Polish Shale Gas: Humble Beginnings
Shale gas development results in Poland so far, according to Piotr G. Woźniak, Chief National Geologist and Under Secretary of State, Ministry of Environment, had been quite humble.
"It's only 33 wells completed, seven exploratory wells are in progress - so after two years, there are 40, which is not very impressive. Even more humble is the number of hydraulically fractured wells - only 10.
"This provides me the question to the audience 'Why is that so?' Is it the result of technical issues, waiting from good results from your vertical wells to decide whether the horizontal is justified or not? Or, is there any other reason, because this can influence the thinking about the regulatory regime, too."
Mr. Wozniak spoke about how to understand and navigate Poland's new regulatory regime in order to maximize the shale gas opportunity at Shale Gas World in Warsaw, Poland.
Still, the plans for Poland in the next 7-8 years was to drill 300 wells, he said, but that companies' plans for their concessions seemed to change very quickly.
Contending that one could only use US as a basin for comparison, he showed the difference in terms of depth and acreage, land and subsurface, regulatory framework and taxation.
He noted that there was mostly offshore natural gas production in Europe - something which could change with shale gas development.
Population density could be quite a challenge for operators, he said, along with equipment, servicing and labor costs.
"The sales price is also very different in the US compared to Europe," he noted, explaining that Henry Hub was running 132 per thousand cubic meters, whereas the pipeline gas in Europe was at least three time higher, if not more.
He spoke about the results so far in Poland, noting that conventional and unconventional natural gas concessions covered over one third of Poland. "This looks impressive," he commented.
Wozniak gave mention to the Polish government's environmental impact assessment study to monitor the Lebien drilling site. He said that serious environmental impact was not apparent in terms of groundwater, radioactivity or safety: "Nothing really happened."
Of the environmental regulations covering shale gas in Poland, he said, "We don't really see any need to change the regulations. We follow the EU environmental framework regulations very closely. The only thing we would most probably change, in the favor of the industry, would be the procedures, streamlining and simplifying them."
While he admitted that Poland's legislation had not yet been enacted, he introduced the concept of what would be Poland's national operator, "NOKE" which would be an investor, not a regulator, like in Qatar or Norway, that would be a co operator and co owner of the license.
Licenses would be allowed to be split under new legislation and the state operator would likely be a minority stakeholder, according to him.
He stated: "There will be a single concession for exploration and production, meaning that we will practically erase the prospecting license from regulation, to free the market for prospection."
The circulation of more advanced information would also hopefully facilitate operators to start business.
New concessions, he said, would only be granted via bidding, while tenders would only be available for pre-qualified companies based on their industry record and financial standing.
"We cannot jeopardize the industry based on one company with a bad environmental record," said Mr. Wozniak. "We would also like to see the technical qualifications of investors.
He offered specifics about NOKE, which he said would be 100% state owned, an equity partnership/investor whose tasks would include maximizing the value of reserves, minimization of technological and environmental risks, judging the credibility of projects, and providing equal footing for permitting and taxation.
Of the new taxes that the Polish government could levy upon the shale gas industry, he said: "There's a 40% cap on the government take, which cannot be higher. We would like to have the most competitive and most attractive system in Europe as we very much want to have investors."
Among the royalties, he showed the 5% of value of extracted natural gas on the wellhead, 10% of the value of extracted crude oil on wellhead and a special hydrocarbon cash flow tax of 25%.
Piotr Wozniak concluded: "We would like to have an open market for gas in Poland. We need more gas than we have, much more. Of course this will also include energy security and will hopefully change our energy mix in a coal country. Gas is the way to do it."