Exxon's long-term view on European gas shale
Despite being 'highly speculative,' the oil giant hopes to benefit from Europe's shale gas prospects in the future.
In its last conference call, Exxon revealed that two of its wells in Poland had failed to find commercially extractable quantities of gas. According to the energy behemoth, Germany would probably be the first country to see shale gas production. Competitor Chevron (CVX) is also among the energy companies looking to explore shale gas prospects in Europe.
We have a $93.22 price estimate for Exxon Mobil, which is at a 10% premium to the current market price.
Kevin Biddle, Exxon's exploration director for Europe, recently commented that it will take at least five years to start shale gas production in the European countries. Interestingly, Biddle said that Germany may be the first country to see shale exploration in full swing. Meanwhile, Poland has taken the lead in inviting the U.S. companies to drill into its shale formations with attractive contract terms. Poland is looking to develop alternative sources of natural gas mainly to weaken the position of Russian giant Gazprom.
However, unconventional exploration efforts in the region have been hampered by several technical and logistical problems. Industry players have also said that Poland will have to develop its fiscal structure to support shale drilling. A shale gas boom in Europe could see Exxon's sales volumes of natural gas rise as it captures a market that is dominated by Russian gas supply.
Biddle also termed some of the optimistic projections of shale resources in the region as highly speculative. Smaller companies such as Cuadrilla have in the past issued resource estimates with little or no evidence from actual drilling results.
Shale exploration is also facing regulatory risks. The German parliament has been holding hearings to determine whether the procedure of hydraulic fracturing can have adverse effects on the environment.
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