in focus for the Orlen Upstream are the Departments of Drilling, Oil and Gas as well as Geology, Geophysics and Environment Protection at AGH. Orlen Upstream is also cooperating with the Institute of Geology at the Jagiellonian University in Kraków.
tech Poland. Of recently, Orlen Upstream has been looking to fill positions like drilling engineer, reservoir engineer, geologist, geophysicist or HSE specialist. NOT FISHING YET Orlen Upstream and PGNiG have a longtime presence in Poland with rather sophisticated structures and large employment figures. The pressure to reach out to Poland’s student hopefuls however is not felt as strongly by independent operators, like San Leon Energy. Despite having produced some promising well results, San Leon’s head of public relations Karolina Romanek says that there currently is no rationale for the company to spend time and resources to fish out students from the Polish universities. “What we rather need here and now are trained professionals who are hard to come across in Poland, or even Europe,” Ms Romanek said. But shale gas might only flow in commercial quantities in 2014, according to PGNiG, or even around 2018-2020, according to Orlen Upstream. By that time, current students, like Mr. Wojaczek, should be in demand. “I’m definitely going into hydrocarbons and unconventionals will be a strong option once shale gas or shale oil sectors move on,” Mr Wojaczek said.
“I’m definitely going into hydrocarbons and unconventionals will be a strong option once shale gas or shale oil sectors move on.” – Dawid Wojaczek, PGNiG’s stipend winner
ONLY THE BEST “The students must have excellent results, and a proven record of research and development interests, for example, that they demonstrated at confer-
Orlen Upstream’s cooperation with the Kraków universities has only had a scientific character until recently, involving researchers in consulting work regarding drilling or the environmental aspects of exploration and production. As shale gas development began in earnest in Poland in 2011, the company decided to roll out an internship program called “A Step to Career”, directed to students of AGH. “On completion of the program, selected students were offered jobs at Orlen Upstream. The 2012 edition should result in more jobs for graduates,” Orlen Upstream’s press office told Clean-
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Jobs With investments in shale, come the jobs. United Oilfield Services Corporate HSE Manager “United Oilfield Services is now looking for a corporate HSE manager to help develop and implement top tier HSE practices in one of the newest international service companies based in Poland. United Oilfield Services is building a strong culture for the priority of its employee’s safety and the environment in which they work. The Corporate HSE Manager will take on responsibility for implementing a strong HS&E culture throughout all three product lines which include Drilling, Hydraulic Fracturing, and Geophysical. The corporate HSE manager will also manage HS&E supervisors for each product line.”
Schlumberger Manager: Schlumberger Business Consulting “An SBC manager is an experienced consultant who manages one or two consulting engagement teams, under the supervision of a Principal or Vice President. Managers will also be asked to participate in business development and intellectual contribution initiatives. A manager will quickly become a member of one or more practices and will be expected to develop a junior leadership role in the development of points of view, experience capitalization, and internal and external communication of knowledge.” More Schlumberger jobs in multiple locations:
More UOS Jobs in Poland: Corporate Maintenance Supervisor Fracturing Supervisor Fracturing Engineer Fracturing Operations Supervisor
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Principal Vice President Completion and Workover Engineer Drilling Engineer (or Well Engineer)
jobs
Cleantech Poland surveyed the labor market to capture a few of the descriptions for past and present appointments. Write to us at info@cleantechpoland.com to have your jobs posted in the next issue or scan the QR code for the job link online.
Chevron
CDM Smith
Drill Site Manager (Company Representative)
“At CDM Smith, we are committed to building strong and lasting relationships with our clients and each other. Together, we are solving the world’s water, environment, transportation, energy and facilities challenges with smart, integrated solutions. As your trusted partner, we are shaping tomorrow while delivering the services you need today. Proving every day—in every way—we’re better together.”
“DSM positions are part of our pool of employees working expatriate assignments outside of their home country. Typical work schedules are 28 days on/28 days off, with travel time on the employee’s days off. Depending on local laws and regulations, an expatriate employee can expect assignments to typically last 3 – 4 years, longer in some cases. [The DSM] manages on site day to day operations on drilling, completion, intervention and workovers in a safe and efficient manner. Works in a team environment to ensure the safety of all personnel on location and compliance with all applicable government regulations.”
CDM Smith has recently recruited in Poland: Construction Manager Noise Specialist Geologist
More Chevron jobs: Drilling Engineer Completion Engineer
Jobs info current as of 17.02.2012
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March through June
Unconventional Gas & Oil Summit 2012 (UGOS)
Shale Gas Environmental Summit 2012
Date: March 26-29, 2012 Language: The event will be held in English. Location: Warsaw, Poland, Sheraton Hotel
Date: May 22-24, 2012 Language: The event will be held in English. Location: London, UK, Copthorne Tara Hotel
Info in English:
Info in English:
Details: Probably the most international of unconventional gas events held in Warsaw, Cleantech Poland has partnered with UGOS to be the moderator of the investment panel titled: Shale Acreage and Joint Ventures. Mr. Marc Partridge of Gazprom and Dr. John Buggenhagen of San Leon couldn’t possibly have any views in common, or could they? Go there to learn Gazprom’s view on Polish shale. What’s more, volume 2 of our Shale Gas Investment Guide will be given away at our booth.
Details: The two day conference and one day workshop takes up environmental protection as a departure point. The program covers a range of topics including environmental risk assessments, groundwater impact studies, and shale in the context of UK climate policy. The speaker list is predominantly UK-based, including a politician from the House of Commons, but the day-one workshop has a Polish angle. Cleantech Poland present an hour-long training in cooperation with CEE Consulting Group who will speak on FCPA compliance and political risk.
Shale Gas World 2012 Date: November 27-29, 2012 Language: The event will be held in English. Location: Warsaw, Poland, Hyatt Hotel Info in English: Details: The Terrapinn event, held annually in Warsaw, is by far the best attended of all the shale gas events in Poland. Now in it’s third year, you can go there to network with pretty much all the service companies on the market, including Schlumberger, Weatherford, Halliburton, Baker, Viking, Acoustic, Global Geophysical and the startup United Oilfield Services. Even the operators come out for this one; expect to bump into the country manager for Lane Energy and the general manager of ExxonMobil. Cleantech Poland will have a booth, and free copies of the Shale Gas Investment Guide will be given away.
Unconventional Gas Forum 2012 Date: May 13-14, 2012 Language: The event will be held in English. Location: Barcelona, Spain, Hotel Rey Juan Carlos I Info in English: Details: Go there to hear Polish geologist Paweł Poprawa, John Buggenhagen, Exploration Director for San Leon Energy, or Nick Grealy of NoHotAir.uk, one of the longest running portals covering the development of shale gas in Europe. Held in sunny Barcelona on the southeast coast of Spain, it’s a two day event with a strong focus on operator issues, and also includes a session on unconventionals in Turkey and North Africa.
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events
Upcoming Shale Gas Events
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List of BMPS Completion Selection 132 for Effective Stimulation – Packers Plus 134 How to locate a well pad – CDM Smith Shale farmers harvest 136 in Poland – PwC Water economics 138 in shale production – PacWest
TURN TO PAGE 141 FOR BMPS IN POLISH
p h o t o g r a p h y b y i STOC K PHOTO
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Completion Selection for Effective Stimulation, – Packers Plus
In contrast to plug and perf, open hole completions mitigate tortuosity, reduce breakdown pressures and minimize the chance of a screen out. This is achieved by allowing the formation to fracture at the point of least resistance and giving stimulation fluid and proppant a direct flow path to the induced fracture.
