July 09th, 201212:05amPosted In: Shale Gas , Natural Gas, News By Country,Poland, Featured Articles, Hungary

Remember Hungary? Déjà vu All Over Again...

Gabor Bada, Exploration Manager of TMX Oil and Gas Exploration Kft., a wholly owned subsidiary ofFalcon Oil and Gas, knows what it feels like,

It was just over two years ago when ExxonMobil, after having invested millions of dollars in exploring Hungary’s unconventional gas potentials, but having only drilled four wells, decided to leave Hungary, leaving Falcon and others to their own devices.

Dr. Bada offered his reaction to the recent decision by ExxonMobil to shutdown its unconventional gas exploration efforts in Poland.

“My first reaction was a knowing smile on my face, because I thought ‘okay, we’ve been here before,’ because as you probably remember, Exxon, after just a handful of results decided to leave Hungary back in early 2010, more than two years ago, coinciding with Exxon deciding on going to Poland and redirecting their focus to Polish unconventionals.” he recalled.

“Companies the size of Exxon – and I’m not picking on them, but we do have direct experience with them – they have the money to undertake projects like this, but for whatever reason they don’t have the patience to do this. This is the problem, because by definition unconventional needs a lot of investment, which Exxon did with Falcon, and Hungary’s MOL and Hungarian Horizon Energy (HHE), in more or less the same geographic location, but they didn’t give themselves enough time to look into the details, try out different recipes, and when they got their first disappointing results, they just left the country.”

He said he felt that the same sort of thing may have taken place in Poland.

“After some disappointing results, they may be doing the same thing there as well. It’s sad,” he said.

According to Dr. Bada, there was a major difference, however, in what this meant for Poland in contrast to the situation that played out in Hungary.

He explained: “In Hungary, Exxon was basically the only supermajor coming here for the exploration of unconventionals and when they left, there was a vacuum, which we all – MOL, HHE and ourselves - had to suffer through. When a company like Exxon leaves the country, there are a lot of question marks: ‘What comes next?’”

For Poland, he said, the situation was not as dire.

“Exxon is a supermajor globally, but even if they leave there are a number of big and medium-sized companies still chasing unconventional opportunities in Poland – so it doesn’t really change the market there. Of course, it gives out a bad signal, but companies like ConocoPhillips, Marathon, BNK Petroleum, San Leon, 3Legs Resources and others are going to stick around and are quite optimistic about the future of unconventionals in Poland,” he said. “So it doesn’t change the landscape – a much better situation than what happened in Hungary.”

He said that for Poland he thought that things would smooth out in the press over time.

“This is part of the natural dynamics of the market – companies are coming and going. The industry does have a tendency to look at what the supermajors are doing, but others are very committed, have ambitious drilling plans. With unconventionals, you have to do your G&G studies and exploration efforts such as seismic analysis, drill a couple of wells, try different recipes – and these things require time and patience.

Bada added, “I’m very positive it will pay off in the case of Poland; it should have paid off in the case of Hungary, about which I’m still very optimistic.”

Falcon’s announcement this week backs up that sentiment: the Canadian E&P has just closed its offices in Denver, Colorado, relocating its technical center to Budapest, Hungary, according to Dr. Bada, who reports, “We will be overseeing Falcon’s explorations globally.”

He added that company’s corporate headquarters would be located in Dublin, Ireland. “Our new CEO, Philip O'Quigley and other top management will be located in Dublin. The technical side will be mostly done from the Budapest office.”

“Falcon is very committed to pursuing our Hungary asset and I think strengthening the position of the Budapest office is a clear signal of that. What we need to do in the short and mid term is to unlock the potential of our Hungarian asset and that will blaze a trail to other exciting projects.”

Falcon holds a production license in the south of Hungary, in a geological unit called the Makó trough, named after a local town in the vicinity.

“Our license covers unconventional production and over the last few years we’ve drilled seven exploration wells, we’ve done seismic and other technical operations and are ready for the next phase of production. In that context, we are targeting several geologic formations in this basin, from bottom to top.”

He explained, “It’s a shale play at the bottom of the basin, basically shale gas in the Endrőd Formation, and this is overlaid by tight gas, called the Szolnok and Algyő formations, which are also in our focus.”

Dr. Bada reported that Falcon was still in negotiations with the Serbian oil company NIS to drill the top part of the unconventional cell.

“Another focus in the Makó trough is to evaluate the results to date of the Mako-7 well, which is the deepest well in Hungary with TD at 6,085 meters. We are developing a strategy to test the deep shale play for forward planning in what we believe is a very prospective part of the basin.”

He said that Falcon would return to the site where it had cooperated with Exxon in Hungary, but with a different plan.

“We have a well, Földeák-1, on our production license that we drilled jointly with Exxon back in 2009, targeting the tight sand formation overlaying the shale sequences, which are the source of the gas. Exxon was only interested in testing the Szolnok formation – the tight gas – and our focus has changed, down to the Endrőd Formation – the origin of the hydrocarbons.

“So instead of having a meal at the dining table, we go directly down to the kitchen, to make it simple to visualize the purpose of this well, Makó-7,” he quipped. “It’s already been drilled, in perfect condition for full-scale testing, including some stimulation.”

“Just keep up the spirit, don’t look too much at what the giants are doing,” is his advice for shale gas explorers in Poland faced with the ups and downs of the news cycle.

“Don’t become distracted; do your job properly, patiently. Of course it might cost more than you anticipated, take longer, but eventually those who are visionary enough will get there. I’m quite positive about that, particularly in the political landscape that Poland is offering to unconventional explorers, which is very pro shale gas.

“There will be highs and lows, like this announcement from Exxon, but it will come back again, so I’m not worried about this too much, quite frankly,” concluded Bada.