The Polish government's decision to prioritize the acceleration of shale gas exploration has been welcomed by operators frustrated at more than two years of regulatory uncertainty.
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That uncertainty combined with red tape and disappointing drilling results significantly slowed exploration in 2013. Just 12 wells were completed last year, compared with 24 in 2012.
In November 2013, Polish Prime Minister Donald Tusk fired his environment minister Marcin Korolec in a cabinet reshuffle saying he was frustrated at the pace of exploration.
Minutes after being sworn in, Korolec's replacement, Maciej Grabowski, said accelerating exploration would be his priority.
Grabowski met members of the Polish Exploration and Production Industry Organization (OPPPW), which includes domestic and foreign operators such as Chevron and ConocoPhillips, on December 11, to hear their concerns about the government's proposed regulations.
"According to the OPPPW, Polish law does not require as broad and deep modifications as proposed by the Ministry of Environment," the OPPPW told Platts following the meeting.
"The most urgent issue today is rather to adjust and improve those regulations that are already in place and have the greatest impact on the pace and scope of exploration and assessment work. It is necessary to make them fit the needs and specifics of the Polish exploration and production industry better," the group said.
Industry's main concerns about the proposals are the lack of a guarantee that exploration license holders, who are investing millions of dollars to verify reserves, will be able to convert that license into a production license.
The other is a plan to create a state-owned company, NOKE, which can take minority stakes in all future production licenses.
NOKE would have compulsory participation in profits without taking part in expenses and the right to veto investment decisions. The government signaled it would change this but the issue is still not clarified.
"The big question is whether NOKE will be questioning how the parties work, or whether they will be a silent partner. The way it looks now, NOKE is more like a regulatory controller," Pawel Zuk, country manager at UK-based explorer Hutton Energy, told the Shale Gas World Europe conference in Warsaw in late 2013.
Red tape is a also bugbear. According to the OPPPW it takes companies eight months on average to obtain all the permits required to start drilling.
In the US, it takes 45 days. If an operator in Poland wishes to amend its drilling program, again it takes eight months on average.
Foreign and domestic operators have drilled 49 exploration wells in Poland since mid-2010, far more than in any other European country.
The Ministry of Environment estimates 287 more wells need to be drilled before 2021 to assess Poland's shale gas potential.
To achieve that, drilling must proceed three times faster than it currently is. At the current pace, the OPPPW says, the target will be achieved in 2037.
On average companies are paying $14 million to drill and hydraulically fracture a vertical well and $20 million to drill and frack a lateral well.
"If we don't increase Poland's competitiveness, investors may go to other countries, which some have already done," Marcin Zieba, OPPPW's general director, told the Shale Gas World Europe conference.
ExxonMobil, Talisman Energy and Marathon Oil have all pulled out of Poland, citing poor drilling results and regulatory uncertainty.
"You will never have a shale gas industry. It's not going to happen if that's the number of wells you've drilled so far and the costs," Basin Faraj, vice president of business development for Canada's Tamboran Resources, told Zieba in a question and answer session following his presentation.
Things have changed since the optimism of 2010, when Polish foreign minister Radek Sikorski said shale gas offered his country a chance to replicate Norway's success. Poland hoped to reduce its dependence on Russian gas imports, which make up about two-thirds of the country's annual 14-15 billion cubic meter consumption.
Attracted by a market with gas prices between 4-5 times higher than the US, potential fields close to the market and a government keen to promote exploration, companies like ExxonMobil, Chevron, and ConocoPhillips rushed to snap up cheap acreage.
"The expectations were very, very high and everybody thought it would be easy because of the US experience. That's why the Polish government started to think, we have so many investors, we need to introduce a new law to ensure a portion of the profits from shale gas will go to the state," Pawel Chalupka, managing director of San Leon Poland, told Platts.
"Poland took the wrong direction. Instead of making it more business friendly, the government started to make it more difficult," he said.
All operators said the appointment of Grabowski was a positive signal. In his previous role as deputy finance minister Grabowski drew up new taxation on future production. While industry said such a move was premature it broadly accepted taxes would increase in future.
The ministry tried to quell concern by saying the new taxes would not come into force before 2020.
Another positive sign is the December 12 preliminary agreement between Chevron and Poland's PGNiG to cooperate on exploration, the first potential joint venture between a state-controlled company and a foreign operator.
But having stable predictable regulations and, broadly speaking, support for exploration from society, is only half of the matter.
For shale gas to succeed in Poland it requires good drilling results. Clearly, too few wells have been drilled to fully understand the potential of Polish shale. In the time it took to drill 49 wells in Poland, 1,607 were drilled in Pennsylvania.
But financing drilling programs is difficult and Poland, where government has been seen to be interfering, is facing competition, from the UK and Ukraine just in Europe.
So far, not one of the handful of lateral wells that have undergone multi-stage fracturing have flowed gas at commercial rates.
The multi-stage fracked Lebien lateral well drilled by UK independent 3Legs Resources and ConocoPhillips, flowed at just under 500,000 cubic feet/day, Kamlesh Parmar, 3Legs' chief executive told the Shale Gas World Europe conference.
"I need a significant improvement to get this thing to work. The next well comes in at 1.5 million cubic feet/day. That is the number I need to achieve and ideally a lot more than that," he said.
3Legs and ConocoPhillips have agreed to drill three additional wells by the end of this year in their concessions in the Baltic Basin, considered to be the country's most prospective because of the shale thickness and the lower number of faults and folds.
"This is a key area to provide an answer to Polish shale. This is a sweet spot and if it doesn't work, it's difficult to believe other spots will work," Pawel Poprawa, a geologist from Krakow's AGH Technical University, told Platts.