Is European Shale Gas the Real Deal

Oilfield services major Halliburton said late last week it has completed the first hydraulic fracture (frac) on a horizontal shale gas well in Poland. The Markowola-1 well was drilled 50 miles south of Warsaw, on behalf of Polish state petroleum company PGNiG.

This is a big moment. There's been a shale land rush of late in much of Europe, with gas companies big and small picking up millions of acres of prospective land. We've heard a lot of talk about trillions of cubic feet of potential gas resources.

Wells like Markowola will answer some important questions. Like, will these huge gas resources actually flow to surface?

If the well does test at high rates, expect a lot of hoopla. Analysts will say the "nut has been cracked" on Europe's shale gas business. Production success on wells like this could even touch off a bit of a European shale gas mania in the stock markets. (Although a negative test would have the opposite effect.)

But investors need to keep a clear head assessing the coming results. A good test would be one thing. But the biggest question is well economics.

To fully assess whether European shale gas is the "real deal", we need information on well costs. Halliburton didn't mention any costs data in last week's press release. And chances are they won't in any future production announcements.

But only by assessing well cost versus productivity can we know whether wells like Markowola will make or lose money. Gas wells in Europe aren't cheap (especially when they include a horizontal leg and a frac). A test of 10 million cubic feet per day might sound exciting, but if the well cost $20 million to drill it won't make the owner a dime of profit.

There's a big difference between proving geology and proving economic viability (the latter being far more important). Keep that in mind as news on Europe's shale emerges over the coming weeks and months.

Here's to being a skeptical shale enthusiast.

By. Dave Forest of Notela Resources