Conventional Gas in Poland: Lower Risk, High Return
It has been a couple of weeks since San Leon Energy made the announcement of a commercial gas discovery at its Rawicz-12 appraisal well in Poland, but now the company's partner and project operator, Palomar Natural Resources, has released further information about the well testing of an important new resource in a place where the price of gas is high.
According to Palomar's press release, the company purchased its 65% interest in the Rawicz concession 9 months ago from San Leon Energy. “In this short time Palomar Natural Resources assumed operatorship of 7 concessions, built a competent operations team, obtained all necessary permits and approval, safely drilled the Rawicz-12 well on budget and successfully flow-tested gas.”
Palomar, which has 65% equity in the project, writes in its release that natural gas production at the Rawicz-12 should start in the near term. The company reports the Rawicz-12's peak test rate was 5.3 MCF/day and sustainable average 24-hour steady flow rate 4.5 MCF/day.
Readers of Natural Gas Europe may recall San Leon's farm-out of the Rawicz well to Palomar in June of last year. That happening signaled the return San Leon's former Director of Exploration, John Buggenhagen (now CEO of Palomar) to exploration and production activities in Poland. Previously, Dr. Buggenhagen had been a robust advocate of San Leon's shale gas projects in Poland, but in May 2013 decided to take some time off as significant results for the company's concessions proved fleeting.
Today, he says of Palomar: “Our focus is on conventional, lower risk, high return oil and gas in Poland. We think that conventional prospects, as I thought when I first got to Poland, have a huge upside and that we are committed to developing this trend.”
Of the Rawicz-12, Dr. Buggenhagen explains, “We really focused on costs and successfully drilled a lower cost well for the region. On our next well, the Rawicz-14, I intend to continue to focus on costs by cutting drilling costs by 30%.
“In the short-term we're focused on a detailed analysis to determine the best way forward to develop the Rawicz field and continue to appraise adjacent prospects in the area.”
Mr. Buggenhagen says that while not an unconventional gas project, Palomar is planning on using newer equipment, rigs and drilling techniques.
“We're literally starting almost from scratch,” he says. “We're not given the benefit of the 80-100 years of exploration and production in Poland. It seems to me that the government would be more willing to share historical data with every foreign explorer that's willing to spend money and bring Polish gas to market.”
Of Palomar's interest in the Siekierki project, he says the company has completely reevaluated it from a subsurface and engineering perspective, “and we are planning to begin our operations, probably in the second quarter.
“Again, in our mind it's not unconventional gas, but conventional gas bordering on tight, therefore we'll use a very similar approach.”
According to him, water disposal is one of the potential issues that the company is working to mitigate in Siekierki.
With operations in Poland and North America, thus far Palomar has drilled four wells in the US, two of them successful and two pending completion, plus its well in Poland. Now, Dr. Buggenhagen reports, the company has the money to prove concept, after which it will receive more equity capital and likely go out and raise funds to proceed.
“We've drilled five wells in less than a year and we're already producing in the US,” he remarks. “That kind of activity will be required to continue going forward. Therefore, if we're successful here (in Poland) I think we could make an impact.”
Meanwhile, he says he's not concerned about the impact of low oil prices on E&P projects. He offers, “Poland is one of the few places, I think, gas prices will continue to maintain its high levels, in Central Europe, because I don't think the Russians will honor the gas price that follows oil by 6 months – they're not cutting their gas price in half – so I think we'll see very strong gas prices, particularly with what's going on geopolitically at the moment.”
Furthermore, according to Dr. Buggenhagen, Palomar is forming partnerships with other companies, looking at new technologies for the removal of water, and for finding new ways of monetizing the gas. “We're not necessarily selling it directly to the pipelines; we're looking at some end users on the industrial side and building a viable business here in Poland.”
Meanwhile, he reports that a lot of people are still asking him to speak about shale gas, but he says Palomar is not a shale gas company. “Although, I'm still very interested.”
He recalls that upon leaving San Leon in 2013, he had intended to take a year or two off, but after 2 months he was back in the exploration and production business. He says he met with a group of investors and sold them on the concept of lower risk, technology-driven conventional plays.
Natural Gas Europe asked him what it was like watching from afar as the shale gas explorers in Poland dropped to the wayside. He comments, “Everybody expected the first couple of shale wells were just going to revolutionize the industry – it's never happened before, and it was unrealistic.”
“We were maybe somewhat unrealistic in terms of the amount of capital it would require to get to some kind of cashflow,” he says in hindsight of his role with the shale plays at San Leon. “Our model was always 'let's prove it and sell it,' but unfortunately it didn't work out.
“Do I still believe in Polish shale? Absolutely. I don't think enough wells have been drilled, and don't think we understand the story well enough,” he says.
Dr. Buggenhagen predicts that San Leon and BNK Petroleum are likely to become the champions of Poland's shale gas production in the next couple of years, until someone finds something compelling to bring others into the fold.
Now, explains Dr. Buggenhagen, he's about to set off on a new crusade to figure out how to monetize and continue Palomar's business in Poland. Final test results on the Rawicz-12 well are due at the end of this month – an anticipated milestone.
He reports, “We'll then put together a reserve report and begin the process of forming and exploitation concession in Poland. When that is done, we can begin to monetize our gas. The next year will be very busy.
“For me it's very exciting,” he continues, “after spending 6 years in Poland and 2 years in Budapest prior to that, this is exciting in that we've proven a gas field we knew was there. We're going to be proactive about developing it and turn it into a commercial success.”
-Drew Leifheit