Bloomberg News

Europe Nears First Commercial Shale Gas Production in Poland (3)

January 23, 2014

Europe passed a “major milestone” on the way to starting commercial shale gas production as San Leon (SLE) Energy Plc said testing at one of its Polish wells was successful.

Natural gas flowed from the vertical Lewino well in a shale formation in the Baltic Basin in northern Poland at as much as 60,000 cubic feet per day during tests, Dublin-based San Leon, a natural-gas explorer backed by billionaire George Soros and Blackrock Inc., said today in a filing. The company will start drilling a more productive horizontal well no later than July, said Dennis McKee, the chief executive officer of United Oilfield Services Sp. z o.o., which worked on Lewino.

Countries including Poland, the U.K., Ukraine and Romania are keen to develop shale gas resources as a way to lower energy costs and reduce imports. Europe must get a grip on energy prices to protect growth and reduce the cost gap with the U.S., where a shale-gas revolution has cut prices, European Union Energy Commissioner Guenther Oettinger told a conference in Berlin on Jan. 21, via a link from Brussels.

“We’re confident we can show real commercial flow rates,” San Leon Chairman Oisin Fanning said in a telephone interview from London. “If you can prove the shale play in Poland, it will open up in other countries.”

Shares in San Leon rose 8 percent to close at 4.3 pence (7 cents) in London, the biggest one-day gain in four months.

The European Union’s biggest eastern economy, the region’s largest holder of shale gas, has sought to revive exploration after foreign investors including Marathon Oil Corp. and Talisman Energy Inc. (TLM) withdrew amid regulatory constraints and plans to increase taxation in Poland.

Best Frack

The results from the Lewino well are a “major milestone in the process of commercialization of shale gas in Poland,” McKee told reporters at a briefing in Warsaw. San Leon may bring the well to commercial production by October, after it conducts flow tests, he said. United Oilfield Services is the nation’s largest provider of hydraulic fracturing, also known as fracking.

“This is the best vertical frack to date,” said Fanning. “There’s read-across to the whole of the Baltic Basin. This is good for San Leon, and it’s good for everybody drilling in Poland.”

Shale gas is produced by injecting rock formations with a mixture of water and chemicals at high pressure, a process known as hydraulic fracturing. Gas begins to flow out of the fractures created in the rock and through the well once the pressurized fluid is removed.

Removing Fluid

San Leon had not finished removing fracking fluid from the well when it achieved the flow rate, according to the statement. It estimated a potential flow rate of 200,000 to 400,000 standard cubic feet per day if the clean-up of fracturing fluid from the well was completed. That’s equivalent to as much as 4 million cubic meters per year, or 0.03 percent of Poland’s fuel use.

San Leon will drill and hydraulically stimulate a horizontal well in the Lewino area to test the entire vertical extent of the Ordovician interval with each frack and prove commercial flow rates, according to the statement. In the U.S., horizontal wells typically yield between seven and 30 times the production rate and recovery of vertical wells in the same formation.

Drilling Target

Poland, where gas companies drilled about 50 shale wells as of the last year, needs at least 200 of them to test the fuel’s potential, according to Environment Minister Maciej Grabowski. United Oilfield’s McKee predicts about 30 reservoirs will be drilled this year, up from 14 in 2013, he said in an interview earlier this month.

San Leon became the sole owner of three permits in northern Poland after Talisman’s exit, including the Gdansk West license where the Lewino well is located. Lewino produced gas almost immediately after clean-up and has done so continuously when the well is open, the company said Jan. 13.

United Oilfield, based in Lowicz in central Poland, is also bidding in tender for seismic services for Chevron Corp (CVX:US) in Ukraine, McKee said today. The unrest in the country, where Royal Dutch Shell Plc (RDSA), Chevron and Exxon Mobil Corp agreed to help develop shale, will slow down the search, he said.

Ukraine is a high-risk area and the company wouldn’t send people or equipment there, McKee said.

To contact the reporters on this story: Marek Strzelecki in Warsaw at mstrzelecki1@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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