3Legs Resources: Nearing the Finish Line
Kamlesh Parmar, the 44-year-old CEO of 3Legs Resources, reports that all of the groundwork has been completed on one of the company's wells in the Baltic Basin to be able to determine whether it is economic, a sign that the shale gas explorer is headed toward the next chapter of development.
How it will place is still a question, but Mr. Parmar has maintained his optimism despite challenging conditions in Poland.
“The well that we're testing at the moment has been designed to try and demonstrate flow-rate potential to see what this thing can do,” he explains. “I'm hoping that we'll have some news to put out soon with the results of the flow test, at least the initial results, and that should give us a better indication of how things are going.”
One of the first movers in Poland, 3Leg's northern Baltic project was later farmed into by American multinational E&P ConocoPhillips, taking a 70% interest. Today, 3Legs Resources retains a 30% stake in the partnership, dubbed Lane Energy, with the balancing 70% stake owned by ConocoPhillips. ConocoPhillips took over the operatorship on the project at the end of 2012.
Mr. Parmar explains, “For 3Legs and ConocoPhillips, the culmination of our work over the last couple of years will be reflected in this current test – we've been building up to this. We've identified what we believe is the core area for us in our acreage and carried out a few further test wells and pilot wells, in terms of vertical wells and coring. That built up to drilling and testing this long lateral which we're in the testing phase of now. So it's all coming to a head and I'm hoping it will be able to prove what I hope it will prove, which is flow-rate potential.”
In preview of his appearance at the 2nd EUROPEAN SHALE GAS AND OIL SUMMIT 2014, taking place in London, UK 29-30 September, Kamlesh Parmar gave this exclusive interview to Natural Gas Europe, sharing his insights into Europe's unconventionals potential.
Several years ago I remember your appearances at conferences in Poland and all of the enthusiasm towards you and others. Those were very different times for the development of Polish shale. Today, we hear a lot of pejorative things about those prospects. How would you characterize those early days and where the sector in Poland finds itself today?
I first came to Poland in 2007 and we secured our acreage in 2007-08. At that time, we were a relatively new idea, a new concept, so we pretty much had a clear run of it. Very quickly within 18 months people got the idea that shale gas in Poland might be a good idea.
Then there was a land grab. That's when all the excitement started happening. In 2009-10 all the acreage was licensed up at a time when a lot of big numbers were being thrown around about possible amounts of gas that could be recovered, amounts of gas in the ground – obviously all based on historic data and mapping, etc. So it was around that time that the government got very excited as well, thinking this could be good for Poland.
Reality set in and people had to actually carry out exploration drilling to verify potential. As with most shale projects, it doesn't work everywhere. I think a lot of the acreage probably proved more challenging than operators would have liked. And what didn't happen was somebody didn't hit a home run with the first well, which would have been fantastic, but rarely if ever happens in shale exploration because it's a progressive thing. The market also got incredibly excited and expected instant conclusive results, which didn't happen. In many cases, the rocks were more challenging than they'd hoped, and that led to a bit of a down cycle for us in Poland, where people questioned whether shale exploration was going to work.
In the last 2-3 years there have been regulatory changes mooted by the Polish government which also led to uncertainty, making for a difficult period.
Now the legislative process is finally coming to the end: the long-deliberated laws are now being settled in a way that I believe industry can work with.
That said, is there something which distinguishes 3Legs from other companies that have left Poland?
The companies are all different – that goes without saying – and have different drivers.
One of the things that is in 3Legs' favor is that when we arrived to Poland we really did have our pick of acreage, and we selected the areas that we thought had the best chances of success based on our work and our modeling. Nothing I've seen suggests that we're anywhere other than the right place, so that's helped.
And we did a very good transaction with ConocoPhillips when they farmed in, in terms of having their support. At the end of 2012 they took over as operator of Lane Energy Poland, which was a very positive message. At the time when some companies were leaving – ConocoPhillips, one of the world’s most respected energy companies, made an active decision to stay, which tells you something.
With the right acreage and the right partner we're giving our acreage the best chance we can.
What would you say your biggest milestones have been in the last year?
Our first milestone was the announcement of a very clear program in November 2013 of the plan for drilling the next lateral well and drilling and testing the next lateral well. Since then what has been really helpful is we drilled the planned vertical pilot wells as envisaged and we've drilled and the completed a lateral well as planned. Now we're in the testing phase.
