In September 2011, Poland was riding a wave of optimism as state-owned PGNiG lit a flare at the site of its Lubucino-1 well, becoming the first company to extract shale gas in the highly prospective country. This feat, coupled with the high reserves estimates from various sources worldwide meant the energy future for the nation looked positive. Poland appeared to be the country that would lead Europe into a shale gas fuelled future, gaining its independence from the Russian supply monopoly it has been craving for years, but it has been a torrent of bad news ever since. And with recent developments, it appears that bad luck with drilling results is not the only reason things are beginning to go wrong, as Poland may well be shooting itself in the foot.
This week, the Warsaw Business Journal reported that Chevron (CVX) was considering its position in the country as the current state of Polish Oil & Gas legislation would mean the company cannot work to its planned programme without applying for another license at a certain stage, and is pushing for changes to be implemented before the end of 2013. A withdrawal would make Chevron the fourth U.S. shale giant to have pulled out of the country within a year, and for a third different reason.
ExxonMobil (XOM), only nine months after PGNiG’s flaring ceremony, decided two unsuccessful wells and lack of economic promise in further areas was enough for it to withdraw. Talisman Energy (TLM) became the second company to leave following a shift in company focus, completing the sale of its assets to slowly emerging player San Leon Energy (SLE) in May 2013. In the same month, Marathon Oil (MRO) has also initiated proceedings to sell its licenses by 2014, another company citing disappointing well results.
Up to now, Chevron has been determined to continue with Polish operations, and remains arguably the major, non-state owned, driving force in the nascent European shale and unconventional gas market, with other interests in Bulgaria, Lithuania, Romania and Ukraine. If Polish legislation continues to alienate experienced foreign investment, as appears to be happening with Chevron, alongside these disappointing drilling results, then the expertise garnered by companies in the U.S. shale revolution will be near impossible for Poland to take advantage of and development will be markedly slower, as the smaller and/or less experienced companies still involved may be forced to reinvent the wheel, so to speak.
Legislation has been a stumbling block ever since foreign companies began to express interest in the licenses being made available. In March 2013, a long-awaited shale gas tax draft was finally implemented after a six month delay after first being announced (and almost six years after Poland’s first shale gas license was awarded back in 2007), with the aim of positioning Poland as a more attractive investment opportunity than rival markets; it was arguably the delay that made greater headlines than the actual laws. This stands Poland in stark contrast to the UK, where within the first four months following the shale gas moratorium being lifted in December 2012, a new government agency for shale gas was set up, tax breaks were introduced and safety and planning systems were put in place, to name just a few forward steps being quickly made.
Poland clearly can’t be held responsible for unimpressive well results, the explicit reason behind two of the three withdrawals so far, with Talisman’s reason being a bit too vague to jump to a definite conclusion. But more work may well be needed on its oil and gas laws and regulations to keep hold of the much needed expertise and determination of major players like Chevron, so that Poland can quickly and efficiently reach the independence from Russia it is so desperately seeking.
Chevron’s progress in Poland and across its other European shale and unconventional licenses can be tracked using Evaluate Energy’s assets database and emerging shale offering. Evaluate Energy delivers efficient data solutions for worldwide oil and gas company analysis, also providing company financial and operating data and an extensive M&A database.