Shale gas exploration is risky, according to San Leon Energy’s Director of Exploration John Buggenhagen, who spoke about assessing the prospects for shale development in Poland at Shale Gas World Europe 2011.

“If you came for answers,” he quipped, “you’re going to leave disappointed, because you’re going to leave with more questions. We are in a very early phase of the exploration here in Poland.”

Mr. Buggenhagen said he was a bit irritated with press reports that had written off Poland’s shale gas prospects. “They create fear and panic in the marketplace and that takes away everything we are trying to do in the industry.”

As an example, he showed a quote from the Economist which wrote that the geology was “less favorable” in Poland than in North America.

“Right now we’re in a flux of regulatory, economic, political and investment issues surrounding shale gas. If you read what’s going on in the investment world, because we’re a public company I have to take all this into a balance. And I can’t say it more clearly: Exploration is risky. We just started doing this.”

He continued: “I think everyone needs to ask themselves, how we’re going to get from here to commercial gas production that’s going to change the energy environment in Europe, and here in Poland locally.”

Mr. Buggenhagen explained that San Leon was a small, listed company that had built a tremendous asset base through acquisitions of companies, taking advantage of the tough market conditions. “Through takeovers of two Canadian companies and an Irish one, we’ve amassed one of the largest shale gas portfolios in Europe, and that’s significant because it’s how we’ve gone about doing this that is the first step in where shale gas is going in Poland.”

He said San Leon’s core portfolio started in Poland, that he himself had been looking into opportunities for five years and the key to that was being on the ground.

“Recent acquisitions of Realm Energy have increased our portfolio. We also have almost 2.5 million acres under application in Spain for unconventional gas; we also have significant applications in France; and we are looking at other countries as well including Morocco, where we have a tremendous shale gas position, again limited by some of the political issues.”

When one looked at the resource estimates, according to him, one saw tremendous numbers. “Just net to my company in Poland, we have the potential for more than 40 TCF of recoverable gas – those numbers are scalable throughout our portfolio. This is not just a well or a small field. This is a game changer, for everyone that’s involved here in Poland.”

He showed delegates San Leon’s vast, significant and well diversified positions in Poland, the company’s 14 concessions, spread throughout Poland.

“Where’s the sweet spot, the production center that’s going to fuel the growth that’s going to start this industry up? So we spread our blocks around the basin based on various geologic parameters.”

He reported that in southwest Poland San Leon had 1 million acres of contiguous position in the Permian basin. “We are leading the exploration effort there – actually drilling the first well targeting unconventional gas in the carboniferous section in Poland and hope to be reporting results in the coming months.”

“A quote I like that I heard very recently is ‘Every well that’s drilled in Poland is redefining the stratigraphy, the geology of the Baltic basin and the potential of Poland in general. Modern core, modern logs, modern drilling techniques – this is all new to Poland in terms of exploring for shale.”

Buggenhagen contended the results that San Leon and others were seeing in Poland were very different results from the model. “That’s neither good nor bad, we’re just having to re think the model that started this shale gas boom here in Poland.”

He mentioned that San Leon had become the largest net acreage holder for unconventional gas in Poland, in the Podlasie, Baltic and Carboniferous basins.

“We’re a small company, we use every penny that we have wisely. And we’re very aggressive – that’s a very delicate balance to maintain,” he said.

He noted that fewer than 15 wells had been drilled in Poland and said: “We know there’s shales in these rocks, but can we get the gas out of the ground?”

“After two wells, people have written off the basin,” he explained. The people in this room have invested so much as to not even consider that possibility.”

Providing the US’s Barnett shale and its progression over time as an example, Buggenhagen said, “I think we’re back in 1997, maybe even before that, in Poland, we’ve just started. Here we don’t have the benefit of the conventional production that preceded the unconventional in the Barnett.”

“It took George Mitchell 20 years,” he recalled. “The Bakken was a drilling hazard, people thought it was a crazy idea and now it’s producing.”

Despite an earlier protest before the start of the conference, he noted that Poland was very pro shale gas. “They understand that indigenous energy is better than imports; I can’t think of a dirtier energy resource than coal,” he commented.

He described what he said was “information chaos” surrounding– everyone’s looking at where the investment for the future was going to come from. “It’s important for us to be very open with the public, with the regulators and influence things to make for a positive industry.”

