OPERATIONS IN 2019

GRI 102-10, 103-3
 

Operations in Poland

The exploration and production activities in Poland are carried out by PGNIG, with the involvement of its subsidiaries Exalo Drilling and Geofizyka Toruń. The Geology and Hydrocarbon Production Branch serves as the competence centre for geological exploration, geological work, investments in well mining facilities, and hydrocarbon production. It oversees the production of crude oil and natural gas, underground storage of waste, and underground non-reservoir storage of gas for production purposes. PGNiG’s structure includes three leading Branches, located in Sanok, Zielona Góra and Odolanów.

Licences in Poland 

Operations under licences held by PGNiG

PGNiG’s licences and wells in 2019

Source: In-house analysis based on data from the Geology and Hydrocarbon Production Branch. 

Throughout 2019, PGNiG continued crude oil and natural gas exploration and appraisal projects in the Carpathian Mountains, Carpathian Foothills, Sudetian Monocline, and Polish Lowlands, both on its own and jointly with partners. Out of the 35 boreholes drilled in 2019, the target depth was reached by 30, including: 4 research, 3 exploration, 12 appraisal and 11 production wells.

As at the end of 2019, formation test results were obtained from 24 boreholes (3 exploration, 10 appraisal, and 11 production wells). The 24 wells with known formation test results included: 21 positive wells (including 1 exploration, 10 appraisal and 10 production wells), and 3 dry wells (including 2 exploration wells and 1 production well that failed to yield a commercial flow of hydrocarbons). In addition, 2 research wells were abandoned (due to their research nature, the wells are not subject to reservoir classification).

In 2019, workovers, formation tests and abandonment operations were also performed on wells drilled in previous years, including: 5 research wells (of which: 1 well is in the test production phase, 1 is undergoing formation tests, and 1 has been abandoned), 1 production well (abandoned), 7 exploration wells (6 abandoned wells and 1 in the test production phase) and 7 appraisal wells (in 2 formation tests were completed with a positive result, and 2 wells are undergoing production tests).

New wells brought on stream in the Sanok Production Branch’s area of operations in 2019 include: 2 wells in the Zagorzyce field (Sędziszów-38K and Sędziszów-39K – long-term test production, wells brought on stream temporarily as part of notified work), 1 well in the Nosówka field (Słotwinka-1), 1 well in the Zagorzyce field (Sędziszów-37), 1 well in the Pruchnik-Pantalowice field (Pantalowice-7K), 5 wells in the Przemyśl field (Przemyśl-288k, Przemyśl-302k, Przemyśl-305k, Przemyśl-286k, Przemyśl-47 – long-term test production) and 1 well in the Przeworsk field (Przeworsk-24 – long-term test production). In addition, production began from 2 boreholes, Kramarzówka-2H and Kramarzówka-1k, as part of long-term tests.

New fields in the Sanok Production Branch’s area of operations where production started in 2019 include Olchowiec (Olchowiec-2 well – long-term test production) and Gnojnica (Gnojnica-2k and Gnojnica-3k wells – long-term test production).

In the Zielona Góra Production Branch’s operational area, a new Miłosław-5k/H borehole in the Miłosław field was tied in in 2019.

Operations in licence areas conducted with partners

In 2019, in its licence areas PGNiG cooperated with other entities, including: LOTOS Petrobaltic S.A., ORLEN Upstream Sp. z o.o. and FX Energy Poland Sp. z o.o. (with effect from January 1st 2020, FX Energy Poland Sp. z o.o.’s interest was acquired by ORLEN Upstream Sp. z o.o.).