Paul Higginson What characteristics should the perfect fracture stimulation have, and ultimately the fractures it produces? If you asked anyone involved in fracturing the answers should be as follows: • Minimal fracture tortuosity • Low breakdown pressures • Under displacement of proppant • High near wellbore proppant density • Enhanced inflow conductivity • Quick flowback • Minimal fluid loading
Regardless of the completion type, the last five bullet points are critical to any good stimulation job, and ultimately the production performance of the well. The primary method for stimulation in Poland utilizes pump down guns inside a cased and cemented liner. Regarding the first two bullets, stimulation of any reservoir type using a cased and cemented liner is likely to induce fracture tortuosity. This is because the fracture may not occur at the perforations, forcing the fluid and proppant to take a tortuous
Cemented liner plug and perf completion showing fracture tortuosity and proppant over displacement
Source: company data
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path between the casing/wellbore and the cement. When this occurs, and seismic has shown that it frequently does, breakdown pressures increase as does the chance of premature screen-out. OPEN HOLE COMPLETIONS In contrast, open hole completions mitigate tortuosity, reduce breakdown pressures and minimize the chance of a screen-out. This is achieved by allowing the formation to fracture at the point of least resistance and giving stimulation fluid and proppant a direct flow path to the induced fracture. This contributes to the ability of open hole completions to maximize production in new fields and increase production in aging fields compared to cemented liner plug and perf methodology. Regarding the next three bullets, displacement refers to where the proppant lies in reference to the wellbore. Over displacement means there is no near wellbore proppant because pressurized fluid has forced it deep into the fracture. Initially, an un-propped fracture may remain open and allow production, but in time the fracture will close negating the value of the rest of the propped fracture. Under displacement means that some of the proppant remains near wellbore to hold the fracture open. This is the ideal case and ensures that the fracture remains open to enhance conductivity and allow hydrocarbons to flow into the wellbore and liner.
In Europe, coiled tubing is typically used to run perforating guns or abrasive jets, which allow the fractures to remain under displaced. However, using coiled tubing in this manner makes for lengthy stimulation times with a minimum of three days per fracture; therefore, an alternative method has been used in Poland. Perforating guns suspended on electric line are lowered into the well and pumped down after proppant has been placed in the previous stage. This requires at least one full tubing volume, which in Polish horizontal well architecture is approximately 200 bbl. This fluid over displaces the proppant from the previous stage into the fracture reducing the near wellbore proppant density to zero. This process is repeated for all remaining stages.
of bridge plugs resulting in prolonged fluid contact with the reservoir; whereas, open hole completions allow for immediate flowback reducing induced reservoir damage. The above discussion demonstrates how the completion method selected can affect the success of a fracture stimulation program. In most cases, open hole multi-stage ball-drop systems not only provide the ability to perform multiple stimulation treatments in a single day, but inherently promote good fracturing practices. Reduced breakdown pressures minimize the risk of screenout, a major source of non-productive time in stimulation operations. Frac-
tures are under displaced, resulting in high near wellbore proppant density that is critical to enhancing inflow conductivity. Formation damage is reduced because less fluid is required between fracture treatments so there is less fluid to recover, and because the system allows for immediate flowback. This not only enhances production and minimizes completion time, but reduces environmental impact. Additionally, these systems have the ability to perform water shut-off, restimulation and pre-stimulation production testing, a huge benefit in the appraisal phase of a reservoir where results can be unpredictable. ď&#x201A;&#x2DC;
Open hole multi-stage system completion showing high near wellbore proppant density
RESERVOIR DAMAGE Regarding the last two bullets, successful fracturing and proppant placement is not enough to ensure a productive well. Production can also be drastically affected by stimulation-induced reservoir damage. Stimulation fluids used to create the fracture, particularly waterbased fluids, can cause reservoir damage. It is critical that the time between the first fracture stimulation to when the well is flowed for cleanup is minimized. Although traditional water-based fluids can be replaced with less damaging media such as N2, CO2, foams or propane, these may not be readily available. Cemented liner methods require post-stimulation mill out Source: company data
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BUSINESS BM P S
Open hole multi-stage ball-drop systems not only provide the ability to perform multiple stimulation treatments in a single day, but inherently promote good fracturing practices.
How do you locate a well pad? – CDM Smith
A constraint analysis allows the operator to create a ranking of areas as ideal, less than ideal and, just as importantly, areas where permitting will be time consuming.
K r z y s z t o f K a m i n s k i , Ad a m L o c k e , M a g d a l e n a P a v l a k - C h i a r a d i a
Locating and permitting exploratory wells in Poland challenges traditional site selection techniques. Operators are in a predicament between choices based on site selection and efficient permitting. Although it may not appear to be a dichotomy, decisions driving site selection, technical feasibility and accessible permit locations are sometimes at odds. Operators may base their site selection on various criteria: where seismic data is most accurate or where two seismic lines cross. Others may choose a site based on relationships with the local communities in conjunction with readily available seismic data. Although each approach is valid in locating an exploratory well, permitting in Poland continues to challenge traditional site selection techniques. An approach worth considering during site selection is a land-use suitability analysis, also called a constraint analysis. This approach takes into account appropriate, complex spatial information through GIS such as land uses, regulatory setbacks, road types and
natural resources to define areas with the highest probability in identifying the most efficient permitting environment for well pad and rig placement. Such an analysis can be done early to recognize seismic line locations that lead to site selection
ownership or other determining factors identified by the operator. This narrows down site selection and takes the guesswork out of potentially time-consuming permits or negotiations, helping to facilitate meeting the spud date and helping to reduce location costs. Specifically, CDM Smith’s customized constraint analysis approach for Poland has saved operators an estimated average of about $300,000 per location and at least two months in permitting time alone. These GIS-based maps facilitate an understanding of permitting complexity and act as communication tools. A properly developed map can, in simple graphic terms, let communities understand why a certain site has been selected and communicate the careful consideration an operator has taken in selecting a site to limit impacts to the environment and the community’s way of life. Since a constraint analysis is based on pre-defined unbiased criteria from maps, aerials and regulations, such a useful tool is transparent and open for the public
CDM Smith’s customized constraint analysis approach for Poland has saved operators an estimated average of about $300,000 per location and at least two months in permitting time alone.
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or can be done during scouting to predefined areas within the larger concession block. A constraint analysis allows the operator to create a ranking of areas as ideal, less than ideal and, just as importantly, areas where permitting will be time consuming. Taking such a map overlaid on aerial imagery out to the field allows for field checking and investigating criteria such as road and site conditions,
to educate them and obtain their acceptance of the site selection. Use of GIS technology upfront brings together planners, scientists and engineers creating a high
level of cooperation and involvement for a broad-based approach to efficient site selection. CDM Smith’s GIS specialists, coupled with our experienced environmen-
tal permitting and engineering staff, offer solutions to efficiently and effectively minimize impacts to schedules.
CDM Smith Constraint Analysis
Source: company data
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BUSINESS BM P S
A map can, in simple graphic terms, let communities understand why a certain site has been selected and communicate the careful consideration an operator has taken in selecting a site to limit impacts to the environment and the community’s way of life.
Shale farmers harvest in Poland, – PwC
While exploration concessions for the most attractive shale gas prospects in Poland have already been granted, and the shale gas market gets into a more mature stage, we look forward to seeing the business activity patterns of investors develop along the lines of developed shale gas markets in the U.S. and Canada.