The real milestone that the market is waiting for is what the flow from this lateral well will look like. But actually in terms of the milestones that we've achieved since our time in Poland, we’ve demonstrated that the hydrocarbon resource is there, we’ve shown it can be extracted, and what remains is demonstrating commercial flow rates. In the last period, we have concluded our three well drilling program and completed, a 25-stage stimulation in our lateral well, and now we're in the process of unloading water from the well.
So now it's about demonstrating the flow rate the rocks are capable of.
There has typically been a lot of talk about how much more expensive it is to explore and produce unconventional gas in Europe, but is the equation changing given the current geopolitical situation with the Ukraine crisis?
It's unfair to compare the European and American markets. The number of service providers and the way in which the oil and gas industry works in the US is very different.
It is more expensive to drill and test wells in Europe but, correspondingly, the gas price is that much higher. If we didn't think it was possible to have an economic project, we wouldn't be carrying out this exploration activity.
From a geopolitical perspective, of course homegrown gas is important in Poland. Anything you can do to reduce reliance on imports is a good thing, and domestic gas not only reduces reliance on imports, but also generates activity in your own country by creating jobs, paying taxes, developing skills – all those knock-on benefits are all good.
I think there is a place for shale gas in Europe and that the economics can work so long as the rocks will allow the hydrocarbon to flow – that's the big test.
I've just read a headline that commercial production is slated for 2019.
With a fair wind and a lot of things going your way – it depends what people mean by 'commercial production' because some take that to mean a well producing commercially; others mean reducing reliance on imports.
For a project like ours, the phase that we're in at the moment – if this well is successful, we'll move forward into some sort of pilot scheme where we'll carry out some long-term testing on a number of wells and that will be with a view to designing a development plan. So you're looking at 3-5 years, which is about the timescale you mentioned.
One obstacle that has been mentioned for some time is the lack of oilfield services in Poland. How is the country faring these days in that domain? Are you able to perform all the things that you want to do?
We can do all the things that we want to do, but in today's world those things cost more money than I would like, and there are fewer choices than I would like. But we can get the work done, it just takes longer and costs more in the short term.
I believe it’s a short-term issue, because services will come where there's demand. There are a limited number of players currently in the market that can carry out the services needed – the market is still in its early stages. But the services that are here are very good/capable, and I'm a real believer in the fact that if we can make a success of our Baltic project then the services will be there, and I do see economies of scale coming into consideration and a wider range of service providers coming in and playing a part.
From some of your conference appearances I recall you personally have made some excellent efforts to engage local Polish communities near your drilling operations. How much of that do you do these days?
There's a lot of public engagement activity that we (Lane Energy) carry out as a venture in our area. We spend a lot of time with the locals, a lot of time with local communities. There were events just recently: local festival events that we help organize, sponsor and participate in.
It's all about being present, because at the end of the day when you're operating a project like this in an area, you're visible and you can't – and shouldn’t hide. Best practice is to make sure people understand who you are and what you're doing. If they have questions, you need to be present and they're able to ask you. There's nothing worse than people having questions and being afraid to ask or feeling they have no-one that they can ask. If you're there and they're used to you being there, they won't be shy in coming up to you and saying “what about this, or that?”
I'd much rather they did that than be worried about something and then receiving some information which wasn't right. So we're totally open to engagement with the communities – we actively promote this, and that won't change.
I've read that according to some surveys about 70% of Poles are supportive of shale gas development. That said, how much pushback are you receiving from activists in Poland?
In the areas where we work, we believe the communities and the authorities are in favor.
It would be wrong if I said there weren't people who were unhappy, because that's how life is. But I think from a general perspective we see support for, rather than demonstration against, what we do.
Given what you've experienced and what we know about Poland do you think any of these experiences can be applied to unconventionals development in the UK?
I think the basics can be. In my mind, the basic principles are already being applied in the UK by operators. Much of that centers around engaging with the public and trying to deal with questions as they arise and just trying to make sure that the public debate doesn't go the wrong way for the wrong reasons.
In the UK the regulator seems to be aware of what needs to be done in terms of making sure public concerns are managed. The companies are also well aware of public concerns and they're doing what they can.
The UK is in its early stages and I'm sure there will be people saying “you could do more,” but you could always do more as an operator. From a company perspective you have to do the best you can with the resources you have and make sure that you can and do answer questions wherever possible.
Could you envision a resurgence in activity in Poland?
I don't see why not. These things run in cycles, people fall in and out of favor with things. If we can demonstrate that our project can work I think there's absolutely no reason why more activity shouldn't happen here in Poland.
Drew Leifheit is Natural Gas Europe's new media specialist.