PERSPECTIVE OF SHALE GAS PROSPECTION IN POLAND

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1 PERSPECTIVE OF SHALE GAS PROSPECTION IN POLAND Stanislaw Rychlicki, AGH UST Krakow Jerzy Stopa, AGH, UST Krakow, PGNiG Brussels, 26 April 2013

2 PRESENTATION OUTLINE Shale Gas Deposits short information World Shale Gas Resources Estimates European Shale Gas Resources Estimates Polish Shale Gas Resources Estimates Shale Gas Activity in Poland What is the risk associated with exploration of unconventional gas resources in Poland? PGNiG (POGC) shale gas exploration activity Lubocino-1 well results Summary and Conclusions

3 Conventional vs. Unconventional Resource Play Or continuous Source: U.S. Geological Survey

4 Source: CoreLab. Conventional Sandstone

5 Source: CoreLab. Shale

6 North American Shale Plays

7 Deregulation, Tax Incentives and Government R&D Facilitated Unconventional Gas Billion cubic feet per year DOE CBM R&D DOE Shale Gas R&D Section 29 Credit Shale Gas Coalbed Methane 0 Natural Gas Policy Act, 1978 Natural Gas Wellhead Decontrol Act, 1989

8 Shale gas offsets declines in other U.S. production sources U.S. dry gas production trillion cubic feet per year History 2010 Projections 23% Shale gas 49% 21% 9% Non-associated onshore Non-associated offshore 9% 7% Tight gas 26% 21% 2% 9% Coalbed methane 7% 10% Associated with oil Alaska 1% 7% Source: EIA, Annual Energy Outlook 2012 Early Release

9 Global Shale Gas Basins & Possible Resources 9

10 EUROPEAN SHALE GAS RESOURCES ESTIMATIONS GEOLOGICAL DISTRIBUTION OF SHALE PLAYS IN EUROPE Shale Gas Country Resources Natural Gas Reserves Bcm Tcf Bcm Tcf Poland 5295, ,256 5,8 France 5097, ,664 0,2 Norway 2350, ,04 72 Ukraine 1189, ,48 39 Sweden 1161, Denmark 651, ,472 2,1 U.K. 566, ,88 9 Netherlands 481, ,68 49 Turkey 424,8 15 5,664 0,2 Germany 226, ,584 6,2 Lithuania 113, Ro+Hu+Bg 538, ,7472 2,71 Source US Energy Information Administration, April 2011 Bcm=10 9 m 3, Tcf=10 12 ft 3 According to present estimates, the Europe s total shale gas in place could be Bcm (6.115 tcf). If these can be proven and exploited, it could dramatically change Europe's energy equation, reducing the continent's dependence on gas imports.

11 POLISH SHALE GAS RESOURCES ESTIMATES Technically Recoverable Risked Gas In-Place Shale Gas Basins Resource Bcm Tcf Bcm Tcf Baltic Basin Lublin Basin Podlasie depression Source US Energy Information Administration, April 2011 Bcm=10 9 m 3, Tcf=10 12 ft 3

12 SHALE GAS ACTIVITY IN POLAND Up to date companies (including 3 Polish companies: PGNiG SA (POGC), Orlen Upstream and Lotos) have been awarded 108 licenses for exploration of unconventional resources. company number of concessions Chevron 4 Composite Energy 1 Cuadrilla 2 DPV Service 5 Eco Energy 4 Eni Polska 3 Exxon 6 Gora Energy Resources 1 Indiana Investments 3 Lane Energy 13 Mac Oil 1 Marathon Oil Poland 11 Orlen Upstream Sp.z o.o. 7 Petrobaltic 7 POGC 15 Realm Energy 3 Saponis Investments 3 Silurian Sp.z o.o. 9 Strzelecki Energia 6 Talisman 3 Vabush Energy 1 TOTAL 108

13 SHALE GAS ACTIVITY IN POLAND Up to the end of 2012 several exploration wells were drilled by foreign companies in Poland. The results suggest the presence of gas in Silurian and Ordovician formations. To were made 42 exploration wells including 5 horizontal wells. 4 more wells are currently drilled/wysin-1(pogc), Zwierzyniec-1(Chevron),SOK-Grębków-01 (Marathon),Stręczyn-OU1(Orlen) The plan is to drill 309 holes up to are confirmed and 181 certainly an option, depending on the results of drilling. Lane Energy Poland wants to drill 56 wells, PGNiG / POGC / 96 wells including 73 at license Wejherowo / 13 in 2013 /. Maraton Oil Poland and the Italian ENI plan about 20 wells. PKN ORLEN has announced that wants to drill about 50 wells in the years 2013 to 2017, but this has not been yet confirmed in the declarations made in the Ministry of Environment Protection.

