Poland’s Energy Fate Now Rests With Just Chevron and ConocoPhillips

ConocoPhillips shale drilling rig in Poland. Photo credit: ConocoPhillips. 

Earlier this week, French energy giant Total (NYSE: TOT  ) said it would not renew its shale gas exploration leases in Poland. It became the latest of many energy exploration companies to give up on unlocking Poland's shale gas resources. Total's exit leaves only ConocoPhillips (NYSE: COP  ) and Chevron (NYSE: CVX  ) left to explore for shale gas that could help Poland wean itself off of Russian gas supplies.

Drilling down into Poland's gas resources
Poland is estimated to have 146 trillion cubic feet of shale gas and another 1.8 billion barrels of shale oil, according to the U.S. Energy Information Administration. To put the natural gas number into perspective, 5 trillion feet of natural gas is enough to meet the needs of 5 million American households for 15 years. Given that 38.5 million people live in Poland, the country should have enough natural gas resources to offset a significant amount of Russian supply. Unfortunately, production of this gas isn't proving to be economically viable as these reservoirs are more challenging than the industry anticipated.

Total noted that while the country's prospects remain promising, the exploration process is still in its infancy. Because of that the industry needs to see more data to understand the geology of the Polish basins. Total, however, won't be among the companies investing to get that data. Instead it's up to ConocoPhillips and Chevron to prove that these plays can be economically developed.

More tests to come
ConocoPhillips and partner 3Legs Resources plan to drill three new shale test wells this year. Two of those wells will be vertical tests, with a third test being a long lateral well. If successful it could provide a nice boost to ConocoPhillips in the future as the company has 354,000 net acres in the play and a 70% working interest in these exploration areas, as seen on the left-hand side of the following slide.

Source: ConocoPhillips Investor Presentation (Link opens a PDF).

Meanwhile, Chevron just a few weeks ago entered into a partnership with Polish gas giant PGNiG to explore for shale gas in the nation. The 50% joint venture will allow both companies to reduce costs and risks as Poland's shale basins are explored. Chevron is accessing the results from the four exploratory wells it has drilled across its four exploration licenses.

So far the industry has only drilled about 50 exploratory wells in Poland. It needs to drill hundreds more just to obtain a reliable assessment of the potential of the nation's shale basins. However, initial results have been so poor that the country is running out of companies willing to spend the capital necessary to really explore these shale plays.

Investor takeaway
The changing dynamic in Europe due to Russia's recent moves in Ukraine could eventually encourage more companies to explore for gas in Poland, even with Total giving up. The country simply has one of the few large potential supply basins in Europe. That's why all eyes will be on ConocoPhillips and Chevron to see if either can produce economical gas, because as of now these two companies represent the last hope for Poland's dreams of unshackling itself from Russian gas.

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  • Report this Comment On April 20, 2014, at 4:08 PM, amvet wrote:

    It is important that recent events in the Ukraine be told accurately. In December, Ms. Victoria Nuland of the US State Department in a phone conversation with the US Ambassador in Keiv, choose the next leader of Poland (Klitchko no, Lets yes) who would be put in after we did a coup to oust the elected leader of Poland. This happened, and according the the Foreign Minister of Latvia, evidence pointed to our guys doing the shooting in Kiev which killed over 50 police and demonstrators. The US therefore got control of all of the Ukraine and started talking NATO. Shortly after, the Crimea jumped into Russia´s lap and Putin accepted it. Getting control on only 90% of the Ukraine made the US, the EU, and the US controlled media very angry. Russia bad, Russia bad, Putin very bad, without end.

  • Report this Comment On April 21, 2014, at 12:01 PM, NRSimha wrote:

    It is very sad USA has not grown up to put behind cold war mentality. They alienated Russia and China (a bigger threat). Now that another countryIndia would very likely have a new Prime minister, Narendra Modi, whom USA had been an enemy after swallowing the lies and the vicious propaganda of Islamists and leftists. USA and its western allies are committing blunder after blunder without any foresight.

  • Report this Comment On April 22, 2014, at 8:13 PM, Hansen wrote:

    The company has announced Capital expenditures for FY14 to

    be somewhere around $40 billion. I think that might be one reason the investors

    and analysts are optimistic about the company for the upcoming year http://goo.gl/QG8kmX

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