Rystad Energy AS, Oslo research and consulting outfit, predicts that Poland will become a global exploration hot spot with as many as 330 exploratory wells to be drilled in the next 5 years.
The company drew the conclusion after conducting a review of 224 active exploration concessions awarded in Poland since 1995, said Anders Wittemann, manager of consulting services. "Thirty percent of Poland's land surface has now been licensed for exploration activity to more than 20 operators of different size and origin, including international supermajors. The work programs agreed between the operators and the Ministry of Environment add up to more than 150 commitment exploration wells and another 220 optional exploration wells." The drilling activity levels could reach 50-80 exploration wells/year, compared with recent years' activity level of 20-30/year.
Several key drivers
Key drivers for the interest in Poland include the potential for significant shale gas reserves, attractive fiscal conditions, and relatively high domestic gas prices. Rystad Energy stipulated a shale gas potential for Poland of more than 1 trillion cu m, sufficient for more than 50 years of self-sufficient, growing consumption.
Per Magnus Nysveen, analyst manager at Rystad Energy, said, "We have based our estimate of Poland's shale gas potential on information from the Polish Geological Institute and benchmarked this against our proprietary research on key US shale gas plays. Estimates are highly uncertain, but the potential is there. Exploration and test drilling is needed for derisking to get to the answer."
Exploration drilling for shale gas has taken a step forward during 2010 with 3Legs Resources, financed by ConocoPhillips, drilling two wells in northern Poland at Lebien and Legowo (OGJ Online, Sept. 28, 2010). Core samples have been collected and sent for analyses, with fracturing of the shale underground, the key enabler for flow of natural gas, yet to be completed. The increase in activity will nevertheless make Poland a hot spot for exploration in the next few years, regardless of the results. The large amount for work promised to the licensing authority, the Ministry of Environment, is an opportunity for expansion of the oil field services sector in Poland as more than 370 wells could to be drilled at costs of up to $15 million/well.
In addition, the work programs include plans for acquisition of new seismic data, combined over 20,000 line-km of 2D seismic and more than 6,000 sq km of 3D seismic grids.
Exploration concessions
Given the large amount of exploration concessions, extensive work programs, and number of companies active, there will also be more business and corporate development activity (M&A) as companies will work to high grade their portfolios and optimize their spending.
Concession award documents from the ministry set out the agreed work program to be carried out by the concession holder. Recently awarded concessions are made for exploration only, with companies having to apply for production licenses upon completion.
Exploration concessions typically last 3-6 years with work programs divided into stages, and in some cases multiple stages are grouped into phases. Typically, the concession comprises of 2 to 4 stages that may be grouped into 1 or 2 phases. Companies use multistage work program to distinguish firm commitments and optional activities based on results from the previous stage(s).
The first stage includes interpretation and analysis of existing geological samples and geophysical data. Stage one and two are used for acquisition of 2D and 3D seismic data. At the second and third stages, firm commitment wells and optional wells are drilled in connection with optional seismic data acquisition. Remaining stages are used for yet additional optional seismic data acquisition and-or wells.
Of the 224 active concessions, 178 have been awarded since 2000. The 46 concessions awarded in the 1990s have been extended several times and hence remain active. The majority of them are retained by the original concession holder with expiry dates beyond 2012.
Originally committed work programs were modified by revising the number of exploratory wells and seismic data to be collected. Rystad Energy's research has taken these revisions into consideration when estimating the number of wells to be drilled and seismic data to be acquired. In contrast to concessions awarded recently, some of them combine rights for both the exploration and the production phases with expiry dates after 2030.
Poland's Geological and Mining Law is currently under review by the Parliament. Proposed modifications to the existing law include implementation of the European Commission's directive related to tendering processes for awarding concessions.
Production, imports
Oil and gas production in Poland has taken place since the 1950s, with a peak in the 1970s. The current production, which is mainly natural gas, is in the order of 6 bcm/year of natural gas equivalent. Poland's gas consumption of 13 bcm/year is forecast to grow to 16 bcm/year by 2020.
Poland is therefore a large importer of gas, mainly from Russia, paying Western European prices for gas delivered to Poland. In order to reduce the gap, an LNG terminal being built at Swinoujscie for imports from the Middle East is expected to be in operation from 2014.
Poland's consumption of gas per capita is still among the lowest in Europe. The key drivers for this are the relatively high cost of gas due to import, high cost of domestic production of gas, and abundance of coal for power generation.
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