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Exxon Shale Failure in Poland May Lengthen Gazprom’s Shadow

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By Joe Carroll

Exxon Mobil Corp. (XOM)’s failed shale-gas wells in Poland may hobble the nation’s effort to become one of the world’s major energy sources and dismantle Russian dominance of Eastern European natural-gas markets.

Exxon, the world’s largest energy company by market value, said two exploratory wells drilled in a Polish shale formation last year weren’t commercially viable. The gas discovered in the wells, Exxon’s first in Poland, failed to flow in sufficient quantities to justify bringing them into production, David Rosenthal, vice president for investor relations, said during a conference call yesterday.

International energy prospectors, including Marathon Oil Corp. (MRO), Chevron Corp. (CVX) and Talisman Energy Inc. (TLM), are probing Poland’s shale deposits to see if drilling techniques that revolutionized U.S. gas production can unleash reserves big enough to supply Polish demand for more than three centuries. Exxon’s setbacks suggest Poland’s shale poses unique challenges that may increase costs and delay output, said Gianna Bern, founder of Brookshire Advisory & Research in Chicago.

“Shale exploration is a very high-cost and high-risk business and the Polish shale market is still in its infancy,” Bern, who advises major oil companies on risk management and strategy, said in a telephone interview yesterday. “It’s early in the game for Poland, and they have significant potential reserves over there.”

Reduce Imports

Poland’s shale formations hold 187 trillion cubic feet of recoverable gas, according to an April 2011 assessment by the U.S. Energy Department. Those resources are 32 times larger than the country’s conventional gas reserves and enough to supply domestic consumption for 322 years.

For Poland, successfully unlocking gas from shale would be a boon to domestic manufacturers and power producers by diminishing the need for Russian imports that now supply two- thirds of demand, said Benjamin Schlesinger, president of Benjamin Schlesinger and Associates Inc., a Bethesda, Maryland- based adviser to gas producers, utilities, regulators and financial-services firms.

Poland’s dominant gas company, Polskie Gornictwo Naftowe i Gazownictwo, pays Russia’s state gas company Gazprom OAO (GAZP) $500 for 1,000 cubic meters ($14.16 per million British thermal units) of gas. That’s six times the benchmark U.S. price for the fuel.

Poor Wells

“Poland’s shale resources are enormous,” said Schlesinger, a Stanford University-trained engineer who helped the New York Mercantile Exchange design its gas futures contract. “Poland should be able to capture a good deal of those resources and reduce reliance on the Russian Federation.”

Gazprom’s depositary receipts rose 2.5 percent to $12.40, the highest closing price since Oct. 28. The London-listed receipts each are worth two ordinary shares in the Moscow-based company.

Exxon’s failures followed disappointing results at Polish wells drilled last year by 3Legs Resources Plc and BNK Petroleum Inc. (BKX) London-based 3Legs’s Lebien well and BNK’s Lebork well flowed at lower rates than similar prospects in the Barnett and Fayetteville shale regions in the U.S., Sanford C. Bernstein & Co. said in a Nov. 10 note to clients.

“Poland is cited among Europe’s best shale prospects, but Exxon’s result supports our caution on achieving material near- term volumes,” Oswald Clint, a London-based analyst at Bernstein, said in a note today.

Even so, it may be too early to draw any firm conclusions from Exxon’s drilling failure, said Pawel Poprawa, who specializes in shale at the Polish Geological Institute in Warsaw.

‘Technological Problem’

“If we look at the experience from the U.S. or Canada, no single well can provide the answer if the basin has potential or not,” he said. “Low flows seem to be a technological problem.”

Marathon Oil said today that it’s evaluating data after finishing its first well in a Polish shale formation. The Houston-based company said in a statement that it intends to drill three more wells during the next few months and withdraw rock samples for testing. Marathon plans a total of six to seven Polish shale wells this year, according to the release.

The Polish shale results come after Exxon encountered a dry hole in Hungary in late 2009 drilled in a tight-sand deposit similar to shale. Exxon walked away from the $75 million project after striking more water than gas.

Exxon and other major North American energy producers have been lured to explore shale prospects from Germany to Argentina after largely missing out on the boom in shale extraction in the U.S. that began in the middle of the last decade.

