Shale Outlook Strengths With BHI Support

BMI View: The letter of intent signed between San Leon and Baker Hughes adds strength to the development of Poland's shale sector by combining local knowledge with technical expertise. The partnership is also expected to play a significant role in de-risking the Siekierki shale complex, enabling better understanding of its production profile. We believe continued piecemeal developments in Poland's shale sector will move it towards commercial production, which should begin to impact overall gas output in five to six years.

San Leon Energy, one of the most active shale gas explorers in Poland, has signed a letter of intent (LOI) with Baker Hughes for the development of its Siekierki shale gas field. Under the terms, three concessions, 206, 207 and 208, are to be developed. The two companies are expected to begin production from four existing wells in the formation, with Baker Hughes providing the majority of the funding and services to bring the wells on-stream. The companies are now in negotiation regarding the portion of profits Baker Hughes will receive until its investment in the wells is recovered.

Recent years have seen considerable fervour behind the development of shale gas in Poland with the Energy Information Administration (EIA) estimating the country holds technically recoverable resources totalling 4.1trn cubic metres (tcm). However, unfavourable below-ground results have seen some major oil and gas explorers, including ExxonMobil, Eni and Marathon Oil, move out of the country ( see, 'Withdrawal Not A Blow To Shale Sector', January 16). Complementing the below-ground challenges is the lack of a clear above-ground legal framework.

However, Prime Minister Donald Tusk announced in early February that a new investor friendly shale gas bill will be approved before the end of the month. The bill is expected to reduce bureaucracy and regulatory delays that have held up developments, and most likely not legislate the creation of a national operator. Previous plans saw a state operator take an interest in each licence, a move which was opposed by the industry. If the bill comes through as expected, it will help promote the pace of development, supporting growth in the shale gas sector.

De-Risking Polish Shale

Initial tests on the Trzek-1, Trzek-2ZH and Trzek-3H wells in the Siekierki formation, and the nearby Krzesinki-1 well being targeted for production by San Leon and Baker Hughes, saw output of between 2-3mn cubic feet per day each - an average of about 20-30mn cubic metres a year. While the volume is not of particular significance, production start up of the wells in the Siekierki complex will provide more detailed data as to the production potential of the wider play, as well as the estimated ultimate recovery of a typical well in the play. It will also prove up the potential resources extractable from the Siekierki complex. Shale gas developments naturally have a steep production decline profile, the trajectory of which can be significantly different between shale plays and even wells in the same play. This understanding will be crucial to the broader de-risking of Poland's shale plays and could play a critical role in moving towards sustained commercial production.

Key to this development is that the technical expertise of Baker Hughes will be combined with the extensive local knowledge of San Leon, which should help prove up resources in Poland's Permian aged sub-structure. To date much of the shale success in the country has derived from the Baltic Basin in the North, where San Leon has its most advanced Polish shale gas developments and a number of other smaller companies have seen success ( see, 'Inching Closer To First Commercial Production', January 24). Positive results from another shale area in the centre-west of Poland could trigger licence holders into greater investment in surrounding exploration concessions. This is especially the case following more disappointing results in Poland's Lublin Basin.

Improving Shale Outlook Supports Long-Term Growth
Poland Natural Gas Production (bcm)

Nevertheless, we are now beginning to see the small piecemeal developments, which took some 20 years to come through in the US, make headway towards commercial production of shale gas. Permissions to lay the majority of the export infrastructure required to get gas from the Siekierki complex to market have already been granted. While no timeframe for production start up has been outlined, we do not anticipate it will take long for Baker Hughes to recomplete the wells and bring them to production following the conclusion of negotiations. This therefore supports our outlook for growing gas production, with shale gas output beginning to play a greater role by around 2019.

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Related sectors of this article: Oil & Gas, Upstream, Development, Unconventional, Energy Policy
Geography: Poland

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