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For the past several years, the expression "international shale development" has resided solely in the lexicon of the analyst. Now, international shale development is rapidly moving into the operations sector, with exploitation efforts are under way in South America, Australia, Asia, and Europe.
In Europe, Poland is the front runner for unconventional gas production. The recent success of the shale gas market in North America has the world's attention, and in Poland there are moves to transfer North American "know how" to what could be a boon for the European gas market.
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The Prospect
As with any resource play, geology is an important early indicator of success. In Poland, concessions under development are in the Baltic Basin. According to Lars Hubert, exploration manager for San Leon Energy Poland in Warsaw, "The Paleozoic shale has a simple tectonic setting with a complex burial history." In a presentation at the Shale Gas Eastern Europe Conference in Warsaw in early April, Hubert characterized the makeup of Poland’s unconventional resource as having a total organic content (TOC) of 0.7 to 9.9% with a favorable silica content of 25 to 63% and porosity ranging from 4 to 8%.
Much of what is known about Poland’s shale is drawn from cores and well logs collected more than 30 years ago in Soviet-era drilling operations. While these have been useful in determining early potential for unconventional gas in Poland, the answers garnered from this data remain somewhat inconclusive. The latest drilling activity in Poland has focused primarily on science wells to acquire new logs and core samples from which to devise further development plans.
The key for most operators in Poland is data, and BNK Petroleum is no exception, according to CEO Wolf Regener. "All we wanted was fresh rock," Regener said. "We went into this telling Poland's Environment Ministry we just wanted to drill wells and get samples of the rock. The only modification we had was that we shot some cross seismic lines to avoid faults so we could actually get the samples of the rocks." The company completed coring efforts on its Lebork S-1 well on one of its Saponis blocks near Gdansk in northern Poland. Later this year BNK plans to drill on the Starogard block, offsetting Lane Energy’s and ConocoPhillips’ second well.
Drilling has gone quickly in Poland. "We were at core point in 22 days. The drilling has been great," Regener said.
BNK holds an interest in six concessions in Poland, which total 1.6 million gross acres (1.1 million net) through its previously held, wholly owned subsidiary Saponis Investments Sp. z o.o. and wholly owned subsidiary Indiana Investments Sp. z o.o. The company has drilled two wells and is currently in the process of permitting a third, and ConocoPhillips and Lane Energy have drilled two wells. PGNiG, Poland’s state-owned operating company, also has drilled several wells.
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While Poland serves as a test case for European shale, it remains one option of many. "I don't think there is anything unique here," Regener said. "This is another shale basin; it just happens to be in Poland."
BNK has its own philosophy for moving into Europe. "We want to get into multiple different basins because we don’t know which ones are going to work," he said.
"We're just really early in the whole thing," added Doug Bentley, unconventional resources manager Continental Europe, Schlumberger. "The difference in Poland compared to North America is if you just look at the Barnett when they started, you had about 5,000 sq miles (13,000 sq km) in the Barnett, and you had 11,000 gas wells," he said. "That's before you even really looked into producing shale. You had all this information readily available."
In the US, shale development occurred more as an exploitation event, which did not require vast amounts of exploration to figure the plays out. "What we did is basically went in, drilled wells, and experimented,” Bentley said. “The issue in Poland is that in the Baltic Basin, you have five wells and more than 38,610 sq miles (100,000 sq km). So there is really no data."
The older stratigraphic wells in Poland produced cores across the shale, and they have been evaluated with newer technology. The wells, however, were evaluated using Russian 1950s-version log data, which had no sensitivity to the analysis that companies are attempting today. "We have drilled five new wells since last summer," Bentley said. With the evaluation of these new wells ongoing, the impact of new technology in Poland has yet to be realized. "As far as technology, we have not been able to impact anything because we have not had enough data yet," Bentley said.
In North America, shale plays have benefitted from more than a century of drilling that penetrated many of these formations in search of conventional oil and gas resources. The Eastern European craton holds about 15 million potentially prospective acres for shale, which is roughly five times the size of the Barnett shale in central Texas. "Until ConocoPhillips started drilling last summer, a sum total of 20 wells had penetrated the shale in the region," said James Elston, director, Palladian Energy Ltd. and former CEO of TSX-V-listed Realm Energy International Corp., another Poland shale explorer.
For now, shale development in Poland is focused on acquiring more data.
Drilling – Present and Future
"There is a lot of noise around shale in Eastern Europe, but we are really in an exploration phase right now," said Mark Swift, area manager for Continental Europe, Halliburton. The majority of the drilling in the region is represented as science wells and through efforts to maintain lease obligations. "From a technology standpoint, it is very similar to what you see back in North America, or anywhere in the world, when you are doing exploration," Swift added.
For the next 12 to 18 months, drilling activity will focus mostly on evaluation. "Much of the drilling will kick off in Q4 with the remainder being done in 2012 and into 2013," Swift said.
For now, drilling equipment has been accessible for the low level of drilling activity in the region. "Equipment is coming this year because there’s more activity," Bentley said.
Poland currently has three partially state-owned drilling contractors – Jaslo, Cracow, and Nafta Pila, with Nafta Pila providing most of the unconventional rigs. Canada-based Ensign is planning to move two rigs to Poland, and Czechoslovakia-based MND has a rig working in Poland.
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"We're using Nafta Pila, which is a local contractor, for drilling the well, and then just the support services that we need for shale gas analysis, really," Regener said. "There are enough rigs around to drill these science wells here in Europe."
