ConocoPhillips Joins Quest For Eastern European Shale Gas
September 25 2009 - 1:37PM
Dow Jones News
ConocoPhillips (COP), one of the largest natural gas producers
in North America, sees a future in Europe's gas deposits. And it
isn't the only U.S. major to think so.
Through a recent foray in Poland, the Houston-based company has
become the latest U.S. oil giant to explore European unconventional
gas resources as a potential source of growth. Exxon Mobil Corp.
(XOM), the world's largest publicly traded oil company, already has
significant acreage in Germany and a venture in Hungary.
The move comes at a time when demand for gas produced in Europe
is expected to grow vigorously as countries intensify their efforts
to reduce their dependence on Russia as a supplier. ConocoPhillips
and its rivals are hoping that Europe's unique need for new local
supplies will help their investment on the continent to hold up
better than in the U.S., where heavy development of unconventional
gas has contributed to a glut that recently sent prices to a
seven-year low.
"What's not to like about this type of play?" ConocoPhillips
Vice President of Exploration Larry Archib told investors in New
York earlier this month. He was referring to the shale-gas
resources - hydrocarbon-rich rock formations - that ConocoPhillips
agreed to explore in the Baltic Basin in northern Poland early this
month. The deal gives Conoco the option to have 70% interest in the
operation, as well as to operate up to one million acres. The shale
gas in Poland is easy to reach and any natural gas produced can go
into the European Union market, where demand is growing even as
consumption remains weak in North America.
Unconventional resources have become increasingly important for
international oil companies as they struggle to access new
reserves. In particular, shale gas has grabbed the attention of oil
majors as recent technological advances have made it easier and
more cost-effective to produce in the U.S. and Canada.
Companies such as British BG Group PLC, BP PLC (BP), Norway's
StatoilHydro ASA (STO) and Italy's Eni SpA (E) recently created
partnerships with independent U.S. oil and gas producers troubled
by the sharp downturn in prices and the tightening of credit
markets. European oil majors don't want to miss the long-term
potential of the U.S. shale gas and reserves, and they also aim to
apply expertise gained in North America to their global operations,
analysts said.
But U.S. oil majors are directly testing their expertise in
Europe as well, where reservoirs could be as promising as those in
the U.S., analysts said. The potential resources for unconventional
gas in Europe are large but still unproven in most areas. More
importantly, the amount that will be converted to commercial
reserves and the speed with which it can be extracted remain
uncertain.
Still, Conoco sees a great future in Poland. Conoco's Archib
said the company has "diverted" its expertise from North American
shale gas to try to find promising plays overseas, with Poland
being one of the most high-profile examples.
Some analysts expect to see more international oil producers
jumping into the European unconventional natural gas market.
"Companies like BG, Statoil and Eni are a good example of three
companies that want to take advantage of the U.S. natural gas
space," said Rhodri Thomas, Europe and Sub-Saharan Africa upstream
research manager at consultancy Wood Mackenzie. "But clearly there
is potential learning they could apply elsewhere."
Peter Mellbye, Statoil's executive vice president for
international upstream, last year named Ukraine, Poland and Romania
as potential areas where his company could work with its U.S.
partner Chesapeake Energy Corp. (CHK) to develop unconventional gas
resources. Statoil and Oklahoma City-based natural gas producer
Chesapeake announced this year an agreement to explore for
unconventional natural gas opportunities worldwide.
-By Isabel Ordonez, Dow Jones Newswires; 713-547-9207;
isabel.ordonez@dowjones.com