Under licences held by PGNiG, work was continued in the following areas:

• Płotki – under the joint operations agreement dated May 12th 2000; licence interests: PGNiG (operator) – 51%, FX Energy Poland Sp. z o.o. – 49%. A 3D seismic survey was started over the Rusocin area, and processing and interpretation of 3D seismic data from the Boguszyn-Młodzikowo area were commenced. Work was continued on the development of the Chwalęcin natural gas field;
• Poznań – under the joint operations agreement dated June 1st 2004; licence interests: PGNiG (operator) – 51%, FX Energy Poland Sp. z o.o. – 49%. Drilling of the Pławce-3/3H appraisal well and the 3D seismic survey of the Brzezie-Gołuchów area were commenced, and development of the Miłosław gas field (Miłosław-5K/H) was completed;
• Bieszczady – under the joint operations agreement dated June 1st 2007; licence interests: PGNiG (operator) – 51%, Eurogas Polska Sp. z o.o. – 24%, and Energia Bieszczady Sp. z o.o. – 25%. On July 20th 2015, ORLEN Upstream Sp. z o.o. acquired a 49% interest in licence blocks 437, 438, 456, 457, 458 and in parts of licence blocks 417 and 436 held by Eurogas Polska Sp. z o.o. and Energia Bieszczady Sp. z o.o., thus becoming a party to the joint operations agreement. The licences for blocks 436 and 456 were terminated in December 2018 and April 2019, respectively. On October 30th 2019, licences for blocks 437 and 457 were converted into a combined licence for exploration, appraisal and production of crude oil and natural gas. In March 2019, documentation of seismic surveys on the 2D Leszczowate field was completed. In July 2019, the Czarna Dolna-1 borehole was abandoned owing to no commercial flow of hydrocarbons. In December 2019, drilling of the Dylągowa-1 exploration hole was commenced;
•  ‘Sieraków’ – under the joint operations agreement dated June 22nd 2009; licence interests: PGNiG (operator) – 51%, ORLEN Upstream Sp. z o.o. – 49%. Analytical and documentation work was continued and a decision was made to develop the field by drilling the Sieraków-2H well;
• Górowo Iławieckie – under the joint operations agreement dated December 31st 2014; licence interests: PGNiG (operator) – 51%, LOTOS Petrobaltic S.A. – 49%. 3D seismic surveys were carried out on the Miłaki area and interpretation of seismic surveys was completed. A geological work plan was prepared for drilling the Miłaki-1k borehole, approved for implementation in December 2019.
• Under licences held by FX Energy Poland Sp. z o.o., work was conducted in the Warszawa-Południe area (block 255) under the joint operations agreement dated May 26th 2011. The licence interests are as follows: FX Energy Poland Sp. z o.o. (operator) – 51%, and PGNiG – 49%. In October 2017, PGNiG terminated the joint operations agreement. In 2019, the Wilga Production Centre infrastructure was decommissioned (the Wilga 255-2 well was abandoned, and the surface infrastructure and gas pipeline were decomissioned).

Recoverable reserves

Recoverable reserves documented by PGNiG in Poland in 2015–2019 and the R/P ratio (mboe)***

^{* Also included are reserve increases specified in the documentation approved by the Commission for Mineral Resources, pending the decision of the Minister.
** Including reserves covered by geological prospecting documentation and deposit usage documentation submitted to the Ministry and pending the Minister’s decision
*** Ratio of the hydrocarbon reserves to the production volume.}

Recoverable reserves documented by PGNiG in Poland in 1985−2019 (mboe)

^{* reserves to be proven in 2019, including billing documentation}

Use of the extracted hydrocarbons

The main products sold by the Exploration and Production segment are high-methane gas, nitrogen-rich gas and crude oil. Some of the produced nitrogen-rich gas is further treated into high-methane gas at the Odolanów and Grodzisk Wielkopolski nitrogen rejection units. Other products, obtained in the process of crude refining, include crude condensate, sulfur, and propane-butane.

Part of the natural gas extracted in Poland is sold directly from gas fields to non-PGNiG Group customers, and also within the PGNiG Group. Natural gas extracted and not sold in the upstream segment is transferred for sale to the Trade and Storage segment.

As regards trading in crude oil extracted in Poland, in 2019 PGNiG continued its trading partnerships with major Polish and foreign players in the fuel sector.

Crude oil is delivered by rail to the Grupa LOTOS refinery in Gdańsk and to Orlen Południe S.A.’s Trzebinia Production Plant (the ORLEN Group). Supplies to the Orlen Południe S.A.’s Jedlicze Production Plant are delivered by road. Crude oil is also supplied, via the PERN pipeline, to TOTSA Total Oil Trading S.A.. PGNiG sells crude oil at market prices.