Smaller Explorers

Smaller explorers such as EOG Resources Inc. (EOG), Chesapeake Energy Corp. (CHK) and Range Resources Corp. (RRC) came to dominate the U.S. shale industry by default as the biggest international companies focused on locating billion-barrel offshore crude fields in places like the Gulf of Mexico and West Africa.

Shale formations were ignored by much of the energy industry for most of the past century because the rocks were considered too hard to crack using traditional drilling techniques. That began to change in the late 1990s with the development of new horizontal drilling practices and more- intensive hydraulic fracturing that succeeded in unlocking gas and crude from shale and similarly dense geologic deposits.

‘Attractive Fiscal Terms’

Exxon sought to jump-start its shale program in June 2010 with the $34.9 billion acquisition of XTO Energy, a Fort Worth, Texas-based pioneer of shale development. In addition to shale wells and undrilled prospects that stretch from the Mexican border to Canada, Exxon wanted to transfer XTO’s in-house expertise to foreign shale fields.

Exxon hasn’t disclosed its plans for further drilling in Poland. The shares rose 0.3 percent to $83.97 at the close in New York.

Poland has led European shale exploration by virtue of its tempting geology and by offering “attractive fiscal terms” to prospectors, the Energy Department in Washington said in a September report.

Still, a “likely aggressive tax burden” to be imposed on shale-gas producers may damp investor enthusiasm, analysts at Bank Zachodni WBK SA, based in Wroclaw, Poland, said yesterday in a note to clients.

Polish drilling also has been hindered by a scarcity of rigs, water and specialized equipment needed for shale wells, Bern said.

“Getting the things you need to drill these wells is much more difficult in Poland than in the United States, where the shale industry is very well-developed,” Bern said.

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Nexen joins Marathon to explore Poland shale gas resources.. Exxon seeks partners for its shale gas licenses in Poland.

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Source: Marathon Oil Website

Wednesday, April 27, 2011

Marathon Oil Corporation has signed an agreement with Nexen under which Nexen will acquire a 40% working interest in 10 of Marathon’s concessions in Poland‘s Paleozoic shale play. This partnership provides not only financial risk mitigation but combines the extensive unconventional drilling and completion experience of Marathon and Nexen to fully evaluate the potential of these concessions.

Marathon currently holds an interest in 11 concessions in Poland, encompassing 2.3 million acres. The shales are Lower Paleozoic and located at depths of between 8,000 and 13,000 feet. Marathon plans to acquire 2D seismic during the first half of 2011, potentially followed by the drilling of one to two wells in the fourth quarter of 2011 and seven to eight wells during 2012. Marathon will remain operator of the 11 concessions.

Poland shale gas- A Game Changer??

Poland’s Lower Paleozoic shale play may be the largest and most significant opportunity for unconventional gas in central Europe and is evolving rapidly in the wake of successful shale plays in North America. Natural gas demand in the large and growing European market is approximately 50 to 55 billion cubic feet per day, with imports from outside the European Union accounting for approximately 50% of total gas requirements.

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Source: Marathon – Howard Weil 2011 Energy Conference

In the last three years, Poland had issued more than 70 licenses for shale gas exploration which could make Europe less dependent on supplies from Africa and Russia. However, extraction of resources in Europe is more complex than in the US because of population density. Poland has 5.3 trillion cubic meters of shale natural gas, equal to more than 300 years of the country’s annual gas consumption, the Energy Information Administration of the U.S. Department of Energy said in a report. The companies are now drilling in Poland, but it will take at least a year to determine if shale gas production will be commercially feasible.

Lots more available on Poland table??

Poland’s shale resources are being targeted by Majors like ExxonMobil, Chevron, ENI, ConocoPhillips, Marathon, and Talisman as well as small independents like San Leon Energy, Realm Energy and BNK Petroleum. The following tables show the list of Poland shale gas deals.

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Source: Derrick Petroleum E&P Transactions Database

As the companies’ interest towards shale gas exploitation in Poland is heating up, few companies are calling for partners to give them a helping hand. Below is the list of Poland assets available for sale!!

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Source: Derrick Petroleum Deals In Play Database

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