NGFE Reports: Partnerships for Polish Shale Gas

Patience can lead to a pay off

In the shale gas industry, there may be no “sure thing” but an effective partnership and some patience can sometimes lead to a big payoff.

Just ask Al Holcomb, Vice President of Strategic Planning at Lewis Energy Group, who spoke about his company’s operations at the Eagle Ford play in south Texas, which was much less than an immediate success until the company found a match made in shale gas heaven.

On the first day of the Global Shale Gas Summit in Warsaw, Poland, Holcomb recounted that Lewis Energy had been in South Texas for 20 years, operating over 2000 wells in the Olmos shale basin, which achieved only very slow production growth.

“It was sort of an unsettling situation for us,” he said.

Then a couple of years ago, Lewis Energy was struggling and searched for answers.

“In mid 2008 we really needed something new in our exploration and production business. Worse yet, we were also experiencing a major climb in gas and oil prices, so that year was not looking great for us, but we knew of this Eagle Ford shale basin and had even tried drilling there unsuccessfully in 2003-4 with horizontal wells and small fracs.”

That year, said Holcomb, Lewis paired up with an energy firm called Petrohawk Energy Corporation, which was able to stimulate the site effectively with a horizontal frac.

“Thankfully for us,” he explained, “we held 300,000 acres in the play. We realized we did not have the in-house technical experience, so we stayed patient and watched Petrohawk and approached them with the idea of entering a joint venture; they only had 2% of our entire acreage, but they contributed their skill to our joint venture as an operator.”

Holcomb said it was a learning experience for Lewis Energy, who carefully watched Petrohawk as they completed their drilling with a 14-stage frac in August of 2009.

“Our strategy at Eagle Ford was to wait, watch and to learn from the experienced shale gas developers. We then wanted to move forward with cautious optimism.”

Lewis Energy’s wait-and-see strategy at Eagle Ford paid off.

Holcomb explained “The well paid out the US$ 5 million well cost in the first six months. We we’re happy and had learned a lot. When we began drilling our own wells, we found we’d avoided a lot of the pain and the cost in conquering that learning curve.”

And at the end of last year Lewis Energy entered another joint venture, this time with BP. “To gain a strong and experienced partner to assist us in developing part of our play,” said Holcomb, “we also needed to generate capital to balance our own development. We plan to drill 2,500 wells in the next 15 or so years.”

Now, he said, Lewis Energy is looking for other joint venture opportunities at Eagle Ford, a site which has provided a bevy of experience and know-how for application at other shale plays across the globe.

“These are truly the new thing in our industry,” said Holcomb. “We have new information pouring in from established plays in the US and from newly emerging ones, like exciting new plays in Poland. It is critically important for us to exchange new ideas and experience to find the safest and commercially successful practices for its success here in Poland.”

One of the handful of Shale Gas Conference delegates assigned to speak in a session entitled Partnerships & Cost-Reduction Strategies for Expanding Cost-Competitive Shale Gas Production Beyond the USA, posed a question to those in attendance.

“How do we take an American-based industry model and apply it somewhere where the oil & gas industry is evolving?” asked John Buggenhagen, Vice President of Exploration at San Leon Energy PLC.

“In North America it was the small companies who made it happen,” he said of successful shale gas operations.

Established in 2008, San Leon Energy is an amalgamation of several companies and is growing continuously; one example of that is its recent acquisition of Island Oil & Gas who have operations in the North Sea.

In Poland, Mr. Buggenhagen said San Leon was excited to be partnering with Talisman Energy. “Our presence in Poland is very critical in its development,” he said. “Here we can take a 10-year time line and make it into a two year timeline.”

Buggenhagen showed the audience a map illustrating the big changes which have happened at shale sites in Poland from 2006 to the present. Today, he showed, all of the land has been licensed by oil & gas enterprises. San Leon, said Buggenhagen, made its first license applications for eastern and western development plots in 2008.

“So the current status is that it is essentially completely leased,” he said of Poland’s Silurian shale. “Development has taken off and the reality will be seen through the drill bit.”

“It’s great were talking about the challenges,” added Buggenhagen, who said that San Leon wants to diversify their position with presence across the basin, to take advantages of others going forward.

Following their individual presentations to the audience, that morning’s group of Global Shale Gas Summit speakers fielded questions from their colleagues in the audience, the most important of which might be whether or not the industry players coming to Poland will work together and share their experiences to push shale gas drilling forward.

San Leon Energy’s John Buggenhagen said, indeed, there is cooperation between the companies. “There’s little history of the oil & gas industry in Poland, so it’s a question of how we can utilize the limited services in the coming years to prove this play. ‘Shooting the seismic’ is how all these companies will be able to prove their commitment.”

He said Poland was unique in that it has a requirement that companies cooperate on the regulatory environment, to get a consistent opinion on moving forward.

“We’ve made progress here in Poland already,” said Wieslaw Prugar, President and CEO of Orlen Upstream, “by creating a small group of players, and a platform, not to share all of the information, but to cooperate on developing shale plays and to utilize towards the government in terms of the regulatory environment, etc. If the geology will be proven, expectations are likely to rise very rapidly.”

Prugar reported that according to regulations, drilling operators in Poland have to share their data up to a certain point, but that authorities need to beef up enforcement of the rule.

“Generally, the principle is there - all of us having the licenses are obliged to report to the ministry of the environment and the data is shared. Probably from a commercial point of view it’s hard to share those things, but industry is smart enough to realize that a shale gas play requires a certain degree of momentum, so if we don’t encourage players to come, it won’t happen. This requires a certain degree of information sharing.”

Government has been working on changing mining and geological law, he added.

“The level of cooperation between industry players will be unique,” contended Glynn Ellis, Manager, New Business from Shell’s Global Exploration division. “It’s in nobody’s interest to stay in a play that’s not going to be commercial.”

However, the CEO of Eurogas Inc, Wolfgang Rauball said he thought the European situation was totally different than that of the US. “As much as I’d like to see sharing of information, I have my doubts. I’ve queried a competitor about their experience and the answer was ‘it’s a secret’.”

He added “The major oil companies from the US will at least be able to give us the answer, yes or no or maybe.”

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