To m a s z B a ra n c z y k , J a ro s l aw G r z yw i n s k i , G r z eg o r z Ku s, Ko n ra d M i c h a l a k
Observing the market, we expect the following forms of business activity to be predominant: Acquisitions: Investors stepping into the place of entrepreneurs which already hold the relevant mining usufruct and concession, by e.g. or taking a corporate control over this entrepreneur. From the seller’s point, such transactions are motivated by a wish to cash out the benefits from early application for concession;
Farm-in farm-outs: Players conclude an agreement whereby one party acquires the right to a share in the production profits in return for financial and technological support of the exploration and the production of minerals. Farm-outs can be diverse in terms of compensation, such as granting access to other prospective fields, exchange of technology, cash payments etc. The main rationale of farming out is to diversify projects, share the risk of failure and acquire know-how.
Source: company data
FARMING IN In practice the most common forms of farm-in cooperation in Poland in shale gas are: • contractual joint ventures based on joint operations agreements (JOA) • establishing of a special purpose vehicle (SPV) in a form of limited liability partnership (spółka komandytowa in Polish). In that field, Polish practice is similar to that observed in the United States where contractual joint ventures based on JOA are the most common form of cooperation in the shale gas industry. However stakeholders should also be aware that all of the above mentioned solutions meet significant legal and tax consequences.
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WATCHING OUT Most investors are aware of technical issues related to the project such as exploration and extraction costs, probability of success, volume of gas, access to the market, etc. What is often of their concern is external, country-specific conditions such as the tax structure of the transaction, legal possibilities, social responsibility and sustainability strategies. Moreover, both parties of a transaction should convince their stakeholders that the transaction is fair from the financial standpoint (fairness opinion). In general Polish law including tax regulations is not adjusted to various forms of joint ventures, either in form of JOA or limited liability
partnerships SPV. Therefore, each of these scenarios of cooperation may bring about certain concerns. A LEGAL LOOK From the legal perspective all minerals deposits in Poland constitute the sole property of State Treasury. One of the most crucial issues is to execute a valid and fully enforceable mining usufruct agreement with State Treasury. According to this agreement the shale gas investor shall have the right to use a specific mineral deposit owned by State Treasury. The mining usufruct agreement shall precisely determine all conditions and uses of such minerals. The investor may prospect for exploration or/and production of designated mineral. The concession shall be granted for definite period of time, not shorter than 3 years and not longer than 50 years. The Polish Geological and Mining Law, which covers the procedure of granting concessions for prospecting, recognition and exploitation of hydrocarbons (including shale oil & gas), provides that the concession as well as mining usufruct may be granted only to one single entity. Simultaneously, transfer of concession is permitted only as a whole i.e. it is not possible to sell an interest in concession. Another case to solve is the ownership of exploited gas or potential necessity to perform antitrust clearance in case of creation of SPV.
TAXES DO MATTER On the tax side, a foreign entity being a partner of a limited liability partnership might be perceived by tax authorities as having a Polish permanent establishment and in consequence be obliged to pay income taxes in Poland as well as comply with certain reporting obligations. The farmer usually expects remuneration for the possibility to enter the concession from the farmee as well as some kind of reimbursement of costs so far incurred on exploration. As a result, joint ventures might lead to co-ownership of fixed assets, which may imply real estate tax obligations. Therefore tax issues should be carefully analyzed and planned at the level of choosing of cooperation method because it may turn out that the Polish tax law leads to tax effects substantially different to the intentions of parties of JOA or partners of SPV. Further tax questions might arise with respect to the VAT issues connected with settlements between parties, especially if one of them is assigned the operator role and is financing the operations through socalled “cash calls” or is recharging the remaining parties with costs. The VAT issues of future sales of exploited resources should also be considered at the early stage of negotiating of JOA or SPV partners’ agreement. However advanced tax planning and application of existing optimization opportunities could secure the tax position of joint venture parties as well as efficiently struc-
ture their tax burdens. Tax rulings, special clauses in JOA or SPV partners agreements regarding tax settlements and agreements on precise
scope of administrative activities of each party are few examples of how this could be achieved.
Article prepared by PwC Energy Team experts:
Tomasz Baraƒczyk, Partner, Tax and Legal department, Tomasz.baranczyk@pl.pwc.com, +48 502 184 852
Jaroslaw Grzywiƒski, Counsel, Tax and Legal department, Jaroslaw.grzywinski@pl.pwc. com, +48 519 506 961
Konrad Michalak, Senior Manager, Business Advisory department, Konrad.michalak@pl.pwc.com, +48 502 184 364
Grzegorz Kus, Senior Consultant, Tax and Legal department, Grzegorz.kus@pl.pwc.com, +48 519 507 208
PwC - Energy advisor PwC’s Energy Group was founded in 2000 in response to the growing demand for advisory services from Polish and foreign energy companies. Over the last 12 years together with our clients we were engaged in the transformation of the energy, oil & gas and the mining sector in Poland.
Among our clients are Ciech, Enea, Energa, Gaz-System, JSW, KGHM, KHW, Kompania Weglowa, Kulczyk Holding, Lotos, PGE, PGNiG, PKN Orlen and Tauron, as well as global players Aurelian, Chevron, ConocoPhillips, ENI, E.ON, ExxonMobil, Fortum, Marathon Oil, RWE, Talisman.
Source: company data
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BUSINESS BM P S
In general Polish law, including tax regulations, is not adjusted to various forms of joint ventures, either in the form of joint operations agreements or limited liability partnerships (SPVs).
Water economics in shale production, –PacWest
PacWest developed a multi-factor economic model to forecast long-term (20-year) lifecycle water management costs. The model serves as a critical tool to quickly understanding the costs and implications of E&P long-term water management operations.
Alexander Robart Water management has always been an important activity in the development and production of oil/ gas resources. However, water’s importance in the oilfield has increased dramatically with the wide-scale development of shale resources and the importance of hydraulic fracturing (“fracing”), a process which consumes millions of gallons of water. As Poland’s operators develop their shale resources, they will want to consider how various water management choices will affect their capital and operational expenditures and long-term implications for companies, the oil/gas industry, and local communities. Fracing requires large volumes of water as an input into the well (typical volumes range from 10,000 barrels to 200,000 barrels per well). Roughly 10-40% of the water pumped into the well during hydraulic fracturing returns to the surface (“flowback water”) in the first 30-60 days of the life of the well. In order to maintain production rates over the life of a well, it is expected that it will be necessary to refrac wells one or more times, likely at 3- to 5-year intervals. Finally, a larger numbers of wells must be drilled to effectively drain a shale field than a conventional oil/gas field. These factors amount to a massive volume of water that must be managed over the life of a shale field, significantly
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more than is typical in the development and production of a conventional field. WATER MANAGEMENT Managing all of the water going into and flowing out of a shale well is complex and costly. Water used for hydraulic fracturing must be sourced, transported, and stored, often with many intermediate steps in between. The water coming out of the shale well (both high volume flowback water and lower volume produced water) must be stored, transported, and treated for reuse or surface discharge.
Additionally, the water coming out of a well varies widely in quality, but none can be considered clean without significant treatment to remove salt, hydrocarbons, bacteria, and other minerals.The problem of how to manage water in the context of shale development and production can most aptly be referred to as a “logistical nightmare.” Figure 1 below provides an overview of the segments in the water lifecycle in the development and production of shale resources, along with the most common approaches to managing water in each segment.
