Europe's Shale Laboratory
Poland at top of list for shale gas development as activities accelerate
If you happen to ask James Elston what’s going on with unconventional gas in Europe, be prepared. He’ll give you a rundown of developments on the continent with a flurry of details.
With over two decades of experience in the energy business, today the Director of Palladian Energy Advisory spends his time helping to raise money for small energy companies
Mr. Elston contended that, indeed, Poland was the laboratory for making shale gas development happen in Europe.
“Well it certainly is. There are just so many wells that are going to be drilled for exploration over the next couple of years, and the early signs of the wells drilled by the BNK-Saponis consortium, and the Conoco-3Legs Resources consortium in Poland are positive. There’s a great deal of other activity going on with Talisman working with San Leon and obviously the supermajors: Exxon working with Total, Marathon working with Nexen and Mitsui – there’s a tremendous amount going on in Poland,” he said.
According to him, by Christmas of this year there would be a great flow of news on unconventional gas, overwhelmingly from Poland.
“There’s a tremendous amount to look forward to in the next few months,” he said. “You will have read that 3Legs Resources and ConocoPhillips have drilled the first horizontal shale well in Poland, and they’re off drilling in the Damnica concession, which will also be a horizontal. They’re that confident and going straight for a horizontal well, a long way from any other exploration wells. So I think that gives you an idea of the 3Legs-Conoco conviction on the subject – they’re very positive.”
He continued: “So you have that on one side. But you also have the Saponis Investments Sp. Z o.o. - BNK Petroleum Inc. operation in Poland, which is also on the cusp of fracturing several wells and drilling more. They’re not drilling any horizontal at the moment, but you can actually obtain a fair deal of information from the fracturing of a vertical well.
“You also have commencement of drilling campaigns by Marathon Oil - Nexen Inc. with Mitsui & Co and also the San Leon Energy consortium with Talisman Energy, who are about to drill, particularly in the Baltic area as well.”
There’s a tremendous amount of news flow coming here,” explained Elston, “because until 3Legs was public it was only really BNK that was commenting publicly on the shale business in Poland, but now you suddenly have a lot of smaller players which are actually going to give full disclosure along the lines of BNK’s, and it’s going to be very exciting to hear what they have to say.
'Back in North America, however, shale gas drilling and hydraulic fracturing have their critics. A recent article in the New York Times, which included alleged e-mails from industry officials grossly overestimated shale gas resources, implied the unconventional gas industry was speculative bubble, with little reality behind the hype.
Elston described the NYT piece as “very disappointing.”
“The New York Times has taken a view on this that their readers don’t want shale gas in upstate New York, so there is an attraction for them to produce the kind of articles that they did. It’s more New York Post than New York Times, isn’t it?
He explained, “You’ll have seen many presentations, where indeed, shale is a statistical business. If you develop a shale gas field, you’ll drill many poor wells, but you’ll also drill many good wells, and the balance, the average that comes out of the many wells drilled – the type curve, as it’s called – that is what drives the overall economics of the development.
“In the Haynesville shale, there have been discoveries that if you blow down a well there very quickly – you don’t constrain the production – you will actually get less out of it, than you will if you keep a valve partially closed on the well while you’re producing it. You throttle it back and that causes gas to come out over a greater length of time in large quantities, so your ultimate recovery is better. And all these things have only been discovered through activity.
According to him, back in 2008-09, when the e-mails in the article were dated, shale gas E&P was very young.
“The Barnett was the only place where a lot of wells had been drilled,” he explained. “At the end of the day when creating a market for shares, or even for consulting, those that tend to come up with different ideas tend to get engaged by different groups to look into them.”
He explained that in 2009, for example, people were seeing signs that Haynesville wells were depleting very quickly, but since then the way of producing those wells had been radically changed: by throttling them back there performance was indeed very good.
It was a learning process, according to Elston.
Back in Europe, unconventionals E&P Cuadrilla Resources recently chose to stop drilling in the UK’s Bowland basin following some minor earth tremors there that may or may not have had to do with the company’s hydraulic fracturing.
