The Importance of “Above Ground” Risk

Are Shale and Politics a Good Mix?

That was the question attacked by Denis Painchaud, Director International Government Relations, Nexen Inc. at the CEE Unconventional & Shale Gas Development Forum in Budapest, Hungary.

Recognizing that there were a lot of emotions involved, he said he had seen the two work together in a successful fashion.

Headquartered in Calgary, Canada, with 3,800 employees and 10 billion barrels of oil equivalent of resource to develop, Mr. Painchaud showed Nexen’s global portfolio, which had assets in Canada, the Gulf of Mexico, Columbia, UK North Sea, Yemen, Nigeria, and Poland.

Nexen, Mr. Painchaud reported, had undertaken a survey of European shale gas opportunities, in search of an optimal working atmosphere to develop shales.

He recalled, “We looked at the rocks, the prospectivity across different basins of Europe, but realized that above ground risk was just as important, so we also looked at things like fiscal regimes and environmental rules.”

One of his slides showed levels of risk, in green, yellow and red.

“The rest of Europe seems to be content to sit back and let Poland be the early mover on shale gas, because of the obvious sensitivities like population density, environmental issues,” explained Painchaud. “These are heightened in Europe, because of population density and the history.”

He recalled that the Polish government had been aware of those issues, was moving ahead and in the early stages had been very supportive of industry in Poland, recognizing the high potential, but also the challenges.

According to the results of Nexen’s evaluation, he said: “Poland came out on top, both from the resource and above ground, regulatory risk to start our investment in European shale gas. Were able to strike an appropriate agreement with Marathon Oil, who is the operator.”

Painchaud noted the drivers for pursuing shale gas in Poland, such as energy security, regional economic development, etc.

“There’s lots of cautious optimism and some outright negatives, whether the bans in France or the Russian influence, which is something that North Americans are learning about in Europe - how big the influence is and how it’s played out.”

He showed a slide of “Overlapping political interests,” a series of balloons, starting with community social license to operate, voivodeship, Polish regulations and fiscal terms, and EU regulations, among others.

He commented: “We have had to hire experts to help us navigate these. At the end of the day, the legislators in Brussels are taking the time to try and get the information that they need to make the best decision possible, and I think that that’s a real plus.

“So I think we have to have the right programs in place, we have to be proactive.”

Opposition in Europe, he noted, had a well-established approach to opposing energy developments like unconventional gas exploration. “We’ve seen that in terms of genetically modified seeds. The opposition to something that’s new can galvanize itself very quickly and be very effective in Europe. As an industry we haven’t been prepared to respond to those types of organized opposition.”

According to Painchaud, the industry should be prepared as in the case in North America of the opposition to the oil sands. “We see where opposition has been very significant and where the industry has got a tarnished reputation around tailings ponds and CO2 emissions when we really had a story to tell. We had information to counter the attacks from the environmentalists. And yet, as we moved into shale gas, whether in North America or in Europe, we didn’t have our story together.”

He said the reason was, despite the congenial atmosphere in O&G organizations or at conferences, “At the end of the day we’re still competitors and are hesitant to work together and tell our story. We have associations and I think we default to those, so we don’t have to get involved as individual companies other than to write the check at the end of the month. I think we’ve been hesitant as an industry to tell our story.”

He recalled that Nexen, along with Talisman Energy and Marathon Oil, had formed an association working to be very proactive in Warsaw and Brussels, making sure people were getting the information they needed. “It’s about education,” said Painchaud. “There’s a vacuum about the knowledge policy makers have in Edmonton or Warsaw. People don’t have the experience or the knowledge for how to deal with regulations, whether it be fiscal or regulatory.”

Nexen, he explained, was drilling two wells drilled in both Columbia and Poland, working with regulators because unconventional regulations didn’t exist in either place.

Mr. Painchaud recalled: “We brought Polish regulators to Canada so they could see a fracc, see how water is used and reused, and sat them down with regulators, service companies, parties that have a role in the industry. The Polish regulators took that back to Warsaw and we’re seeing some movement in the development of their regulations since then.

“It’s critical to understanding you don’t just do it for the regulators, because the reality is oftentimes the local industry associations really don’t know anything about unconventionals.”

It was also necessary to have to have a lot of patience, he said. “In Poland, we’ve seen the government attitude or approach has changed a fair amount in the last 12 months, from a government very excited about shale gas to a government that’s become fairly cautious and hands off from the industry.”

Mr. Painchaud explained why.

“The opposition party in December in the Polish elections was able to use the shale gas issue to garner support and cause some mischief for the ruling party, on the premise that the government had given away a lot of value to IOCs that truly belonged to the Polish people.”

As a result, he explained, the Polish government was trying to take more of an arm’s length approach to the industry in Poland, so it didn’t seem like it was in industry’s back pocket.

“That’s not to say that behind the scenes they’re not excited about the development of the industry, or they’re not as supportive. It just means that you have to adjust the way you work with them,” he stated.

Mr. Painchaud highlighted the importance of strong community programs as well as employing local people for representation in places where unconventionals exploration was taking place.

“It doesn’t work for somebody from Canada to fly into Warsaw, or into Brussels, and lecture on what the appropriate regulatory structure needed. You’ve got to have people from Poland expressing your message. You need to be there to support it, but you need to make sure you’ve got local people that are also delivering the message,” he said.

Photo courtesy of Nexen Inc.