Water Management Segments in the Development and Production of Shale Resources
Source: company data
A major challenge with water management in the context of shale development is that the long-term costs are not well understood. Another problem in understanding water management costs is that waterrelated expenditures are generally not comprehensively grouped into a single accounting category, so many companies are not aware of their true long-term lifecycle water management costs. Given this multitude of challenges in oilfield water management, an E&P client with acreage in the Eagle Ford play in South Texas asked PacWest for help in developing a comprehensive picture of their true lifecycle water management costs under a variety of scenarios. PacWest developed a multi-factor economic model to forecast long-term (20-year) lifecycle water management costs under various water treatment scenarios and help optimize water operations. When combined with a better understanding of existing water management operations and costs, the model serves as a critical tool to quickly understanding the costs and implications of E&P long-term water management operations. The results of our economic analysis showed that, over the long-term, the large volumes of water managed in the development and production of shale resources justify investments in water treatment infrastructure. The results assume a relatively large scale of activity, but even at
reduced levels, economic results remained stable. Given those conclusions, lifecycle water management in the development and production of shale resources presents a significant opportunity for cost savings. If operators are willing to take a longerterm view by committing investments to up-front capital expenditures to reduce long-term operating expenditures, then the economics are compelling. WATER ISSUES IN POLAND While water is not a particularly scarce resource in Poland, its use and discharge are heavily regulated. Deep injection of flowback and produced water is not an option in Poland, due to a lack of suitable wells and legislation that restricts deep well injection, considered an environmental discharge. The management of stormwater
runoff is a challenge, as regulations dictate that water that falls on-site cannot be drained to surface water bodies, requiring the use of detainment ponds to store runoff. This runoff cannot however be taken to municipal treatment facilities as it is not considered “dirty” enough to warrant energy-intensive treatment. Currently, the majority of water produced by oil/gas wells in Poland is handled by industrial water treatment plants, adding to operational costs. Given the small number of active wells in Poland currently, this is feasible; however, as well counts increase, operators will have to develop more suitable industry-specific solutions. the meantime, operators in Poland should closely study the various technologies being employed in North America and evaluate them in the context of their own unique situation.
PacWest Consulting Partners, global intelligence PacWest Consulting Partners is a boutique strategy consultancy and market intelligence firm that specializes in the energy, industrial, and resources sectors. Much of our work is focused around the oilfield and the many industries that supply critical products and ser-
vices to it. With the explosion of unconventional resources in North America, the energy landscape is changing quickly and PacWest is at the forefront of that change, helping companies develop and implement new strategies to position themselves for growth.
Source: company data
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BUSINESS BM P S
The problem of how to manage water in the context of shale development and production can most aptly be referred to as a ‘logistical nightmare’.
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BMPS Po Polsku WybÓr sposobu udost¢pniania 142 do efektywnej stymulacji metodÑ Packers Plus Jak wybieraå lokalizacj¢ 144 placu odwiertu? – CDM Smith „Farmerzy” złó˚ łupkowych w 146 Polsce zbierajÑ „plony” – PwC Gospodarka wodna przy 148 wydobyciu gazu i ropy z łupków – PacWest
p h o t o g r a p h y b y i STOC K PHOTO
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Wybór sposobu udost´pniania do efektywnej stymulacji metodà Packers Plus
W przeciwieƒstwie do metody plug and perf udost´pnianie otworów bez orurowania łagodzi efekt kr´toÊci (tortuosity), zmniejsza ciÊnienia przełamania i minimalizuje mo˝liwoÊç niekontrolowanego wytràcenia podsadzki (screen out). Osiàga si´ to poprzez umo˝liwienie szczelinowania formacji w punkcie najmniejszego oporu oraz wyznaczenie płynowi zabiegowemu i materiałowi podsadzkowemu bezpoÊredniej Êcie˝ki przepływu do wywoływanej szczeliny.
Paul Higginson Jakie cechy powinna posiadaç doskonała stymulacja szczelinowaniem i ostatecznie szczeliny, które sà jej efektem? Gdyby zapytaç kogoÊ, kto miał do czynienia ze szczelinowaniem, odpowiedzi byłyby nast´pujàce: •Minimalna kr´toÊç szczelin •Niskie ciÊnienia przełamania otworu •Podsadzka nie jest nadmiernie przemieszczona (overdisplacement) •Wysoka g´stoÊç przyodwiertowa podsadzki •Poprawiona przewodnoÊç przypływu •Szybki zwrotny przepływ płynu zabiegowego •Minimalne obcià˝enie płynem zabiegowym
Bez wzgl´du na rodzaj udost´-pnienia, pi´ç ostatnich podpunktów jest kluczowe dla ka˝dej dobrej stymulacji i ostatecznie wyników produkcyjnych z odwiertu. Główna metoda stymulacji w Polsce wykorzystuje perforatory wprowadzane poprzez pompowanie do rur traconych zacementowanych w rurach okładzinowych. Co si´ tyczy pierwszych dwóch podpunktów, stymulacja ka˝dego rodzaju zło˝a z zastosowaniem rur traconych zacementowanych w rurach okładzinowych prawdopodobnie wywoła kr´toÊç szczelin. A to na skutek tego, ˝e szczelinowanie mo˝e nie nastàpiç w miejscach perforacji, zmuszajàc płyn zabiegowy i podsadzk´ do obrania kr´tej
Udost´pnienie metodà ‘plug and perf’ z cementowanà traconà kolumnà rur okładzinowych wykazujàce kr´toÊç szczeliny i nadmierne przemieszczenie podsadzki (overdisplacement)
èrÓdŁo: company data
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drogi pomi´dzy rurami okładzinowymi/ odwiertem, a cementem. Kiedy coÊ takiego nastàpi, a badania sejsmiczne wykazały, ˝e cz´sto to ma miejsce, ciÊnienia przełamania si´ zwi´kszajà, jak równie˝ wzrasta prawdopodobiestwo przedwczesnego wytràcenia podsadzki (screen-out). UDOST¢PNIANIE OTWORÓW BEZ ORUROWANIA W przeciwieƒstwie do tego, udost´pnianie odwiertów bez orurowania łagodzi zjawisko kr´toÊci (tortuosity), zmniejsza ciÊnienia przełamania i minimalizuje mo˝liwoÊç niekontrolowanego wytràcenia podsadzki (screen out). Osiàga si´ to poprzez umo˝liwienie szczelinowania formacji w punkcie najmniejszego oporu oraz wyznaczenie płynowi stymulujàcemu i materiałowi podsadzki bezpoÊredniej Êcie˝ki przepływu do wywoływanej szczeliny. Przyczynia si´ to do tego, ˝e udost´pnianie odwiertów bez orurowania mo˝e maksymalizowaç produkcj´ na nowych polach i zwi´kszaç produkcj´ na polach starzejàcych si´, w porównaniu z metodà ‘plug and perf’ z cementowanà traconà kolumnà rur okładzinowych. Je˝li chodzi o trzy kolejne podpunkty, przemieszczenie odnosi si´ do miejsca, w którym znajduje si´ podsadzka wzgl´dem odwiertu. Nadmierne przemieszczenie (overdisplacement) oznacza, ˝e w strefie przyodwiertowej nie ma podsadzki, poniewa˝ płyn pod ciÊnieniem wtłoczył jà głeboko do szczeliny. Poczàtkowo, szczelina bez podsadzki mo˝e pozostawaç otwarta i umo˝liwiaç wydobycie, ale z czasem zaciÊnie si´, negujàc wartoÊç pozostałej cz´Êci szczeliny podpartej podsadzkà. Nienadmierne przemieszczenie (underdisplacement) oznacza, ˝e cz´Êç podsadzki pozostaje w strefie przyodwiertowej podtrzymujàc rozwarcie szczeliny.
