ConocoPhillips Joins Quest For Eastern European Shale Gas

By Isabel Ordonez, Of DOW JONES NEWSWIRES

HOUSTON -(Dow Jones)- 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

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