3legs leaves Poland despite work on new legislation to attract investment

Polish parliament
Source: DollarPhotoClub

3legs Resources has decided to follow in the footsteps of Total, Marathon Oil, Talisman Energy and Exxon Mobil, and abandon shale exploration in Poland. The decision came despite continued efforts on behalf of the Polish government to make hydrocarbon legislation more attractive to foreign investors.

3legs Resources already backed out of concessions in the north of Poland earlier this year. The latest decision to divest assets in the eastern part of the onshore Baltic Basin completes the company’s exit from exploration in Poland.

Last week 3legs sold its entire interest in it’s three eastern Baltic Basin concessions – measuring some 2,338 sq km (578,000 acres) in total – to a subsidiary of Stena Group for €500,000. Only one well – Legowo LE-1 vertical well – was drilled on the concessions. It was plugged and abandoned in 2013.

Despite initial enthusiasm, when in April 2010 the Polish foreign minister, Radoslaw Sikorski, said shale gas offered Poland the chance to ‘become another Norway’, Polish shale disappointed investors.

Although sitting atop considerable amounts of hydrocarbons – EIA estimates talked of 187 trillion cf of technically recoverable gas, subsequently lowered to 148 trillion cf – the complicated Polish geology meant that many investors found the deposits uneconomical. It’s been said that the full cost of exploration of a Polish shale well – including horizontal drilling and fracking – exceeds 18 million USD. By comparison, an average well in the Marcellus formation costs 7.6 million USD.

But it wasn’t only the geology that caused the Polish shale dream to sour. Poland’s nightmarish legislation also had a lot to answer for.

“The Polish government has realised that something is going wrong in terms of attracting investments and exploration work in Poland,” Adam Kozlowski, a counsel at the Warsaw branch of law firm Norton Rose Fulbright, told Interfax.

“While the government has no united view, all authorities agree that the decrease of activities is connected to inefficient administrative procedures,” Kozlowski said.

Poland has now introduced new regulations that ensure a smooth change from exploration rights to the right to exploit resources. It is currently in the process of introducing new legislation that is aimed at further facilitating the administration procedures.

The draft Hydrocarbons Investment Act includes the following proposals:

    • introduce a single licence for prospecting, exploration and exploitation, which at present require separate licences,
    • new licences will be issued for a defined period, from 10 to 30 years,
    • environmental permits will be issued within 45 days of application,
    • water permits will be issued within 30 days of application,
    • reduce the preparatory stage before the start of exploration drilling from 7-12 months to 3 months,
    • the time-frames for issuance of building permits and use permits regarding hydrocarbon prospecting, exploration, exploitation and transportation have been shortened: to 30 days with respect to building permits; and 21 days with respect to use permits,
    • the term for appealing decisions regarding activities covered in the act will be shortened from 14 to 7 days from its delivery (or to 14 days from its public announcement).

“The act is subject to public consultation and parliamentary work. But I expect the law to pass smoothly and to be introduced in 2015,” Kozlowski said.

Whether the new legislation is able to lure foreign investors back into Poland remains to be seen. For now Poland is taking the initiative when it comes to exploring its hydrocarbon deposits, with Polish companies taking up where foreign players left off.

Following the exodus of foreign companies from Poland, most shale drilling is currently in the hands of Polish companies – the state-owned PGNiG and PKN Orlen, which is in the process of drilling its eleventh exploratory well.

Poland is also working hard to overcome its technological disadvantage. For example, the “Blue Gas” programme is a joint undertaking of the National Centre for Research and Development (NCBR) and the Industrial Development Agency (ARP S.A.) working towards the commercialisation of innovative technological solutions in the field of prospecting and exploitation of shale gas. One of this years winners is DIOX4SHELL; an innovative fracking technology particularly designed to tackle tricky Polish shale deposits.

Polish Treasury Minister Wlodzimierz Karpinski made the importance of Polish shale development clear in a speech in August when he said: “Polish energy security and independence is a government priority… We focus on the search for our own raw materials and getting the maximum use out of these national resources. We want to take the chance to be energy independent.”

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