Jest to przypadek idealny i zapewnia on, ˝e szczelina pozostaje otwarta poprawiajàc przewodnoÊç i umo˝liwiajàc w´glowodorom napływ do odwiertu i rur okładzinowych. W Europie, zwykle stosuje si´ urzàdzenie z przewodem zwijanym (coiled tubing) w celu zastosowania perforatorów lub hydroperforatorów, które umo˝liwiajà utrzymanie szczelin bez nadmiernego przemieszczenia podsadzki. Jednak˝e stosowanie przewodu zwijanego w taki sposób powoduje długie okresy stymulacji, minimum 3 dni na wykonanie szczelinowania; zatem w Polsce stosowana była metoda alternatywna. Perforatory zawieszone na kablu strzałowym sà zapuszczane do odwiertu i wtłaczane poprzez pompowanie za podsadzkà, która została wprowadzona na poprzednim etapie. Wymaga to zu˝ycia płynu zabiegowego w iloÊci równej co najmniej jednej pełnej obj´toÊci przewodu wydobywczego, która w architekturze polskiego otworu poziomego wynosi około 200 bbl. Ten płyn nadmiernie przemieszcza podsadzkà z poprzedniego etapu w głàb szczeliny, zmniejszajàc g´stoÊç podsadzki w strefie przyodwiertowej do zera. Proces ten jest powtarzany dla wszystkich pozostałych etapów.
zastàpione mniej szkodliwymi Êrodkami, takimi jak N2, CO2, piany lub propan, to mogà one nie byç łatwo dost´pne. Metody wykorzystujàce zacementowanà w rurach okładzinowych rur´ traconà wymagajà zwiercenia korków zamykajàcych po stymulacji, co skutkuje wydłu˝onym kontaktem płynu ze zło˝em; podczas, gdy otwory nieorurowane umo˝liwiajà natychmiastowy przepływ zwrotny, minimali-zujàc wywoływane uszkodzenie zło˝a. Powy˝sza dyskusja pokazuje, jak wybrana metoda udost´pnienia mo˝e wpłynàç na powodzenie programu stymulacji szczelinowaniem. W wi´kszoÊci przypadków, systemy wielostopniowe nieorurowane typu ‘ball-drop’ nie tylko zapewniajàmo˝liwoÊçwykonaniawielokrotnych zabiegów stymulacji w jednym dniu, ale promujà te˝ dobre metody wykonywania szczelinowania. Zmniejszone ciÊnienia szczelinowania minimalizujà ryzyko niekontrolowanego wytràcenia
podsadzki (screen out), co jest głównym êródłem czasu nieproduktywnego w zabiegach stymulacyjnych. Podsadzka nie jest nadmiernie przemieszczana do szczelin, co skutkuje wysokà przyodwiertowà g´stocià podsadzki, bardzo wa˝nà dla poprawy przewodnoÊci przypływu. Uszkodzenia formacji sà minimalizowane, poniewa˝ mniej płynu wymagane jest pomi´dzy zabiegami szczelinowania i stàd te˝ jest mniej płynu, który nale˝y odzyskaç, jak równie˝ ze wzgl´du na fakt, ˝e system umo˝liwia natychmiastowy przepływ zwrotny. To nie tylko usprawnia produkcj´ i minimalizuje czas udost´pnienia, ale zmniejsza równie˝ oddziaływanie na Êrodowisko. Na dodatek te systemy umo˝liwiajà wykonanie odci´cia wody i testów produkcyjnych po ponownej i wst´pnej stymulacji, co stanowi du˝à korzyÊç w fazie oszacowania zło˝a, gdzie wyniki mogà byç nieprzewidywalne.
Udost´pnienie otworu bez orurowania w systemie wielostopniowym wykazujàce wysokà g´stoÊç przyodwiertowà podsadzki
USZKODZENIE ZŁO˚A Co si´ tyczy ostatnich dwóch podpunktów, udane szczelinowanie i wprowadzenie podsadzki nie wystarcza, by zapewniç, ˝e otwór b´dzie produktywny. Na produktywnoÊç radykalnie mo˝e wpłynàç równie˝ uszkodzenie zło˝a towarzyszàce stymulacji. Płyny do stymulacji, stosowane by utworzyç szczelin´, w szczególnoÊci płyny na bazie wody, mogà spowodowaç uszkodzenie zło˝a. Krytycznà kwestià jest, by zminimalizowaç czas pomi´dzy pierwszà stymulacjà szczelinowaniem, a momentem, kiedy otwór wiertniczy jest płukany w celu oczyszczenia. Chocia˝ tradycyjne płyny na bazie wody mogà byç èrÓdŁo: company data
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Systemy wielostopniowe nieorurowane ‘ball-drop’ nie tylko zapewniajà mo˝liwoÊç wykonania wielokrotnych zabiegów stymulacji w jednym dniu, ale promujà te˝ dobre metody wykonywania szczelinowania.
Jak wybieraç lokalizacj´ placu odwiertu? – CDM Smith
Analiza ograniczeƒ pozwala operatorowi tworzyç ranking obszarów stopniujàc je jako idealne, nieidealne i, co równie istotne, obszary, gdzie uzyskanie pozwoleƒ b´dzie czasochłonne.
K r z y s z t o f K a m i n s k i , Ad a m L o c k e , M a g d a l e n a P a v l a k - C h i a r a d i a Lokowanie i udzielanie pozwoleƒ na odwierty poszukiwawcze w Polsce stawia pod znakiem zapytania tradycyjne metody wyboru miejsca. Operatorzy sà w kłopotliwym poło˝eniu pomi´dzy decyzjami zwiàzanymi z wyborem miejsca i skutecznym procesem uzyskiwania pozwoleƒ. Choê nie zawsze musi wystàpiç rozdêwi´k, decyzje wpływajàce na wybór miejsca, techniczna wykonalnoÊç i dost´pne lokalizacje z pozwoleniami czasami nie współgrajà ze sobà. Jedni operatorzy mogà opieraç swój wybór miejsca o ró˝ne kryteria: patrzàc, gdzie dane sejsmiczne sà najbardziej dokładne, czy te˝ gdzie krzy˝ujà si´ dwa profile sejsmiczne. Inni mogà wybieraç miejsce w oparciu o relacje z lokalnymi społecznoÊciami w połàczeniu z szybko dost´pnymi danymi sejsmicznymi. I choç ka˝de powy˝sze podejÊcie jest uzasadnione, w przypadku lokowania otworów poszukiwawczych, proces pozwoleƒ w Polsce wcià˝ kwestionuje te tradycyjne metody selekcji. Poj´ciem, które warto rozwa˝yç w trakcie wyboru miejsca jest analiza zagospodarowania terenu, nazywana równie˝ analizà ograniczeƒ. Takie podejÊcie bierze pod uwag´ odpow-
iednie, kompleksowe informacje przestrzenne uzyskane poprzez System Informacji Geograficznej (GIS) takie jak zagospodarowanie terenu, zahamowania wynikajàce z przepisów, rodzaj dróg oraz zasoby naturalne, w celu okreÊlenia obszarów o najwi´kszym prawdopodobieƒstwie wskazania najbardziej efektywnego otoczenia dla uzyskania pozwolenia na lokalizacj´ placu odwiertu i umieszczenia platformy. Taka analiza
mapy, naniesionej na zdj´cia lotnicze, w teren umo˝liwia sprawdzenie terenu i dostarcza kryteriów badania, takich jak stan dróg oraz terenu, stan własnoÊci lub inne decydujàce czynniki okreÊlone przez operatora. Zaw´˝a to selekcj´ i eliminuje zgadywank´ z potencjalnie czasochłonnego procesu zezwoleƒ czy negocjacji ułatwiajàc spełnienie terminu rozpocz´cia wierceƒ i zmniejszenie kosztów lokalizacji. W szczególnoÊci, analiza ograniczeƒ dla Polski, na potrzeby CDM Smith, zaoszcz´dziła operatorom szacunkowo 300 000 USD na lokalizacji i co najmniej o 2 miesiàce zmniejszyła czas uzyskiwania pozwolenia. Mapy oparte o GIS ułatwiajà zrozumienie zło˝onoÊci procesu zezwoleƒ i stanowiç narz´dzie komunikacji. Odpowiednio sporzàdzona mapa mo˝e w prostych kategoriach graficznych umo˝liwiç społecznoÊciom zrozumienie, dlaczego dana lokalizacja została wybrana i poinformowaç o Êrodkach ostro˝noÊci, które operator zachował wybierajàc lokalizacje, aby ograniczyç wpływ na Êrodowisko i tryb ˝ycia społecznoÊci. Poniewa˝ analiza
Analiza ograniczeƒ dla Polski, na potrzeby CDM Smith, zaoszcz´dziła operatorom szacunkowo 300 000 USD na lokalizacji i co najmniej o 2 miesiàce zmniejszyła czas uzyskiwania pozwolenia.