Referring to the demonstration, he said “What happened today is a tool for sorting out the balance, and keeping the industry honest.”

“It’s not going to happen overnight, it’s going to take time,” said Mr. Buggenhagen, who summed up of Poland’s nascent unconventional gas industry. “Look at the history of Poland – 23 years later the country has come very far in a short time, but we have a long way to go as an industry, as operators, contractors and regulators. As an industry it’s incumbent upon all of us in this room to get together to figure out how we can solve these issues.

“It will change the economy and energy balance of Europe and here locally it will change Poland and how it fits into the European Union going forward.”

Source: Natural Gas for Europe

According to the former CEO of Realm Energy there’s only one phrase appropriate to the newer, bigger San Leon Energy following its pending acquisition of Realm Energy: “shale powerhouse.”

In the wake of the deal, which was announced on 26th August and formally closed November 10th, James Elston, former CEO of Realm commented: “San Leon effectively becomes a shale powerhouse in Europe. The combined San Leon-Realm is so big in so many different plays that in my mind it’s almost got a ‘can’t fail’ sticker on it”

Mr. Elston, now Director of Palladian Energy Advisory, said that the broader shouldered San Leon had the likelihood of some good assets in the Paris Basin, a lot of good assets in Spain and interesting things in Morocco – that they already had – as well.

“If you combine that with San Leon’s acreage in Poland, and the fact that they’re in two plays in Poland: on one they have their JV with Talisman Energy Inc., which was the best farm out deal anyone had achieved at the time, and I think it still ranks pretty highly – San Leon got a good deal in getting Talisman in, and Talisman are brilliant shale players, so they’ve got a brilliant partner in Talisman.

“With Realm they’ve got a lot of un-farmed out acreage close by,” he continued. “So if you like Talisman are effectively going to de risk quite a lot of the combined San Leon-Realm acreage position, while San Leon keeps 100% of that – they keep the upside there and don’t need to spend that much money at the moment.

“It builds real scale in Poland,” said Elston.

On top of that, he added, San Leon had a million acres in Poland’s Carboniferous shale play.

“What’s interesting about the carboniferous is that there are lots of successful carboniferous shale plays – the Barnett, the Fayetteville and the Woodford are all Carboniferous, so the great thing about it is you know that the tiny fossil animals have formed the right kind of pore structures in the shale. You know that that’s going to work.”

In slight contrast, he said that what one might not know with the Silurian or Cambrian shale plays – like that which had been drilled in eastern Poland – is whether or not the tiny fossils in the rock provided the right kind of pore structure for shale. “That’s one of the things that we’re waiting to see with all the testing taking place,” stated Mr. Elston.

He summed up: “In Poland, San Leon now has two massive opportunities in different shale plays and it’s really augmented that with Realm.

“But in terms of what Realm brings to San Leon, there’s this JV with applications in the Paris Basin, which is the play closest to my heart. San Leon will acquire ConocoPhillips as a partner there for when they get license awards in Paris for the future time when I believe that fracking will be allowed again.”

In August, he believed that in other places Realm had made massive moves. In fact, on 21 September Realm was awarded two out of the 10 permits it applied for in Spain, with a likelihood of a further six 100% awards for concessions comprising over 1.7 million acres.

“Despite the market collapse after the deal was announced, effectively Realm shareholders who took San Leon stock or exchangeable shares will hopefully get the chance to see the rise in value over the coming months with the security at a greater scale that there is in working with the San Leon team for whom there’s a tremendous set of opportunities to exploit. They’ve got the capital, staff and systems – it’s a operationally much bigger company than Realm; they’ve got 15 people just working in Warsaw on the Polish plays.”

“For former Realm shareholders who took San Leon stock or exchangeable shares you’ve got the chance, to actually follow that through and see the upside,” he explained. “This wasn’t a cash deal that capped the upside for the Realm shareholders, it’s the opportunity to really see the growth through San Leon shares into the future, so it’s a ‘win-win’ situation.”

Regarding James Elston’s relationship with Realm, he recalled he was lucky enough to meet a gentleman called Craig Steinke (Realm Energy International’s Executive Chairman) at a conference in London in late 2008.