“Obviously the Bowland Basin where they are, just like many areas of the world, has a certain minimal seismic activity,” contended Elston. “We have a fair deal of tiny earthquakes in the UK just like almost every country. The rock beneath us all is moving, it’s just moving imperceptibly, in general, and indeed the earth tremor that occurred during the drilling, and then another that occurred when they started fracking – these are tiny, imperceptible events. You cannot feel these from the surface, either of these tremors. These are really tiny seismic events in an environment where rock is moving all the time anyway.”
He said that a lay person who felt the tremor near the Bowland basin likely called the British Geologic Survey (BGS).
“Unfortunately the BGS has a phone line that you call where you just talk to seismic experts, who didn’t appear to be very cognizant of the study work that has been done on the connectivity between O&G activities – fracking – and seismicity in rock, and therefore I think their statements have not been helpful, adding to the confusion. And now the government in the UK is going away with the various stakeholders and the BGS and really having a proper look at the scientific data here, before deciding to move onwards. I think we’ll see that perhaps in August.”
Elston said the UK government through its work with the Energy Environment Committee of Members of Parliament in London had done a very in-depth review of the possibilities and impacts of shale gas earlier this year and came up with a positive view on it.
“That was most helpful,” he said, “but this earth tremor, which has been dealt with very professionally by Cuadrilla, in them stopping and really waiting for the scientists at BGS and the government to really look again at this issue and draw what I’m sure will be the conclusions that the connectivity between the events is minimal if existent at all, and certainly not of any consequence.”
Still, he observed that the incident had received a lot of attention in the press.
“It received an amount of coverage completely out of all context in relation to the size of the event and its non consequences.
“I’m pleased that Cuadrilla had the good business sense to have a portfolio of opportunities across Europe,” he said. “They use the same strategy I think that most of the small players are using, to be active in more than one country, and Cuadrilla was obviously one of the first players, so they had identified some of the choicest plays. They were able to move their frack equipment to Hungary and I believe they may be fracturing rock for tight gas there.”
Hopefully a blip on the radar screen in the UK, the ban on hydraulic fracturing in France was official banned by the French Senate at the end of June. In reference to that, James Elston said France was a “perfect storm” situation.
“You can imagine the traditional left in a place where they really are quite old fashioned, such as in France, would be against things that are to do with big business, and American ways of doing things, and of course the oil business is easily attacked by the left in general in Europe,” he explained. “So you would expect them perhaps to be against shale gas, certainly with the background of the polemical film “Gasland” despite its many inaccuracies.”
He said that part of it had to do with it being an election year in France.
” the environment minister was the guy that awarded, under procedures that had been used for many years in France, licenses, particularly to the players looking at the shale gas plays in the south of France: Total S.A., and Devon Energy before they sold out to Total.”
He said that despite the fact that due process was followed, with much consultation, and it was a very lengthy application and award process in France in general, the political right in France recognized that the left had made an election issue of shale.
“What is specially interesting about France is the fact that there is a coalition of governing parties of the right”
“And combining that with the possibility of, frankly, questioning the actions of the then Environment Minister, a potential rival to Sarkozy, who by that time had left the government, questioning whether he’d followed due process, combined with the decision, from a short-term strategic point of view, to oppose shale, created a perfect storm where everyone suddenly wanted to jump on the bandwagon of a superficially popular policy, so you had the right and the left both wanting to oppose shale,” explained Elston.
In the meantime, he reported, a committee of experts had been appointed in France, whom Elston believed was supportive of shale.
“I’m hoping that rationality can return in France, because the Paris basin tight oil opportunity, one which I’ve very closely pursued in the past, I think is a tremendous one and one of the best shale plays in Europe, and I’d like to see that properly explored.”
He added: “We would’ve seen a lot of activity there from Toreador Resources Corporation and also from Vermilion Energy, if there hadn’t been this moratorium, so we’ll have to see what happens.” he said.