RAG: Wise Old Enterprise has Eyes on the Shale Prize

Austrian E&P exploring unconventionals in Europe

Austria’s Rohöl-Aufsuchungs Aktiengesellschaft (“RAG”) is an E&P with over 75 years of experience. But none of that history is stopping the company from getting into shale gas.

“We believe unconventional production is something we should be in,” explains Thomas Teyssen, Head of New Ventures at RAG, who addressed delegates on the “Effective Operation of European Shale Gas” at the Global Unconventional and Shale Gas Plays Forum in Vienna, Austria.

He pointed out that methods were often more important than money, when it came to successfully tapping into a shale gas play. “Cash is being provided but it doesn’t provide competitive advantage. The key is a proven track record in drilling development infrastructure.”

“We’re an independent Austrian company,” Teyssen explained, “whose holdings comprise 70% utilities and 30% exploration and production. We are active in Austria, Germany, Hungary, Poland and Ukraine and have around 400 employees.”

He said that RAG’s business areas included exploration and production, underground gas storage and gas trading, and that the company was involved in a big joint venture with Gazprom and Ruhrgas.

RAG is also active in shale gas exploration in Poland with Saponis Investments Sp. Z o.o. Teyssen commented, “We have a good consortium – two companies with practical working knowledge in North America and two companies that have a strong working base in Europe, knowing EU regulation and the way of working in Europe.”  (Editor's Note: Saponis reported exploration success in its drill well in Poland - Read More HERE)

Teyssen reported RAG had about 3000 square kilometres of exploration concessions in Poland.

“There are subsurface and surface issues that must be looked at more closely,” said Teyssen, who showed attendees that the borders of some of RAG’s licenses in Poland are protected areas.

He also showed another of the concessions: “We’re expecting low population density and are in an area where there are as few restrictions as possible from an environmental point of view.”

He continued, “Were at the final stage of drilling acquisition, drilling with one of the PGNiG companies. We carefully chose our drilling contractor, as they know the area and the permitting procedures.”

In connection with that, Teyssen said that RAG was always looking at their success factors and had preconditions to fulfil to be successful in drilling for unconventionals, things like rock composition (quartz, carbonate, clays), kerogen type and total organic content (TOC) should be greater than 2%.

According to him, Poland has been cooperative in facilitating RAG’s exploration.

“The Polish geological institute is letting everyone have access to the database,” he explained. “They ask us ‘how can we help you?’ and ‘what are your obstacles?’ So the authorities have been helpful; I can only recommend them, and we have only positive experience in solving problems with authorities in Poland.”

He listed some of the operational challenges in Poland. “We’ve only had limited access for development because of the depth of target, shale quality, infrastructure and surface conditions.

Teyssen said that surface concerns were high on RAG’s list.

“In terms of extensive drilling operations, we must reduce the surface imprint. Even if they are only perceived in the public opinion, we have to look at it and take care of it.”

Keeping costs at a minimum for unconventionals, which were higher than that of conventionals, was also a concern.

For Teyssen, another concern is steeply declining production: “50% of the gas is produced in the first 12-18 months, so this must be dealt with technically and commercially. You must market high qualities initially, but to get a stable plateau, we have to drill a lot and get the proper partners to solve production.”

He added, “It’s a mining type business. You core, blast and truck it away. You have to build by drilling, reach an economy of scale and deal with the declining wells.”

RAG, Teyssen said, owned and operated two drilling rigs and had recently purchased a new one on the back of the company’s gas storage program.

“They are all running on CNG produced from our own production to get the most economic energy production,” he said, explaining, “We don’t have to transport diesel to the area. In terms of noise protection, our engines are in encapsulated containers.”

“It’s a touristic area, so people make sure we don’t disturb that. This is something that we can transport and transmit to shale gas operations,” Teyssen said of his company’s experience.

“We don’t think Poland has enough rigs – there will be much more demand and they are essential for the development phase. The learning curve will only be realized if you allow your staff to learn. You have to engineer for the area you are working in. “

In terms of social acceptability, he said RAG was reducing well site size via a more compact set up.

“We’ve managed to convince authorities in Germany that we should use only gravel and not concrete in order to remove the footprint more easily so that farmers could use it again,” explained Teyssen. “There’s no big foundation of concrete, it’s all containerized to have a minimal visual impact.”

He showed a picture of a drilling operation that used gravel.

In terms of noise reduction and emissions, Teyssen said the company was using an electrically driven rig if power was available.

Of RAG’s operations in Hungary in the satellite trough, Teyssen said it was slightly shallower, and produced gas condensates successfully. “Cuadrilla has joined the team and in April we will re-frack there, where there’s also quite some potential.”

Still, Mr. Teyssen reiterated what he thought made Poland a prime location for successfully developing unconventional gas.

“Certainly Poland is a good country because it has clear importance to the economy and wants to get rid of the dependence upon Russia. There is an emotional history there and Poland wants to be more independent, so it’s a strong supporting act for the development of shale gas in Poland.”

Public resistance towards shale gas, he said, was a function of how developed societies in Europe were.

“There’s more resistance in Germany than say in Poland or other countries, where the readiness to say ‘not in my back yard’ is not there. I’m pretty sure Germany has a lot of shale gas potential, but I think it’s easier to develop in Poland,” concluded Teyssen.