“We started talking, which ended up in the formation of Realm Energy, which I think was really timely because we were able very rapidly to get up the learning curve on shale in Europe, with Halliburton’s help, and quickly build a business at a time when things were getting immensely competitive. The Majors had woken up and you were up against them in a lot of jurisdictions, you had to move very rapidly.”

“In North America, with his previous vehicles he’s been an early mover in basins where coal bed methane (CBM) and to a degree shale gas have been developed” he explained of Mr. Steinke. “So he’s made his first fortunes from those plays, which was the attraction to me to get it together with him. We basically got together with another angel investor, started the company and then reversed it onto the Toronto Stock Exchange.”

Elston recalled, “I was CEO for the first year, but with the movement towards rapidly getting more operational on the ground, particularly in France (Pre the frack ban surfacing), and just bigger in general, there was a need for someone operationally more experienced in the senior management team than me. So it was the right time to move on.”

He explained Karl DeMong, Realm’s new VP of Operations, who is well versed in operating very complex shale drilling and fracking operations in Canada, was from large E&P Apache Corporation. Recently Realm strengthened their team further adding Lindell Bridges, the eminent shale geoscientist, as VP Exploration. Mr. Bridges has helped large US E&Ps EQT, EOG Resources, Inc.and Chesapeake Energy Corporation crack the shale codes in the Marcellus, Barnett and Fayetteville respectively in leading their geoscience teams in those plays.  Elston added “Lindell is probably the most renowned shale geoscientist working in Europe at the moment.”

Meanwhile, Mr. Elston said he had a mixed initial reaction to San Leon’s pending purchase of Realm Energy.

“The team at Realm was strengthened tremendously in second quarter, and I think they really had the ability to take things forward themselves. I thought Craig and the team could’ve done a lot more on their own. The two main shareholders in Realm, (one of which is Quantum, a George Soros vehicle) are also shareholders in San Leon, so I think it was shareholder driven consolidation really,” Elston explained of the merger.

“I would’ve liked to have seen Realm go on for a bit longer on its own. C’est la vie.”

Without the merger, he contended that Realm was not going to have any “drilling newsflow” for some time, but that San Leon had plans to drill a lot of wells in Poland.

As Director of Palladian Energy Advisory, James Elston now spends his time helping small energy companies raise money by working with small investment banks and private equity firms. Elston is working on several startups, as well as giving sermons as a “rational evangelist” on shale gas.

Source: Natural Gas in Europe

LONDON, Nov. 11, 2011 /CNW/ – San Leon Energy plc (“San Leon“) (AIM:SLE) is pleased to announce that the previously announced acquisition of all of the issued and outstanding common shares of Realm Energy International Corporation (“Realm Energy“) (TSX-V:RLM) by San Leon pursuant to a plan of arrangement (the “Arrangement“) has been completed.

Under the terms of the Arrangement, shareholders of Realm Energy received for each Realm Energy share held, at their election and subject to pro-ration:

subject to a maximum of C$17.7 million in cash (subject to adjustment) being paid to Realm Energy shareholders in the aggregate, in exchange for the aggregate number of Realm Energy shares in respect of which such an election is made. As a result of certain Realm Energy shareholders exercising rights of dissent under Canadian law, the cash available was adjusted to a maximum of approximately C$14.0 million.

Realm Energy shareholders elected to receive cash greater than the maximum amount of cash available to Realm Energy shareholders pursuant to the Arrangement.  Accordingly, as a result of pro-rationing and the exercise of rights of dissent by certain Realm Energy shareholders, Realm Energy shareholders who elected cash will receive approximately 12.68% of the amount of cash they elected to receive.  In addition to the cash consideration paid to Realm Energy shareholders, San Leon issued 284,084,336 San Leon Shares and Exchangeco issued 41,292,848 Exchangeable Shares to Realm Energy shareholders under the Arrangement.  Realm Energy’s shares were delisted from the TSX Venture Exchange effective at the close of business on November 10, 2011.

