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25 July 2013Argus FSUE —

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Editorial

The majors have taken a leading role in exploring for shale gas reserves in a number of countries that are heavily reliant on Russian gas supplies, includ-ing Poland and Ukraine.

But hopes of a breakthrough in Poland, which has Europe’s most active shale sector, have been dampened by the exit of a number of firms from exploration projects. ExxonMobil, US firm Marathon Oil and Canada’s Talisman Energy have all abandoned Polish licence areas in the past year. Total relinquished one of its two licences last year and is now “study-ing” the results of a well that it drilled at the remaining licence, Chelm.

Italy’s Eni started shale gas explo-ration in Poland last year, drilling three wells, one of which has now been tested. The company will continue examining the data and carrying out laboratory tests this year.

Chevron still has four shale blocks in southeast Poland, where it drilled three wells last year and has been drill-ing a fourth. It also recently won envi-ronmental permits to drill exploration wells for shale gas at three sites at its Barlad block in northeast Romania (FSUE, 18 July, p9). In addition, it is negotiating a production-sharing agree-ment (PSA) for western Ukraine’s Olesskaya block and has entered a pro-ject in Lithuania.

But some smaller firms question the ability of their bigger competitors to pioneer shale development. “Our great-est criticism of the majors who have left some of those areas is that I do not think it is possible to evaluate a basin based on one or two wells,” US inde-pendent Transatlantic Petroleum chief executive Malone Mitchell says.

His firm expects to drill 75 uncon-ventional exploration wells in Turkey this year. And it is about to start con-ventional drilling near shale resources in neighbouring Bulgaria, where the government appears to be considering ending a moratorium on hydraulic frac-turing introduced in January 2012.

Environmental concerns over shale development are a headache for the majors. Romania imposed a morato-

rium on shale exploration in May-December 2012, and regional authori-ties in Ukraine seem to be stalling on negotiations over Olesskaya because of environmental concerns. Shell signed a PSA for Ukraine’s Yuzovskaya struc-ture in January, but is proceeding with caution — it intends to drill just 15 wells in five years (FSUE, 31 January, p3). And it calls for tough regulation of shale drilling globally to allay environ-mental fears, something that potentially excludes smaller firms.

In public relations terms, this approach doubtless makes sense. But it could mean that larger firms will not lead the way in opening shale forma-tions in central and eastern Europe and Ukraine, given obstacles such as the difficulty of securing surface access for development. “I think [the majors] will fail, and part of the reason is how nim-ble you have to be to negotiate with the local mayors and people like that — it works to the detriment of a major,” Mitchell says.

Meanwhile, the challenge for smaller companies is to reduce costs in a less competitive environment than North America’s onshore, and find suf-ficient funds to cover the cost of drill-ing dozens of dry wells before achiev-ing success. UK independent San Leon hopes that the majors will step in to carry the cost of unconventional devel-opment as small companies gradually prove the viability of Poland’s shale resources.

“The majors will come in and write cheques once they know somebody else has found [resources],” San Leon exec-utive chairman Oisin Fanning says. “The role of the smaller companies is to do the science, the initial exploration and to try and liberate gas.”

This is what happened in the US, where independents led the way in shale development, with the big compa-nies coming in late in the day to buy up pioneering small firms at high prices. The majors appear to have decided to try and get in at the start in central and eastern Europe, but they may well lack the necessary flexibility to deliver a new shale gas revolution.

Pathfinders