Enthusiasm for Polish shale wanes as exploration cost mount

Oil and gas drilling rig
Source: Fotolia

In the years 2010-14 the total value of capital expenditures made ​​in the exploration of shale gas and oil in Poland amounted to approximately 2.5 billion PLN (over 751 million USD) – Polish daily Rzeczpospolita reports. This is the amount exploration companies have spent on drilling 66 wells and carrying out 24 hydraulic fracturing operations.

According to Kamlesh Parmar, the president of the Organization of Polish Exploration and Production Industry (OPPW), this year alone, drilling and fracking operations have already cost the exploration companies more than 550 million PLN (over 165 million USD).

Speaking during the third edition of the “Polish Natural Gas 2020” conference, Mr Parmar said that the average cost of an exploratory well in Poland is approximately 35.5 million PLN (nearly 10.7 million USD), while the full cost of exploration including horizontal drilling and fracking exceeds 60 million PLN (18 million USD). By comparison, an average well in the Marcellus formation costs 7.6 million USD.

These expenses are further increased by additional fees incurred by the investors, which include: concessionary fees, mining fees, the cost of seismic data, and the cost of purchase and interpretation of geological data.

He further noted that the mining fees have increased four-fold since 2010 and that the archived geological data is so expensive that it sometimes makes more sense to carry out new research from scratch. For example, the cost of gathering seismic data on an area of one square kilometre costs on average 60 thousand PLN (18 thousand USD). By comparison, the access to archived geological data would cost 50 thousand PLN (15 thousand USD), and the quality of this data leaves a lot to be desired.

Higher investment costs and the prospect of further fiscal burdens mean that exploration companies need to plan their budgets carefully – and often for very short periods of time, Parmar says.

The members of the OPPW, who currently hold 56 out of 58 shale gas prospecting and exploration concessions, agree that the optimism surrounding Polish shale exploration has markedly decreased in recent years.

The falling rate of exploration can be explained by two major factors: one is the difficult geology of Polish shales, the other; the uncertain regulatory situation which, until recently, made life difficult for investors. The new Hydrocarbon Act, passed earlier this year, should improve the situation, but it will take a lot of patience and determination to re-ignite the enthusiasm that surrounded Polish shale several year ago.

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