Due to an incompatibility between the current Irish legal requirements in relation to San Leon Shares and certain Canadian securities laws, neither the San Leon Shares nor the Exchangeable Shares could be made eligible for CDS deposit at this time.  San Leon is currently working with its advisors to determine the most efficient option to rectify the issue and have the securities made eligible for CDS deposit.  As a result, each Realm Energy shareholder that submits a properly completed Letter of Transmittal will be receiving a physical certificate for its San Leon Shares or Exchangeable Shares, as applicable.  Those Realm Energy shareholders that held their interest in a CDS position and are non-objecting beneficial holders will also be receiving physical certificates representing their interest in San Leon Shares or Exchangeable Shares, as applicable.  Realm Energy shareholders that are objecting beneficial holders may not directly receive physical share certificates as it is anticipated that “global certificates” will be issued to each CDS participant representing the aggregated position held by such CDS participant.  It is anticipated that each of the CDS participants will then breakdown its aggregated position internally and may requisition physical certificates for each objecting beneficial holder.  It is anticipated that for those registered Realm Energy shareholders who have already submitted a properly completed Letter of Transmittal, the physical certificates for San Leon Shares will be mailed out by the Dublin office of Computershare Investor Services Inc. (“Computershare Ireland“), in its capacity as registrar and transfer agent for San Leon, by Wednesday, November 16, 2011.  Likewise, for those registered Realm Energy shareholders who have already submitted a properly completed Letter of Transmittal, it is anticipated the physical certificates for the Exchangeable Shares will be mailed out by the Vancouver office of Computershare Investor Services Inc., in its capacity as registrar and transfer agent for Exchangeco, within the same time period.  For those registered Realm Energy shareholders who have not yet submitted a properly completed Letter of Transmittal, but who plan to do so in the future and those non-objecting beneficial holders holding their interest in the CDS position, the time period for the issuance and mailing of physical certificates representing San Leon Shares and Exchangeable Shares is anticipated to be approximately ten business days after receipt by Computershare Trust Company of Canada of the applicable Letter of Transmittal and CDS participants list.

Neither the San Leon Shares nor the Exchangeable Shares are listed on a stock exchange in Canada.  In connection with the consideration of its options regarding the CDS eligibility of the San Leon Shares, San Leon is exploring the possibility of seeking a listing on a Canadian exchange for the San Leon Shares.  There is no intention to seek a listing in any jurisdiction for the Exchangeable Shares.  Currently, San Leon Shares are admitted to trading on London’s Alternative Investment Market (“AIM“) under the symbol “SLE”.  Realm Energy shareholders who desire to trade San Leon Shares they will receive pursuant to the Arrangement in on-market transactions on AIM will need to contact a broker who can effect trades in the CREST system, which is the securities settlement system used by companies traded on AIM.  To the extent that Realm Energy shareholders wish to transfer their San Leon Shares outside of the CREST system they will need to contact Computershare Ireland to effect such a transfer.  A purchaser involved in a transfer of San Leon Shares outside of the CREST system will be required to provide evidence that Irish stamp duty has been paid on such a transfer, or alternatively, that Irish stamp duty is not applicable to such transfer.  It is anticipated that this requirement may cause significant delays in the registration of the transfer.  More detailed information regarding Irish stamp duty can be found in the information circular of Realm Energy dated October 5, 2011 (the “Circular“) under the heading “Tax Considerations to Realm Shareholders“.

As previously disclosed in the Circular, a Realm Energy shareholder wishing to file a joint tax election under section 85 of the Income Tax Act (Canada) or a QEF Election (as such term is defined in the Circular) pursuant to the United States Internal Revenue Code of 1986 should consult its tax advisor.  Information concerning each of these filings will be included in the joint tax election package and the 2011 PFIC Annual Information Form that will be made available on San Leon’s website at www.sanleonenergy.com

To obtain copies of the agreements governing the exchange of Exchangeable Shares into San Leon Shares, holders of Exchangeable Shares should visit San Leon’s profile on SEDAR at www.sedar.com to obtain copies of the Support Agreement and the Exchange Trust Agreement (as such terms are defined in the Circular).

About San Leon

San Leon is an independent oil and gas exploration and production company listed on AIM (ticker symbol: SLE). San Leon holds exploration assets in Poland, Morocco, Albania, Ireland, Italy, Spain and Germany and is in the process of acquiring additional petroleum and natural gas rights in other European basins. San Leon’s focus is on both shale and conventional exploration across its portfolio.

