Exploration and Production of Natural Gas From Shale Formations in Poland - Status of the ProjectPolish Exploration and Production Industry Organization

Brussels, 22nd of January 2013

Photo: Marathon Oil

OPPPW at a Glance

• Established in June 2010

• Brings together and represents companies exploring and/or producing hydrocarbons in Poland

• Promotes understanding of legal, economic, political, social and environmental factors affecting the exploration and production industry in Poland

6 Observers

15 Members

OPPPW supports its members and observers at the local, national and European levels by:

• maintaining dialogue with representatives of Polish Government and both national and European Parliament in terms of exploration and production industry related issues

• developing the best industry practices (e.g. in terms of local communities relations or natural environment protection)

• public appearances (conferences, seminars, meetings with authorities)

• media relations and public statements in terms of oil and gas exploration and production

Scope of Activities

Poland: Over 150 Years of Tradition in Natural Gas Exploration and Production

• Poland 150 years ago: Oil Superpower with 2 million tons of oil produced in 1906

• 1956-1989: hundreds of hydraulic fracturing operations in conventional gas wellbores

• 84 oil and 271 natural gas fields (incl. 68 undeveloped)

• 140,6 billion m3: recoverable deposits of natural gas

• Annual domestic consumption (estimated): 14 billion m3

• Annual domestic production: 5,1 billion m3

• Rising role of unconventional oil & gas

• Liberalisation of natural gas market

• In 2020 the demand for natural gas in domestic market may reach the volume of about 25 billion m3

Yesterday Today Tomorrow

Shale Gas Development in Poland: Current Situation

• 112 exploration concessions for unconventional resources granted so far

• 39 testing wells already drilled, 3 wells in progress

• 10 hydraulic fracturing operations completed (in 2 horizontal and 8 vertical wellbores)

• c.a. 270 testing wells to be drilled before 2020

Source: Ministry of Environment

Unconventional Resources Still To Be Evaluated

• Extensive but still not verified production potential – credible assessment of Polish shale gas resources and its productivity will be possible after drilling and completion of several dozen exploration wells

• Favorable economic environment (though the proposed changes in legislation increase investment risk)

• Unfavorable legal framework resulting in extensive and complicated procedures

Photos: Marathon Oil, ORLEN Upstream

Potential Barriers to Intensity and Pace of Work

LEGAL FRAMEWORK

• Lack of specific hydrocarbon law

• Uncertainty and fears of instability in terms of current and future regulations and tax solutions

• Proposed law changes seem not to commensurate with specifics of Polish geology and business operations reality

• Extensive freedom of interpretation of some of the regulations in the new geology and mining law

• Lack of basic analysis and detailed data in terms of implementation of announced directions for hydrocarbons law

• Rigid environmental and concessive obligations system

• Incompatibility of upstream related regulations to the specifics of upstream business

BUREAUCRACY

• Bureaucratic barriers to the greatest extent slow down the process

• Extensive number and unnecessary time burdens for administrative procedures (incl. environmental ones)

• Central and local civil services are not prepared enough to deal with and supervise the enterprise

• Lack of professionals who understand the specifics of upstream sector

• Dispersion of competence

Delay in accurate estimation of the Polish upstream oil and gas deposits

Canada : Lessons Learned for Poland

• Limit the bureaucratic barriers

• Streamline the administrative operations

• Clear regulatory structure and interfaces

• Set up clear and appropriate requirements

• Ability to adapt to changing circumstances

• Acknowledge and mitigate risks

Investor friendly regulatory approach

Photo: ORLEN Upstream

• Outcome-based perspective

• Encourage innovations

• Thorough analysis of new regulatory framework is a must – identifying and addressing issues before approval

• Taking care of incentives pattern for exploration sector

Canada : Lessons Learned for Poland (cont.)

Tax regime must attract investments

Photo: Marathon Oil

Canada : Lessons Learned for Poland (cont.)

High importance of public education and mutual understanding

• Exemplary model of public relations whereby scientists and other third parties are enlisted to explain the process to a potentially wary public

• Strong relations between government and industry (different objectives but good understanding)

• Effective industry-community consultation

• Strive for mandatory frack fluid disclosure

POLISH EXPLORATION AND PRODUCTION INDUSTRY

ORGANIZATION

Thank you!

www.opppw.pl marcin.zieba@opppw.pl