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mo˝e byç wykonana wczeÊnie, aby rozpoznaç lokalizacje profili sejsmicznych, które prowadzà do wyboru miejsca lub mo˝e byç przeprowadzona podczas wyszukiwania w odniesieniu do zdefiniowanych wczeÊniej obszarów w wi´kszym bloku koncesyjnym. Analiza ograniczeƒ pozwala operatorowi tworzyç ranking obszarów stopniujàc je jako idealne, nieidealne i, co równie istotne, jako obszary, gdzie uzyskanie pozwoleƒ b´dzie czasochłonne. Zabranie takiej
ograniczeƒ jest oparta o wczeÊniej zdefiniowane bezstronne kryteria z map, zdj´ç lotniczych oraz przepisów, takie u˝yteczne narz´dzie jest transparentne i otwarte dla opinii publicznej, aby mo˝na było jà informowaç i uzyskiwaç jej zgod´
na lokalizacj´. BezpoÊrednie zastosowanie technologii GIS skutkuje wysokim poziomem współpracy pomi´dzy planistami, naukowcami oraz in˝ynierami i ich zaanga˝owaniem na rzecz kompleksowego podejÊcia do skutecz-
nego wyboru lokalizacji. SpecjaliÊci GIS z CDM Smith, we współpracy z naszym doÊwiadczonym personelem ds. pozwoleƒ Êrodowiskowych i in˝ynierami, oferujà rozwiàzania sprawnie i skutecznie minimalizujàce kolizj´ z harmonogramami.
CDM Smith analiza ograniczeƒ
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Odpowiednio sporzàdzona mapa mo˝e w prostych kategoriach graficznych umo˝liwiç społecznoÊciom zrozumienie, dlaczego dana lokalizacja została wybrana i poinformowaç o Êrodkach ostro˝noÊci, które operator zachował wybierajàc lokalizacje.
„Farmerzy” złó˝ łupkowych w Polsce zbierajà „plony” – PwC
Podczas, gdy koncesje poszukiwawcze obejmujàce tereny z najlepszà perspektywà w Polsce zostały ju˝ przyznane, a rynek gazu łupkowego wchodzi w bardziej dojrzałà faz´, oczekujemy wyłonienia si´ wzorców działaƒ biznesowych inwestorów, podobnie jak na dojrzałych rynkach gazu łupkowego w USA i Kanadzie.
To m a s z B a ra n c z y k , J a ro s l aw G r z yw i n s k i , G r z eg o r z Ku s, Ko n ra d M i c h a l a k
Obserwujàc rynek, oczekujemy, ˝e przewa˝ajàce b´dà nast´pujàce formy działalnoÊci gospodarczych: Przej¢cia: Inwestorzy zajmujàcy miejsce przedsi´biorcy, który ju˝ posiada stosowne prawa u˝ytkowania górniczego i koncesje, lub przejmujàcy kontrol´ nad takim przedsi´biorcà. Z punktu widzenia sprzedajàcego, takie transakcje motywowane sà ch´cià realizacji zysku z wczeÊniejszego skutecznego wniosku o uzyskanie koncesji;
Umowy typu Farm-in Farm-out: Uczestnicy zawierajà umow´, na mocy której jedna strona przejmuje prawo do udziału w zyskach produkcyjnych w zamian za finansowe i technologiczne wsparcie poszukiwania i wydobycia złó˝. Umowy typu farm-out mogà byç ró˝norodne pod wzgl´dem wynagrodzenia, jak np. przyznanie dost´pu do innych obiecujàcych pól, wymiana technologii, wpłaty pieni´˝ne itd. Głównà przesłankà za umow´ farm out jest dywersyfikacja projektów, rozło˝enie ryzyka niepowodzenia i zdobycie know-how.
Source: company data
FARMING IN W praktyce najbardziej powszechne formy współpracy farm-in w Polsce w sektorze gazu łupkowego to: • kontraktowe joint venture (CJV) oparte o umowy o współdziałaniu (JOA) • powołanie spółki celowej (SPV) w formie spółki komandytowej. W tym obszarze, praktyka polska przypomina tà zaobserwowanà w Stanach Zjednoczonych, gdzie umowne joint venture oparte o JOA sà najbardziej powszechnym rodzajem współpracy w sektorze gazu łupkowego. Jednak˝e, udziałowcy powinni byç równie˝ Êwiadomi, ˝e ka˝de z powy˝ej wymienionych rozwiàzaƒ ma swoje znaczàce konsekwencje prawne i podatkowe.
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OSTRO˚NOÂå Wi´kszoÊç inwestorów jest Êwiadoma kwestii technicznych zwiàzanych z projektem, takich jak koszty poszukiwania i wydobycia, prawdopodobieƒstwo powodzenia, iloÊç gazu, dost´p do rynku, itd. To, co jest przedmiotem ich obaw, to zewn´trzne, właÊciwe dla danego kraju warunki, takie jak struktura podatków dla transakcji, mo˝liwoÊci prawne, odpowiedzialnoÊç społeczna oraz strategie zrównowa˝onego rozwoju. Ponadto, ka˝da ze stron transakcji powinna przekonaç swoich udziałowców, ˝e transakcja jest uczciwa od strony finansowej (opinia o godziwoÊci ceny). Polskie prawo, ogólnie rzecz bioràc, wliczajàc przepisy podatkowe, nie jest przystosowane do ró˝nych form joint venture, czy to w postaci umów
o współdziałaniu (JOA) czy te˝ spółek komandytowych (SPV). Zatem, ka˝dy z tych scenariuszy współpracy mo˝e si´ wiàzaç z pewnymi obawami. PRAWNY PUNKT WIDZENIA Z perspektywy prawa, wszystkie zło˝a w Polsce stanowià wyłàcznÊ własnoÊç Skarbu Paƒstwa. Jednà z najbardziej kluczowych kwestii jest zawarcie wa˝nej i w pełni egzekwowalnej umowy u˝ytkowania górniczego ze Skarbem Paƒstwa. Zgodnia z takà umowà inwestor z sektora gazu łupkowego b´dzie miał prawo do wykorzystania okreÊlonych złó˝ surowcowych, których właÊcicielem jest Skarb Paƒstwa. Umowa o u˝ytkowanie górnicze b´dzie precyzyjnie okreÊlała wszystkie warunki i zastosowania takich złó˝. Inwestor mo˝e planowaç poszukiwanie i/ lub wydobycie wyznaczonego surowca. Koncesja b´dzie przyznana na czas okreÊlony, nie krócej ni˝ na 3 i nie dłu˝ej ni˝ na 50 lat. Polskie prawo górnicze i geologiczne, które obejmuje proces przyznawania koncesji na poszukiwanie, rozpoznanie i wydobywanie w´glowodorów (w tym ropy i gazu z łupków), stanowi, ˝e koncesja, jak równie˝ u˝ytkowanie górnicze mogà byç przyznawane tylko pojedynczemu podmiotowi. JednoczeÊnie, przeniesienie koncesji jest dozwolone jedynie w całoÊci tj. nie jest mo˝liwa sprzeda˝ udziału w koncesji. Kolejnà kwestià do rozwiàzania jest własnoÊç wydobywanego gazu lub potencjalna koniecznoÊç uzyskania zgody z Urz´du Antymonopolowego w przypadku utworzenia SPV.