As Poland moves into development mode, the demand for modern, North American-standard rigs that are built to EU specs should increase. "That is how we are approaching it. We’re looking for a small-footprint type rig that can drill multiple wells from a single pad," Regener said.
One benefit inherent to Poland's future development exists in the size of individual concessions. "You do not have any lease boundary issues; you have got large leases so you can orient your laterals," Regener said.
The ability to drill long laterals should make for efficient operations using today’s modern rigs. Compared to US drilling operations such as in Oklahoma where an operator is constrained to a 640-acre plot, Poland's concession size allows for more extension in the well planning phase. "Even though some of the costs are a little bit higher here, I think eventually we can drill longer laterals and hopefully get that cost down, closer to what we do in the US," Regener said.
According to Bentley, "Bringing new drilling technology into the country has definitely impacted Poland's unconventional development." The first two wells drilled in the region beat the estimated drilling time by 30%. "Those wells were back-to-back, and they set records for drilling in Poland in terms of time," he said. Establishing a new standard in drilling operations has been one of the key benefits being transferred from North America in Poland. "The drilling technologies implemented in Poland to date have definitely made a step change in the delivery of well bores," Bentley said.
Both record-setting wells were drilled to about 10,800 to 11,200 ft (3,300 to 3,400 m) in less than 30 days as vertical pilot holes where full cores were taken. This is roughly the same depth of deeper Barnett wells, which were initially drilled in 30 to 35 days. "The individuals who came to Poland bringing this US standard did it very well with a very smooth transition," Bentley said, "and not only on a performance basis. These wells were drilled safely; there was no nonproductive time and no environmental incidents whatsoever."
The big question for Poland is what rig availability will look like in a development phase.
"I can't speak for operators, but I believe that rig availability could be a more constraining factor than hydraulic horsepower down the road," Swift said. With the current activity, operators have managed to coordinate their efforts with available rigs, but as the analysis of cores comes closer to fruition, rig availability could be squeezed.
"If the rocks work in Poland, it changes the country," Elston said. "The big challenge lies in drilling. I think that presents a tremendous opportunity for North American and native European entrepreneurs because the great thing about drilling is it is not really IP-dependent, or maybe not as much as the other downhole services such as wireline and fracing, etc." The accessibility of drilling to entrepreneurs who are capable of navigating the regulatory framework for operating equipment in EU countries makes this sector an attractive investment should European shale take off in a big way.
"I think there are high hopes across the board, but Poland will be a tremendous opportunity for North American drillers who can address the different challenges that exist in Europe," Elston said. "Entrepreneurship on the drilling side will be very important."
The Road to First Gas
While activity is obviously picking up, the question of when Poland will see first gas remains a subject of debate. Estimates range from two years to 20, and many of those in the field prefer not to share an opinion.
"In terms of large volumes of gas from shale, perhaps 2020 is a good number," Elston said. There are three to five years of solid exploration appraisal and drilling even before the region sees much in the way of its first pad drilling.
With the prospect of development drilling on the horizon, the question arises about the availability of pumping equipment for completions work that will be needed. "On the equipment side, I don't see any constraints at the moment," Swift said. "Were this market to take off in terms of North American-style shale development, then equipment might become a problem." According to Swift, there is about 100,000 horsepower available today. "For the moment, the situation is fine," he said. With nearly 40% of the available horsepower in Europe, Halliburton does not foresee a problem supporting stimulation efforts during Poland's exploration phase.
For Schlumberger's part, the company is bringing one additional operational stimulation fleet (20,000 hp) into Poland in July. "We'll be working both crews in the second quarter," Bentley said.
As with most of the major service companies, Halliburton, Schlumberger, and Weatherford are setting up bases of operation in Europe in preparation for the potential increase in demand for equipment and manpower as shale development picks up. The key is flexibility. While Poland is one of the first to ramp up, there are a number of targets for shale development in Eastern Europe.
"For us it is a corridor because we really don’t know where things are going to happen; it’s too early," Bentley said. Warsaw lies in the middle of the corridor. "You can go north, east, or west; you can cover everything from here."
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Building for the Future
With the land game pretty much complete in Poland, it is now a question of capital and expertise being applied. Poland's government has made it clear to companies like BNK that it wants natural resources to be developed domestically. This has been shown through a fairly low cost of entry and minimum work requirements. Perhaps more than manpower and equipment, the true test for Poland's unconventional shale will be the ease with which companies will be allowed to operate and do business.
Operations have been smooth in Poland to date. "You are in a different country, so you just have to go through the learning curve of what you do," Regener said. "We hope that in the future, Poland's government can streamline things more because it is a longer timeframe."
From an industry standpoint, Poland's limited history of finding and developing oil and gas leads to an unintended benefit of having fewer things to unlearn. "Indeed you do have a blank sheet of paper," Elston said. This extends to a shortage of infrastructure such as roads that will be important for transporting equipment. But the climate in Poland is favorable to paving the way to a healthy, productive environment.
From an environmental perspective, companies like BNK are leading the way along with Poland's government to develop its gas in the safest way. "We have made it clear that we are trying to go about doing things the right way in terms of environmental standards and trying to do everything that they want and then some," Regener said. Using best practices and finding ways to improve on these with each new operation has instilled confidence in future development. Poland has not mandated specific practices, so most operators are using their North American expertise to carry out drilling operations safely.
"I have said in Germany and I am saying it in Poland from day one: Small footprints, be a good neighbor, do it the right way, and water-wise, try to conserve as much as possible. We understand Europe," Regener said.
Contact the author, Tayvis Dunnahoe, at tdunnahoe@hartenergy.com.
This story was featured in the June issue of E&P Magazine.
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