The Polish government is making another attempt to tap into the country’s shale gas reserves as five state controlled companies are teaming up to start exploration. Interest in Poland’s shale deposits dwindled after Exxon announced that its test wells in the country did not achieve enough flow rates to make shale exploration commercially viable. The Polish government is however keen to exploit its reserves to cut dependence on Russian natural gas imports and is pushing state owned companies to step up investments.  Shale exploration in Europe could result in a big upside for Halliburton (NYSE:HAL), which is a leading provider of oilfield services for shale wells in North America.
We are revising our $43 price estimate for Halliburton, which is at a 40% premium to its current market price.
Despite high initial in shale exploration in Poland, local challenges have proved to be a major hurdle for the successful take off of the industry in the country. In addition to opposition from environmentalists, differences in geology, limited scale of operations and underdeveloped commodity markets have limited the replication of the shale exploration success achieved in North America. Although natural gas prices in Europe are much higher than those in the U.S., energy companies have failed to extract gas volumes that can make wells commercially feasible. Halliburton’s hopes of exporting its shale expertise to international markets have been impacted because of the situation.
The Polish government’s latest attempt to spur shale exploration could improve the outlook. Five state controlled players including power and natural gas utilities as well as mining companies will join to invest in and provide mining expertise to begin exploration in one area in Northern Poland. Combined, the companies are looking to invest up to $515 million by 2016 in the venture.  The companies plan to drill 30 horizontal wells and 3 vertical wells in the region. Successful production from the project could encourage other investors to join the fray. Shale exploration resulted in a rapid increase in the rig count in North America, helping Halliburton ramp up its business in the region. Replication of the success in other geographies could result in a major upside for the company.
- Report Says Exxon May Ditch Shale Plans in Poland (trefis.com)
- Occidental Bails On Bakken Shale Play Sending Mixed Signals To Oilfield Services Sector (trefis.com)