PODATKI MAJÑ ZNACZENIE Patrzàc od strony podatków, podmiot zagraniczny b´dàcy partnerem spółki komandytowej mo˝e byç postrzegany przez organy podatkowe jako posiadajàcy stałà siedzib´ w Polsce i w konsekwencji zobowiàzany do płacenia podatku dochodowego w Polsce, jak równie˝ spełnienia pewnych obowiàzków sprawozdawczych. “Farmer” zwykle oczekuje wynagrodzenia od dysponujcego koncesjà za mo˝liwoÊç wejÊcia na koncesjà, jak równie˝ pewnego rodzaju zwrotu kosztów poniesionych dotychczas na poszukiwania. W wyniku tego, joint venture mogà prowadziç do współwłasnoÊci Êrodków trwałych, co mo˝e skutkowaç obowiàzkiem zapłaty podatku od nieruchomoÊci. Zatem, kwestie podatkowe powinny byç starannie analizowane i planowane na etapie wyboru formy współpracy, poniewa˝ moe si´ okazaç, ˝e polskie prawo podatkowe prowadzi do skutków podatkowych znaczàco ró˝niàcych si´ od zamiarów stron umowy o współdziałaniu (JOA) lub partnerów spółki komandytowej SPV. Dalsze kwestie podatkowe mogà wyniknà w odniesieniu do podatku VAT, zwiàzane z ustaleniami pomi´dzy stronami, zwłaszcza, je˝eli jednej z nich przyznana została rola operatora i finansuje ona operacje poprzez tzw. “cash calls” lub obcià˝a kosztami pozostałe strony. Kwestie VAT dla przyszłych sprzeda˝y eksploatowanych zasobów powinny byç równie˝ wzi´te pod uwag´ na wczesnym etapie negocjacji umowy o współdziałaniu (JOA) czy umowy pomi´dzy partnerami spółki komandytowej (SPV). Jednak˝e, poprzez zaawansowane planowanie podatków i wykorzystanie istniejcych mo˝liwoÊci optymal-
izacji mo˝na zabezpieczyç sytuacj´ podatkowà stron joint venture jak równie˝ sprawnie kształtowaç ich obcià˝enia podatkowe. Decyzje podatkowe, specjalne klauzule w umowach JOA i SPV odnoÊnie rozliczeƒ podat-
kowych i ustalenia co do dokładnego zakresu działaƒ administracyjnych ka˝dej ze stron to kilka przykładów tego, jak mo˝na to osiàgnàç.
Artykuł przygotowany przez zespół ekspertów PwC Energy:
Tomasz Baraƒczyk, Partner, Tax and Legal department, Tomasz.baranczyk@pl.pwc.com, +48 502 184 852
Jaroslaw Grzywiƒski, Counsel, Tax and Legal department, Jaroslaw.grzywinski@pl.pwc. com, +48 519 506 961
Konrad Michalak, Senior Manager, Business Advisory department, Konrad.michalak@pl.pwc.com, +48 502 184 364
Grzegorz Kus, Senior Consultant, Tax and Legal department, Grzegorz.kus@pl.pwc.com, +48 519 507 208
PwC - Doradca energetyczny PwC’s Energy Group zało˝ona została w 2000 roku w odpowiedzi na rosnàce zapotrzebowanie na usługi doradztwa ze strony polskich i zagranicznych firm energetycznych. Przez ostatnie 12 lat wraz z naszymi klientami byliÊmy zaanga˝owani w przekształcenie sektorów energii, ropy i gazu oraz górniczego w Polsce.
W gronie naszych klientów sà: Enea, Energa, Gaz-System, JSW, KGHM, KHW, Kompania Weglowa, Kulczyk Holding, Lotos, PGE, PGNiG, PKN Orlen i Tauron, jak równie˝ Êwiatowi gracze: Aurelian, Chevron, ConocoPhillips, ENI, E.ON, ExxonMobil, Fortum, Marathon Oil, RWE, Talisman.
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Polskie prawo, ogólnie rzecz bioràc, wliczajàc przepisy podatkowe, nie jest przystosowane do ró˝nych form joint venture, czy to w postaci umów o współdziałaniu (joint operations agreements) czy te˝ spółek partnerskich lub spółek komandytowych (SPV).
Gospodarowanie wodà przy wydobyciu gazu i ropy z łupków, – PacWest
PacWest sporzàdził wieloczynnikowy model ekonomiczny, by przewidzieç koszty gospodarowania wodà dla długoterminowego (20-letniego) cyklu ˝ycia. Model słu˝y jako krytyczne narz´dzie do szybkiego zrozumienia kosztów i implikacji przy poszukiwaniach i wydobyciu (E&P) w długoterminowym gospodarowaniu wodà.
