Finding Gains in the European Shale Boom

The American shale gas boom completely changed the face of the natural gas industry. Names like Barnett, Woodford, Fayetteville, Marcellus, Haynesville and others have the ring of gold rush towns in the peak of their glory. The bounty of gas in these places now supports billion-dollar market caps. In the next 10 years, shale gas will be the source of about half of the natural gas produced in North America.

All of that wealth built on shale gas has only come about in the last decade. Shale gas was once not economical. But technological advances unleashed a furious boom. Early investors have made fortunes. Take Range Resources, for instance, a company that locked down a lot of shale acreage early in the Barnett and Marcellus. It’s up 3,330% in the last 10 years.

It’d be nice to find the next shale gas boom and place some bets on the Range Resources of the future. Interested speculators need only look to Europe.

European shale gas is an industry still in its infancy. But the success of the U.S. shale industry is starting to fan the embers of a shale boom in Europe. The potential prize is large, though not as big as in the U.S. For instance, the IEA estimates unconventional gas resources at 32.5 trillion cubic feet. Companies are already snapping up acreage. Exxon Mobil is drilling in Lower Saxony and Hungary. Shell Oil is in Sweden. ConocoPhillips is looking at shale gas in Poland. These are just a few.

Europe has every incentive to develop an indigenous gas supply. Currently, about 30% of its natural gas comes from Russia, mostly flowing through pipelines over the Ukraine. Europe would like to get its natural gas from someplace other than Russia. Every year for the last several years, Europeans have had to wonder about whether they’ll be able to heat their homes as Russia gets into it with Ukraine or Belarus or whoever else owns pipelines that ship Russian gas to European markets. In 2009, Europe was even cut off for a time. These disputes hit the headlines every now and then.

Another solution is the much talked about Nabucco pipeline, which skirts Russia and goes through Georgia and Turkey. That should be in place by 2013. Finally, Europe could develop its own shale gas as a way to help wean itself off Russian gas.

The economics of producing gas in Europe look appealing on some levels, depending on where you are. Of all places, Poland appears to be one that is particularly attractive. Natural gas prices are much higher in Poland than in the U.S. In March, when prices were $4–5 in North America, you could sell gas in Poland for $9. Royalties are hardly anything, and corporate taxes are lower.

And because shale gas is not proven yet, some companies have picked up acreage for pennies an acre. As Wolf Regener, CEO of BNK Petroleum said, “We were actually really surprised by how inexpensive the acreage was. In the U.S., unproven acreage costs $100–200 per acre, and top-quality property can run all the way up to $30,000 per acre. Decent shale plays usually run at least $8,000. What we found is that in Europe, the most expensive acreage that we are pursuing was 55 cents per acre.”

For these reasons, Poland seems to have attracted a lot of attention. The super majors are here already — Exxon Mobil, Chevron and ConocoPhillips, as well as Marathon Oil and Talisman Energy. This says good things about the potential of Polish shale gas.

SOURCE:
Penny Sleuth: "Finding Gains in the European Shale Boom"