14 WHAT IS THE RISK ASSOCIATED WITH EXPLORATION OF UNCONVENTIONAL GAS RESOURCES IN POLAND? The risks associated with exploration of unconventional gas deposits in Poland include: unrecognized geology most of the archive wells come from 1970s and 1980s, what results in the absence of the most required data for shale perspectivity analysis (geochemical data indicating organic matter content and maturity, kerogen type etc.). Old geophysical measurements don t give the possibility of reliable reservoir parameters estimation, urbanization of the area population density in Poland is quite high (122 persons/km 2 ). What is more, the perspective zones for shale gas exploration are located within areas used for rural activities, restrictive regulations on environmental protection the license owner has to take into consideration local Polish and European Union law, large number of environmentally protected areas and objects many of license areas are covered by National Parkas, Nature Preservation Areas as well as Natura 2000 zones. Exploration works are highly limited within these. Exploration should be run according to Spatial Development Plan created by local authorities, negative opinions from local authorities, especially from attractive touristic areas, access to proper water reserves drilling and fracturing one horizontal well requires m 3 of water, very high capital cost (cost and number of wells, large production facilities), cost of proper technologies, uncertainty of gas prices.

15 Hydraulic Fracture Stimulation - The Key to Today s Natural Gas Revolution Conventional Reservoir Tight Sands Single-stage HF Tight Sands Multi-stage HF Shale horiz well + Multi-stage HF 1850 s to present 1950 s to 1990 s 1990 s to present 2000 to present Multi-stage hydraulic fracture stimulation (HF) unlocks gas in unconventional reservoirs

16 Hydraulic Fracturing

17 Composition of Hydraulic Fracturing Fluid Source: ARI, 2009 after Arthur, J. D., et al, 2008

18 Well Bore Integrity Key to Environmental Protection Multiple layers of Protection Conductor casing is set and cemented Surface Casing is cemented below deepest aquifer Surface casing is cemented to surface Production casing inside surface casing to formation Production casing cemented back to surface Steel production tubing Internal plastic coating on tubing to prevent corrosion

19 20 pumpers, 2 blenders, 3 control, 25 tanks, pond

20 LUBOCINO-1 WELL RESULTS Lubocino 1 The first vertical exploration well, Lubocino 1, was drilled at the beginning of The well ended up in Cambrian deposits and drilled m of Silurian and 63 m of Ordovician strata. 800 m of core was recovered, which was further analyzed to examine geochemical, petrophysical and geomechanical parameters of the rocks. Wide spectrum of wireline logging measurements was also applied. The results of combination of both, laboratory and geophysical analysis, turned out to be very promising and confirmed the presence of unconventional gas within the Ordovician and Silurian strata. The 13 m vertical section in the Ordovician interval was hydraulically fractured and the gas flow was recorded. In 2012 the hydraulic fracturing will be performed in Silurian intervals to test their prospectivity for shale gas. Currently the 3D seismic survey is being acquired in the area of Lubocino-1 well in order to recognize in detail the pattern of faults and fractures in the region and allow to optimize the horizontal well trajectories in the future. The horizontal Lubocino-2H well was drilled in 2012 from the same drilling pad as vertical Lubocino-1 well. In January 2013 multi stage hydraulic fracture stimulation was made and the gas flow was recorded.

21 Comparison of deposits of Shale Gas in the U.S. with areas of perspective in the Netherlands, Germany and Poland Barnett Fayetteville Haynesville Marcellus Woodford Oost-Ijssel (Netherlands) Saxon-1 (Germany) Wejherowo (Poland) Age Carbon (Mississip) Carbon (Mississip) Upper Jurassic (150 MA) Devon Upper and lower Devonian Mississip Carbon (Namur) Carbon (Namur) Sylurian Ordovician Thickness (m) (Geverik) (Geverik) TOC (%) Total Porosity (%) Geological resources (BCF/section) Geological resources (mld m3/km2) ? 1,1-1,7 0,3 0,7 1,6 2,7 0,2 1,1 0,4 1,3 0,15 0,4 0,2 0,5?

22 Social Acceptance in Poland in favour against no opinion To produce or not to produce? Polish people s opinions of shale gas Question: Generally speaking, are you in favour of shale gas exploration in Poland? Answer : 73% in favour Question: If shale gas was to be extracted near the place where you live, would you be for or against such a decision? Answer : 56% in favour Source: Public Opinion Research Centre CBOS. August 201 in favour against no opinion

23 How will shale gas benefit Europe? Climate change Decarbonised power systems Energy security and affordability Replacing volatile imports with sustainable domestic supply Driving down gas price (currently more than double that of the U.S.) Jobs and growth Building a thriving onshore European exploration and production industry Poland is leading the shale gas exploration in Europe 23

24 SUMMARY AND CONCLUSIONS Poland has the Europe largest probable reserves of shale gas. The development of the unconventional gas in Europe is still in the preliminary stage. Authors research and experience show that exploration of unconventional natural gas deposits will not be easy but one should remember that such gas deposits create opportunities for both Europe and for companies starting the exploration. The existing evaluations of the shale gas potential in Poland are promising. Further evaluation is ongoing and each month brings new data. The understanding of Palaeozoic formations increases with each drilled well. It is very possible that Poland could have gas on a large enough scale not only to cover its demand, but probably to export gas or to displace coal-power generation as well.

25 SUMMARY AND CONCLUSIONS Hydrocarbon bearing shales exist in Poland It will take a change of operating attitude and procedures to: Simplify the process Accelerate the work Optimize the costs Improve results

26 THANK YOU FOR YOUR ATTENTION