Italian oil giant Eni is said to be planning to withdraw from its shale gas project in Poland, allowing two of its three exploration licenses expire, with a third one likely to follow.
Eni’s withdrawal would make it the third foreign supermajor to give up on Polish shale since 2012, after a flurry of interest in the venue in 2011 when initial estimates of 5.3 trillion cubic meters in shale gas reserves saw a spike in foreign interest in the country.
According to reports, Eni has let its licenses expire due to unclear regulations and difficult geology.
In 2011, the US Energy Information Agency (EIA) set the ball rolling in Poland with its shale reserve estimates, which at the time set Poland up to be the largest shale play in Europe. More recent estimates, however, have downgraded reserves to around 346-768 billion cubic meters—a far cry from the earlier 5.3 trillion cubic meters.
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In its latest survey, the EIA further downgrades Poland’s technically recoverable shale gas reserves by 26%.
A report by Poland's senior auditing institution has warned that at the current rate it will take 12 years before the country's shale gas potential can be properly assessed. Supreme Audit Office (NIK) stressed that while 113 licenses have been issued, only a small proportion of the territory in question has actually been explored.
Experts estimate that up to 300 wells will have to be drilled at up to $15 million a pop before we have a sound estimate of Poland’s commercially viable reserves. Only 50 test wells have been drilled so far.
But it’s not all about the figures here: Foreign investors have been less than smitten with the regulatory environment, particularly as the government has vacillated on a new energy law.
According to NIK, it takes on average some 130 days for a company to secure a license, while “companies that have won licenses are installing one drilling platform a year and putting others on hold…The reason for the slow pace of operations stems not only from the changing economic and financial situation but also from improper government action.”
NIK accuses the Ministry of the Environment of being “unreliable” and dragging its feet, and remains concerned that investors are being chased away and new investment stymied by the lack of a legal framework for operating.
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Recently, the Polish prime minister replaced environment minister and his chief geologist in a move seen as an attempt to bolster shale exploration.
So far, the downgraded reserves and the disappointing regulatory environment have led Exxon Mobil to end its operations there in 2012, while Marathon and Canada’s Talisman gave up last year. Only Chevron remains committed, while Poland’s own state-run Lotos has pulled out of shale.
Even amid the political chaos in Ukraine, investors like Shell and Eni (and, again, Chevron) seem to be putting more faith in that venue as disappointment mounts in Poland.
By. Joao Peixe of Oilprice.com