Forward-Looking Statements: This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws.  The use of any of the words “expect”, “anticipate”, “may”, “will”, “should”, “believe”, and similar expressions are intended to identify forward-looking information or statements.  This press release contains forward-looking statements and information concerning the eligibility for deposit into CDS, the anticipated timing for issuance of physical certificates representing San Leon Shares and Exchangeable Shares and the potential delays involved in trading San Leon Shares outside the CREST system.. San Leon has provided these statements in reliance on certain assumptions that they believe are reasonable at this time, but there can be no assurance that such statements will be correct.. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this press release concerning these statements. Readers are cautioned that the foregoing list of factors is not exhaustive.  The forward-looking statements and information contained in this press release are made as of the date hereof and San Leon undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Canada’s Talisman Energy is considering increasing its presence in the shale gas sector in Poland by acquring additional licenses.

“We’re thinking about expanding in Poland, but not via an acquisition of a company,” said Tomasz Maj, the company’s manager for the country.

“We’re looking at some selected licenses, which we could also swap, although nothing has been decided.”

Talisman recently spudding of its Lewino 1G2 well on the Gdansk-W concession in partnership with San Leon Energy, the first of a three well programme in the Baltic Basin.

Source: Natural Gas for Europe

Research and Markets has announced the addition of GlobalData’s new report “Gas Shales in Europe, 2011 – Market Analysis, Industry Development and Competitive Landscape” to their offering.

Gas Shales in Europe, 2011 – Market Analysis, Industry Development and Competitive Landscape is the latest report from GlobalData, the industry analysis specialists, that provides insight into the European shale gas industry. The report presents shale gas potential in Europe, and provides details of key exploration areas, major companies engaged in the exploration of shale gas in Europe, drivers and challenges in shale gas development in Europe, and key merger and acquisition (M&A) activities in the European shale gas industry. The report discusses the development of shale gas exploration in Poland, detailing concessions awarded, companies involved, drivers and challenges associated with the development of shale gas in the country, and expected economics. The report also details key developments in shale gas resources in other European countries and analyzes potential implications of shale gas development in Europe on the global oil and gas industry.

European Shale Gas Industry is Still at Nascent Stage

Europe’s shale gas industry is still at its nascent stages of development. However, the results of initial exploration activities that are taking place in European countries are likely to increase future investments in the sector. Currently, large investments are focused on acquiring shale gas acreages across different countries in Europe. Both international and domestic companies in the European oil and gas industry plan to expand land acquisitions in prospective areas across Europe. As the region’s shale gas potential has not been proven, the acreage cost in Europe is significantly lower than that in the US.

Poland is inviting investments in its shale plays through the provision of attractive fiscal terms. As the cost per acreage in Poland is very low, many IOCs have already invested to acquire acreage in Poland. These companies include: ExxonMobil, Chevron, ConocoPhillips, Marathon Oil and Talisman Energy. In May 2011, Chevron invested 30m ($44m) for a drilling license in Bulgaria.

Geopolitical Factors are Driving Shale Gas Development in Europe

Geopolitics is one of the key factors driving shale gas development activities in Europe. The region has very high natural gas consumption. Also, the region heavily depends on gas imports (primarily from Russia, Norway and Algeria) to meet its natural gas requirements. Russia supplies about 26% of total European imports of natural gas. Eastern Europe is highly dependent on Russian gas imports due to their close proximity; however, this poses a threat to the energy security of Eastern European countries. Western Europe has oil and gas resources in the North Sea but is increasingly dependent on natural gas imports due to declining North Sea production. The success of shale gas in the US could help European countries that hope to replicate the success through the development of their own unconventional gas sources.

Source: researchandmarkets.com

Realm Energy International has announced it has mailed out the information circular to its shareholders, with respect to the details of the proposed acquisition of Realm Energy, by San Leon Energy Plc.

You can read details of the release by clicking on the link below.

News from Realm Energy International Corporation

A major announcement from Realm Energy this morning.  The details can be found in the press release below:

FOR IMMEDIATE RELEASE

September 21, 2011

White Rock, BC, Canada - Realm Energy International Corporation (“Realm Energy” or the “Company”) (TSX-V:RLM) (www.realmenergy.ca) is pleased to report on its successful land acquisition in Spain for shale gas exploration.