Alexander Robart Gospodarowanie wodà zawsze stanowiło stanowiła wa˝ny obszar przy przygotowaniu terenu i wydobywaniu zasobów ropy i gazu. Jednak˝e, znaczenie wody w sektorze naftowym dramatycznie wzrosło wraz z szerokim rozwojem sektora łupkowego oraz ze wzrostem znaczenia szczelinowania hydraulicznego, procesu, który pochłania miliony litrów wody. Wraz z post´pem prac polskich operatorów przy zło˝ach łupkowych, b´dà oni potrzebowaç wiedzy, jak ró˝ne decyzje dotyczàce gospodarki wodà wpłynà na ich wydatki CAPEX i OPEX i jakie b´dà długoterminowe implikacje dla firm, sektora ropy i gazu oraz społecznoÊci lokalnych. Szczelinowanie wymaga du˝ych iloÊci wody jako wkładu do otworu (zwykle obj´toÊci wahajà si´ w przedziale od 10 000 do 200 000 baryłek na otwór). Mniej wi´cej 10-40% wody wpompowanej do otworu w trakcie szczelinowania hydraulicznego wraca na powierzchni´ w postaci przypływu zwrotnego (“flowback water”) w cigu 30-60 dni cyklu ˝ycia otworu. Szacuje si´, ˝e aby utrzymaç tempo wydobycia przez cały cykl ˝ycia otworu, b´dzie konieczne ponowne szczelinowanie otworów, mo˝liwie w odst´pach 3 do 5 lat. Wreszcie, nale˝y wywierciç wi´kszà iloÊç otworów ni˝ w przypadku konwencjonalnego pola naftowego/gazowego, by efektywnie eksploatowaç pole łupkowe. Te czynniki przyczyniajà si´ do ogromnych iloÊci wody, którà
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nale˝y gospodarowaç przez okres cyklu ˝ycia pola łupkowego, znacznie wi´kszych ni˝ to ma miejsce przy rozwoju i wydobyciu ze zło˝a konwencjonalnego. GOSPODAROWANIE WODÑ Gospodarowanie całà iloÊcià wody wpływajàcej i wypływajàcej z odwiertu jest zło˝onà i kosztownà sprawà. Woda wykorzystywana do szczelinowania hydraulicznego musi byç pozyskiwana, transportowana i magazynowana, cz´sto z wieloma poÊrednimi krokami. Woda wypływajàca z otworu (zarówno woda powracajàca o du˝ej obj´toÊci oraz mniejsze obj´toÊci wody pozostałej po wydobyciu) musi byç magazynowana, transportowana i uzdatniana do ponownego u˝ycia
lub odprowadzenia na powierzchni´. Dodatkowo, woda wypływajàca z odwiertu jest bardzo zró˝nicowana pod wzgl´dem jakoÊci, ale ˝adna woda nie mo˝e byç okreÊlona jako czysta bez powa˝nego uzdatnienia polegajàcego na usuni´ciu soli, w´glowodorów, bakterii i innych minerałów. Problem gospodarowania wodà w kontekÊcie przygotowania infrastruktury i samego wydobycia ze zło˝a łupkowego mo˝na najtrafniej okreÊliç jako „logistyczny koszmar.” Rysunek 1 poni˝ej daje przeglàd etapów cyklu ˝ycia wody dla przygotowania infrastruktury i eksploatacji złó˝ łupkowych, wraz z najbardziej powszechnymi podejÊciami do gospodarowania wodà na ka˝dym etapie.
Etapy gospodarowania wodà w przygotowaniu infrastruktury i eksploatacji złó˝ łupkowych
èrÓdŁo: company data
Eksploatacja złó˚ łupkowych Głównym wyzwaniem przy gospodarowaniu wod w kontekÊcie łupków jest niewielkie rozeznanie w długoterminowych kosztach. Kolejnym problemem w zrozumieniu kosztów gospodarowania wodà jest fakt, ˝e wydatki zwiàzane z wodà nie sà generalnie pogrupowane w pojedynczà kategori´ ksi´gowà, wi´c wiele firm nie jest Êwiadomych ich prawdziwych kosztów gospodarowania wodà dla długoterminowego cyklu ˝ycia. Bioràc pod uwag´ ten ogrom wyzwaƒ przy gospodarowaniu wodà na polu naftowym, klient (E&P) z koncesj´ w basenie Eagle Ford w Południowym Teksasie poprosił PacWest o pomoc w nakreÊleniu kompleksowego obrazu rzeczywistych kosztów gospodarowania wodà dla cyklu ˝ycia w ró˝nych scenariuszach. PacWest sporzàdził wieloczynnikowy model ekonomiczny, by przewidzieç koszty gospodarowania wodà dla długoterminowego (20-letniego) cyklu ˝ycia w szeregu scenariuszy uzdatniania wody i wspomóc optymalizacj´ działaƒ w zakresie wody. Je˝li si´ go połàczy z lepszym zrozumieniem obecnych działaƒ w zakresie gospodarki wodnej i kosztów, model słu˝y jako krytyczne narz´dzie do szybkiego zrozumienia kosztów i implikacji (E&P) w długoterminowym gospodarowaniu wodà. Wyniki naszej analizy ekonomicznej pokazały, ˝e w dłu˝szym okresie, du˝e iloÊci wody wykorzystywanej przy przygotowaniu terenu i wydobywaniu zasobów łupkowych uzasadniajà inwestycj´ w infrastruktur´ oczyszczania wody. Wyniki prze-
widziane były dla wzgl´dnie du˝ej skali działania, ale nawet przy obni˝onych poziomach, wyniki pozostawały niezmienne. Przy tych wnioskach, gospodarowanie wodà w trakcie cyklu ˝ycia przy przygotowaniu terenu i wydobyciu ze złó˝ łupkowych daje du˝à szans´ na oszcz´dnoÊci. Je˝eli operatorzy chcà przyjàç długoterminowy punkt widzenia inwestujàc bezpoÊrednie Êrodki kapitałowe w celu redukcji długoterminowych wydatków operacyjnych, wówczas liczy si´ dla nich ekonomia. PROBLEMY Z WODÑ W POLSCE Podczas, gdy woda nie jest szczególnie rzadkim zasobem w Polsce, jej wykorzystanie oraz odprowadzanie sà obwarowane licznymi przepisami. Gł´bokie zatłaczanie wody powracajàcej oraz wody po wydobyciu nie jest mo˝liwe w Polsce, ze wzgl´du na brak odpowiednich odwiertów i ustawodawstwo, które ogranicza gł´bokie zatłaczanie, bioràc pod uwag´ odprowadzanie wody do otoczenia. Wyzwanie stanowi równie˝ zarzàdzanie spływem wód deszc-
zowych, poniewa˝ przepisy okreÊlajà, ˝e woda, która spada na teren odwiertu, nie mo˝e byç odprowadzana do wód powierzchniowych, i wymagajà zastosowania zbiorników retencyjnych wody odpływowej. Taka woda odpływowa nie mo˝e byç jednak zabierana do miejskich oczyszczalni, poniewa˝ nie jest uznawana za dostatecznie brudnà, by energochłonne oczyszczanie było zasadne. Obecnie, wi´kszoÊç wody przetworzonej przez odwierty ropy/gazu w Polsce przechodzi przez instalacje uzdatniania wody przemysłowej, co zwi´ksza koszty operacyjne. Bioràc pod uwag´ niewielkà obecnie iloÊç aktywnych otworów w Polsce jest to wykonalne, jednak˝e, wraz ze wzrostem iloÊci otworów, operatorzy b´dà musieli stworzyç bardziej odpowiednie dla tej bran˝y rozwiàzania. W mi´dzyczasie, operatorzy w Polsce powinni dokładnie studiowaç ró˝ne technologie stosowane w Ameryce Pn. i oceniaç je w kontekÊcie ich własnej unikalnej sytuacji.
PacWest Consulting Partners, rozpoznanie globalne PacWest Consulting PacWest Consulting Partners to wyspecjalizowana firma doradztwa strategicznego i rozpoznania rynkowego, która specjalizuje si´ w sektorze energetycznym, przemysłowym oraz zasobów naturalnych. Spora cz´Êç naszej pracy koncentruje si´ wokół przemysłu naftowego oraz wielu innych sektorów, które
dostarczajà kluczowe produkty oraz usługi z nim zwiàzane. Wraz z gwałtownym rozwojem sektora niekonwencjonalnych złó˝ w Ameryce Pn., krajobraz energetyczny zmienia si´ szybko, a PacWest stoi na czele tych zmian, pomagajàc firmom rozwinàç i wdro˝yç nowe strategie, aby mogły nastawiç si´ na wzrost.
èrÓdŁo: company data
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BUSINESS BM P S
Problem gospodarowania wodà w kontekÊcie przygotowania infrastruktury i samego wydobycia ze zło˝a łupkowego mo˝na najtrafniej okreÊliç jako ‘logistyczny koszmar.
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