Poland: 3Legs abandons concessions while San Leon holds tight

Drilling rig
Source: DollarPhotoClub

The British company, 3legs Resources, has announced that it decided to cease its exploration work in three shale gas concessions in northern Poland. As a first mover in Poland, 3legs Resources held six exploration and prospection concessions covering approximately 4,387 sq. km in the onshore Baltic Basin region of Northern Poland. It currently is left with three concessions in the eastern part of the onshore Baltic Basin.

The company’s decision was explained by a lack of commercial prospects when its leading project, the Lublewo well in the Gdansk region, a joint venture with ConocoPhillips, failed to produce satisfactory results.

“The well is producing higher amounts of oil than anticipated, whereas natural gas production is lower than had been hoped,” 3Legs said.

3legs’ joint venture with ConocoPhilips included an option to end the contract once its net share of expenses reached $19 million. As this limit has now been reached, the company seized the opportunity to terminate the drilling agreement.

“The company has concluded that it would be in the best interests of its shareholders to exercise its option to withdraw from the three western Baltic Basin concessions,” the company said in a statement.

Meanwhile, another major player in the Polish shale game, San Leon, announced that it has no immediate plans to relinquish its interests in the northern Gdansk W concession.

The company admitted its disappointment in the fact that none of the Polish concessions have managed to produce hydrocarbons at commercial levels, but it assured its investors that it still believes in the potential of its Polish concessions.

San Leon noted that the hydrocarbon liquid-to-gas ratio in the Lublewo LEP-1ST1H well drilled by 3Legs appears to be in excess of 10 times that in the Lewino-1G2 well drilled by San Leon. Having tested the Lewino-1G2 well in January 2014, the company is convinced that the well’s liquid-to-gas ratio was at a desirable level, providing liquid sales potential while minimising any adverse effects on gas production.

Poland opened up to shale extraction after the U.S. Energy Information Administration (EIA) estimated Polish shale gas reserves at 187 trillion cubic feet in 2011. This would have been enough to cover domestic demand for a few hundred years. These estimates were revised down to 148 trillion cubic feet in July 2013, but it didn’t stop the Polish government from supporting shale gas exploration in the country.

In August this year a new Hydrocarbon Act was passed that made Poland more inviting to foreign investors. Also, in anticipation of future shale gas production, The European Investment Bank loaned the country $132 million to build a gas pipeline that could transport gas – including domestically-produced shale gas – to the Czech Republic, Slovakia, and Ukraine.

Despite the buoyant expectations, many of the exploration companies which entered Poland decided to abandon exploration work quoting difficult geology, poor results, and confusing legislative system. Among the companies who have decided to pull out of shale exploration in Poland were: Total, ENI, ExxonMobil, Marathon Oil, Talisman Energy, and Canadian International Oil. Among the ones who stayed are: Chevron, San Leon, ConocoPhilips, 3legs Resources, and Cuadrilla Poland.

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