Report Says Exxon May Ditch Shale Plans in Poland

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Exxon Mobil (NYSE:XOM) is said to be dropping plans to explore shale gas in Poland, according to a report in Polish newspaper Gazeta Wyborcza. Quoting an Exxon spokesperson, the report said that the company has decided against going ahead with it plans to drill wells in the country after weak results from its test wells. [1] The announcement comes after a government report in March cut reserve estimates to a tenth of its previous levels. The pull-out raises fresh questions over the feasibility of shale exploration in Europe, where companies such as Exxon are involved in initial efforts to study the opportunities in the region. High prices of natural gas in Europe have pushed many energy majors to study the feasibility of shale gas production in Europe.

We have a $94 price estimate for Exxon Mobil, which is at a 15% premium to its current market price.

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Dashed hopes

Although shale exploration technologies such as hydraulic fracturing have met opposition from governments and environmental groups across Europe, countries such as Poland welcomed interest in local reserves in order to cut dependence on the Russian imports. Exxon and other oil majors participated in licensing rounds in Poland, Romania and other countries in the region to explore opportunities to replicate the success of shale gas exploration in the U.S. However, initial hopes were threatened by technical and regulatory challenges. Analysts warned that energy companies may face new challenges in exploring European shale formations because of differences in geology and opposition from environmentalists.

Exxon had earlier said that the results from test wells in Europe were not encouraging. Oilfield services providers also warned that drilling wells in the region would be much costlier than in the U.S., where the industry is much more advanced. (See: Schlumberger Says Fracking in Europe Will Cost A Lot More) According to the latest report, Exxon’s wells in Poland failed to produce enough commercial quantities of gas. [1]

Our growth estimates for Exxon’s future gas production take into account the possibility that the company will be able to apply shale exploration technology to regions outside the U.S. in the long term. A broad pull-out from European markets could result in a downward revision in our forecast for Exxon’s future output estimates.

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Notes:
  1. Exxon drops shale exploration plans in Poland: paper, Reuters [] []