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Europe’s efforts to find alternatives to Russian oil and gas faced a new setback when Chevron Corp. announced its earnings had dropped dramatically in the fourth quarter of 2014 and was forced to drop plans to exploit Polish shale for gas and oil.
Chevron said Jan. 30 that the plunge in oil prices since June had caused its earnings for the quarter to fall by $3.5 billion, nearly 30 percent lower than the same period in 2013.
Dropping the project in Poland was a major blow to European efforts to exploit shale. Chevron had been the energy company most committed to such efforts, with a focus on Eastern Europe, drilling exploratory wells in Romania as well as in Poland and signing agreements to do the same in Lithuania and Ukraine.
Related: Chevron Responds To Eight Week Drop In Rig Count By Slashing Jobs
Now, though, Chevron “has decided to discontinue shale gas operations in Poland as the opportunities here no longer compete favorably with other opportunities in Chevron’s global portfolio,” the company said in a statement. Its plans in Romania, however, were still being studied, it said.
Chevron isn’t the first oil company to abandon shale initiatives in Poland. In the past three years, Exxon Mobil and Marathon Petroleum Corp., both US companies, and total also Total of France have done the same. All these companies had been attracted by estimates that Poland had huge shale gas reserves.
Exploration dashed those hopes and the rosy estimates have been reduced. In addition, Poland’s geology makes drilling more difficult and therefore expensive than it is in the United States, for example, and the companies also had concerns about the extent of government regulation of shale drilling.
The disappointing news on the shale reserves is yet more bad news for Poland and the rest of Europe, which have been trying to end their dependence on gas from Russia. European Union countries now get about 30 percent of their gas from Russia, half of it piped through Ukraine. But in 2006 and 2009 that flow was interrupted because of disputes between Moscow and Kiev.
Today the stakes are even higher. Nearly a year ago, Ukraine’s pro-Russian president, Viktor Yanukovich, was ousted by a popular uprising in favor of closer ties with the EU. Moscow responded by unilaterally annexing Ukraine’s Crimean peninsula, and the EU and US shot back with strict sanctions that, together with the plummeting price of oil, has seriously damaged Russia’s economy.
Related: Chevron Pulls Out Of $10 Billion Gas Deal With Ukraine
Despite the plunge in quarterly earnings, Chevron CEO John Watson said in the company’s statement, “[W]e believe long-term market fundamentals remain attractive” and that the company will remain profitable by cutting expenses “throughout our supply chain.”
The company said most of its spending in 2015 will support existing production, including well-established oil fields in California and Texas, and for projects that already are under construction, including its Gorgon natural gas project in Australia. Chevron said its $35 billion budget for 2015 will include $26 billion in capital spending and $3 billion for exploration.
As for future shale initiatives, Watson said, like all projects they will be tested for profitability, with Chevron “selecting only the most attractive opportunities to move forward.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com