Realm Energy, in collaboration with Halliburton Consulting, has been evaluating shale plays in numerous sedimentary basins in Spain for approximately two years.  Following this detailed evaluation, the Company submitted 10 applications in five discrete sedimentary basins, collectively comprising over 2.2 million acres (8,903 km²).

Realm Energy confirms it has now been formally awarded two permits, totaling 212,099 acres (858 km²) in the Cantabrian Basin of Northern Spain, for a period of six years.

Regarding the eight permit applications still in process, the Hydrocarbons Department of the Spanish Ministry of Industry, Tourism & Commerce has formally advised Realm Energy that it was also the successful applicant on six of the permits, which collectively total 1,512,383 acres (6,120 km²) and are now in process for formal award.  Of the 10 permits applied for (covering 2.2 million acres), the success of only two permits (covering 503,887 acres (2,039 km²) is yet to be determined.

The minimum work programs on the 212,099 acres formally awarded and the 1,512,383 acres undergoing formal award, collectively 1,724,482 acres (6,978 km²), require the Company to acquire approximately 600 km of 2D seismic in the first two years.  In years 3 & 4, the Company is required to acquire 300-900 km of 2D seismic, and drill and test three vertical wells.  In years 5 & 6, the Company’s minimum commitment is to drill and test five additional vertical wells.  These selected permits all have excellent pipeline infrastructure.

The Company believes the shales in all concessions are thermally mature and may be prospective for natural gas production.  Initial analysis of existing well logs indicates that primary targets are likely to be Eocene, Cretaceous and Carboniferous shales at depths ranging from 6,000-11,000 feet. Other preliminary mineralogy indications include:

Thickness:          600-1300 feet net

Kerogen Type:    Type II/III

TOC:                 1 – 8% wt

Porosity:           2 – 6%

Maturity:          Ro  ~  1 – 2

Geomechanics:  Brittle shales

Pressure:             Normally pressured to over pressured

Craig Steinke, Chairman & CEO commented, “As a result of this recent success, Realm Energy is now well positioned in five discrete sedimentary basins making the Company one of the largest landholders for shale gas exploration in Spain. This presents a tremendous growth opportunity for the Company as Spain also has a proven and stable fiscal system that ranks in the top 10% worldwide.  Economic conditions are also attractive, as Spain is currently dependent on imports for its natural gas supply, and gas prices in the country are typically at a premium to prices found elsewhere in Western Europe.”

About Realm Energy

Realm Energy is a Canadian domiciled global energy company focused on driving the exploration and development of major shale plays throughout Europe and emerging countries.  The Company presently has projects in Poland, Spain and Germany and is in the process of acquiring additional petroleum and natural gas rights in other European basins.  Realm Energy is committed to leveraging the most advanced shale technology to bring these resources into production.

On August 26, 2011, Realm Energy announced it had reached an agreement with San Leon Energy plc (“San Leon”) whereby San Leon will acquire all of the issued and outstanding shares of Realm Energy (the “Acquisition”).  The Company has given notice that it intends to hold a special meeting on November 1, 2011 to seek shareholder approval for the Acquisition.  Further information, with respect to the Acquisition, is available in the Company’s press release dated August 26, 2011, which can be viewed at Realm Energy’s website, www.realmenergy.ca, or at www.sedar.com.

San Leon Energy Plc, the natural- gas explorer backed by billionaire George Soros and Blackrock Inc., expects its Polish shale licenses to be more profitable than U.S. deposits, the company’s exploration director said.

San Leon, which became one of the leading shale gas explorers in Poland after announcing last month it has reached a deal to buy Realm Energy International Corp. for $142 million, seeks to profit either through so-called farm-outs with a cash component or asset sales once it develops its fields and proves they can produce gas, John Buggenhagen said in an interview in Warsaw.

Shale gas, unlocked from rocks by blasting them with sand, chemicals and water, has boosted U.S. production and delivered the lowest prices in almost a decade. Companies including Exxon Mobil Corp. and Chevron Corp. seek to emulate the U.S. boom in Poland, Europe’s biggest holder of shale.

“If you’re getting $4 for your gas in the U.S., here you’re getting $8, meaning I can produce half as much gas for the same profit,” Buggenhagen said.

