Auf Wiedersehen Poland?

A couple of years ago, one of the alleged obstacles to the development of shale gas in Eastern Europe was the lack of drilling rigs. Today, rigs are available, but there may not be enough demand in the early exploration phase to keep them in Poland.

Just ask Carsten Freyer, Business Development Manager for KCA Deutag in Europe and East Africa, who says the future in Poland is uncertain for this international drilling contractor that has a strong foothold in Europe.

Incidentally, Natural Gas Europe has heard several unconfirmed rumors that a couple of other drilling contractors, and maybe even an operator, are likely abandoning the Polish shale gas scene.

As an international drilling contractor with more than 60 land rigs in Europe, Middle East, North Africa and Russia, KCA Deutag began operations in Poland one and a half years ago.

"When we started we had two rigs up and running in Poland, one of them for San Leon Energy. Then we got a contract for Marathon Oil," recalled Mr. Freyer.

He reported that KCA Deutag had drilled its 6th well in Poland, but next year is a question mark for the German drilling contractor.

"It looks like we'll be busy until April-May of next year. We have been looking for new contracts and I must admit it has been a bit difficult to secure further work that would enable us to stay in Poland," he reported.

Delegates in attendance at Shale Gas World in Warsaw, he said, agreed that present supply meets the demand for drilling contractors in Poland. Mr. Freyer explained, "This is true. It was totally different two years ago when everyone was so enthusiastic about Poland and we got calls from operators to move into the country, which we did, but today the picture has changed totally, so it's questionable whether the rig demand and the commitment from operating companies is there to secure a long term business for reputable international service providers."

Among the outstanding issues, one thing he pointed to is that operators are struggling with receiving state-issued drilling permits in due time.

He commented: "There's a huge delay in getting the drilling permits, which for the industry is a difficult issue to manage because it does not allow us to plan ahead."

Looking at other parts of Europe, according to Mr. Freyer, the supply and demand for rigs is a bit different - higher - than in Poland.

"So for this reason, we need to consider what we will do with our rigs in Poland. We have already moved one rig out of the country and it could be that we will move out the last remaining one if we don't secure any contracts - this is what we've discussed with operators in a panel discussion during the conference.

"I've asked them, especially in the exploration phase, perhaps to line up their projects and come up with a combined approach. Maybe three operators should speak together and line up a sequence which attracts drilling contractors for work next year. It's a 'win-win' situation for everyone: the drilling contractors or service companies and the operators will be able to assure continuity of knowledge, people, operations and safety performance.

"It's a planning issue and a cost issue as well," Freyer explained, "because if operators would move closer together, they could benefit from that also financially because mobilization of rigs could be shared among them. We'd be better able to plan ahead."

Repeat business has not yet been forthcoming for KCA Deutag in Poland.

"When we began our work for San Leon Energy it was because they needed to get one well drilled, we had a rig available. Unfortunately, it was just one well. Then they moved to a different location and awarded the work to another drilling contractor.

"It's been difficult to come up with a long-term strategy under the circumstances," continued Freyer. "We all know that the exploration phase is different from the development phase, the former being only a 1-2 well contract. For this reason, I would like to see operators move closer together and line up their one or two well sequences into a long term one, with for example six or seven wells in a sequence. That's something we need from the Polish market."

He says said hat price was a factor at this stage of Poland's shale gas development, among other factors.

"We are an International drilling contractor who has strict and high policies, HSE and operational standards. These are also liked and required by international operators. In Poland there are a lot of other drilling contractors, who, historically, act and operate significantly differently from us," explained Freyer.

In terms of standards and HSE policies, however, he said that KCA Deutag bears a big advantage gained from the company's international experience, which could translate as more efficient drilling and better HSE performance.

"That should also be taken into account when it comes to the pricing issues," he commented.

As for his overall perspective on unconventional gas in Poland, Mr. Freyer offered, "There's a big influence from the gas price in the US, which affects the European market because all of a sudden the gas price in Europe is dropping as well. So we must answer the question 'Is it still attractive enough for the operators to drill for shale gas here in Europe?' because it's more expensive to drill for shale gas, in Europe and in Poland, and you have to be competitive - and if the gas price is not sufficient, you cannot make much money out of it.

"This is why I think the overall activity is slowing down as well; the other thing is, some of the wells that have been drilled haven't been that successful. The gas shows are less than what was expected.

"Still, we are in the beginning of the exploration phase here - companies need to drill more wells and get a better picture. The complete process has been slowed down and this is based on gas prices and the time required to acquire drilling permits," he said.

"Operators are really concerned about this issue. It affects us as well, because work to be tendered is repeatedly postponed, and it's just not a good environment for planning. If operators cannot work together with a combined approach, especially within the exploration phase, we all cannot succeed in this environment. Any drilling contractor has to have continuous business, otherwise the costs are too high - we've spent so much money to open offices, invested in Poland, hired Poles in our offices, and if we don't get long-term contracts it is more difficult and more expensive to keep an operation running.

"We are committed to being here; we've done our part. Now we'd like to see the operators and the Polish government do theirs as well, to keep the business up and running," said KCA Deutag's Carsten Freyer.