Dublin-based San Leon has 14 licenses and 1.7 million acres of land in the eastern European country to explore for shale gas and conventional hydrocarbons, according to a presentation on its website. Poland has granted 101 licenses, with eight wells completed out of a mandatory 124. Test production has started on two wells.

“If you look at what’s going on in North America, I mean that people are paying $10, $20, $30 an acre, and selling it for $10,000, $20,000, $30,000 an acre, that’s the kind of return that we’re looking for.” Buggenhagen said. “We would like to use our existing capital to start exploring those Realm concessions on our own, as opposed to giving away acreage through farm-outs.”

Last year, the company signed a farm-out agreement with Talisman Energy Inc., under which the Canadian gas explorer will drill one well on each of San Leon’s concessions in the Baltic basin in northern Poland in exchange for 30 percent stakes in the licenses. Talisman has an option to increase its holdings to 60 percent if it drills an additional well on each license.

San Leon was approached by three “significant oil and gas companies” and may consider more farm-outs after upcoming drillings, Buggenhagen said.

“If I come and drill the well that costs me $4 million to $5 million and if I’ve increased the value of that block 10- fold, then the value of my farm-out is that much more” he said.

Poland may sit atop about 5.2 trillion cubic meters of shale gas, according to the U.S. Energy Information Administration. Commercial production can start in three to five years, helped by the relatively high price of Russian gas, Buggenhagen said.

The country buys some 60 percent of its gas under a long- term contract from Russia. In the second quarter the country was paying more than $400 a 1,000 cubic meters of Russian gas, according to Polish Deputy Prime Minister Waldemar Pawlak. That’s about three times today’s gas price for October delivery on the New York Mercantile Exchange.

While Poland’s almost complete reliance on coal as fuel for power generation may help boost shale production given the European Union’s push to lower carbon-dioxide emissions, the country should be cautious in increasing royalties for oil and gas producers, Buggenhagen said.

“What we’re struggling to know is how is the Polish government going to respond to success, in terms of changing royalties and income taxes,” he said. “You see that everywhere in the world — the greed factor — how much greed we will see over the next three to five years.”

Last month, Poland’s largest opposition Law and Justice party presented a draft law calling for output fees to be at least 40 percent of the value of the deposit. While the government argues mining fees should not be set before gas deposits are proven, in June Pawlak said the country saw Norway and its sovereign wealth fund as a model to benefit from shale gas production.

“Royalties are less than 1 percent now, so very low,” Buggenhagen said. “They will go up, for sure, But if you raise it to 40 percent you’re going to discourage the investment.”

Source: Business Week

The acquisition of Realm Energy International Corporation demonstrates San Leon Energy’s commitment to the shale gas potential in Poland, reckons broker FoxDavies.

Through the merger, energy firm San Leon will increase its Poland Baltic acreage by about 60 percent taking the total on a net basis to around 2,400km (593,000 acres), said analyst  Shahin Amini in a note.

FoxDavies says it retains its ‘buy’ recommendation for the stock targeting 50 pence a share (current price: 18.25 pence).

The cash and share deal announced last week values Realm’s more than 107 million shares at about $1.30 each, or just over $139 million. Both boards have approved the transaction, which is expected to close in November.

The deal means San Leon will acquire four exploration licences across Poland and Germany, ten licence applications in Spain and 10 licence applications in France.

The transaction also comprises 2.4 million gross acres under application in France and less than 2.0 million gross acres under application in Spain and around C$24 million of cash currently on Realm’s balance sheet.

Analyst Amini says FoxDavies’ valuation of San Leon’s existing Baltic acreage amounted to around US$550 per acre. With the merger, including all of Realm’s acreage in Poland and Germany, the valuation is US$351 per acre.

Both valuations appear high considering that, according to BNK Petroleum, acreage costs for non-proven areas in North America are in the range of US$25 to US$500 per acre, pointed out Amini.

It appears that the merger with Realm Energy has set a new high benchmark for acreage valuation in Poland. However, we have confidence in the company’s technical and commercial capabilities and are positive on the rationale for this transaction, he added.

He concluded: “The strategic significance of the increased landholding and potential upside, if commercial production can be demonstrated, would justify this deal.”

Source: ProActiveinvestors.co.uk