Foreign operations

PGNiG UN licences and fields

^{Source: In-house analysis based on PGNiG UN data.}

PGNiG UN holds interests in production, and exploration and production licences on the Norwegian Continental Shelf in the Norwegian Sea, in the North Sea, and in the Barents Sea. Together with its partners it produces hydrocarbons from the Skarv, Morvin, Vilje, Vale, and Gina Krog fields and works on the development of the Skogul, Ærfugl, Duva and Snadd Outer fields. Development of the Tommeliten Alpha and King Lear fields is at the concept preparation phase. In the other licence areas, the PGNiG UN is engaged in exploration projects. PGNiG UN also works towards ensuring stable, predictable and long-term gas supplies to Poland. These efforts include involvement in the construction of infrastructure between Norway and Poland (the Baltic Pipe project), and also potential acquisitions of gas fields in Norway. 

In 2019, the company produced a total of 440 thousand tonnes of crude oil with condensate and NGL (measured as tonnes of crude oil equivalent) and 0.48 bcm of natural gas from the Skarv, Morvin, Vilje, Vale, and Gina Krog fields. Production from those fields was lower year on year due to natural depletion. Another factor affecting production volumes was an unplanned maintenance shutdown on the Vilje and Vale fields.

In 2019, the company proceeded with the development of the Ærfugl i Skogul fields, in which PGNiG UN is a licence partner: The development activities included completion and drilling of production wells. Both fields, operated by Aker BP, are expected to commence producing hydrocarbons in 2020.

In the first half of 2019, PGNiG UN and its partners continued to develop the Gina Krog field. The main activities included drilling of additional gas injection wells to increase oil production. The injected gas will be withdrawn from the field at a later time.
 

The acquisition of interests in the King Lear and Duva fields was finalised in October 2019. In November 2019, PGNIG UN increased its involvement in the Duva project after signing an agreement to purchase an additional 10% interest in the PL636 and PL636B licences from Pandion Energy AS. The last transaction was finalised in the first quarter of 2020. After its settlement, PGNiG UN’s interest in the Duva field increased to 30%.

Following these transactions, in 2019 PGNiG UN recorded a significant increase in its proven reserves, from 141.9 mboe at the beginning of the year to 169.4 mboe at the end of 2019. The increase, attributable mainly to the acquisition of interests in the King Lear and Duva fields, does not take into account the acquisition of an additional 10% interest in the Duva field from Pandion Energy AS, which was finalised at the beginning of 2020.

As part of another APA 2018 (Awards in Pre-defined Areas) round, completed in January 2019, PGNiG UN was awarded interests in three new exploration licences – PL838B, PL1009 and PL1017:

• 40% interest as the operator in the PL838B licence area, situated in the North Sea and being an extension of the PL838 licence area;
• 35% interest as a partner in the PL1009 (Warka) licence area in the Norwegian Sea. The licence area is located close to the Skarv field and is operated by ConocoPhilips (holding a 65% interest);
• 50% interest as the operator in the PL1017 (Copernicus) licence area in the Norwegian Sea, located east of the Aasta Hansteen field. The licence partner is Equinor (50%).

The obligations under licence PL1009 include drilling of an exploration well. As regards the other two licences, within two years the licence partners are to carry out necessary geological and geophysical surveys to precisely estimate the oil production potential of the licence areas. After that period, drill-or-drop decisions will be made.

In January 2020, another APA 2019 (Awards in Pre-defined Areas) round was concluded, as a result of which PGNiG UN obtained interests in three further exploration licences:

• The PL636C licence is an extension of the PL636 licence, whose area includes the Duva oil and gas field. The field’s operator is Neptune Energy Norge (with a 30% interest), and the other partners are Idemitsu, Pandion Energy, and Sval Energy.
• The PL1009B licence is an extension of the PL1009 licence, where PGNiG UN, and ConocoPhillips plan to drill an exploration borehole before the end of 2020. PGNiG UN has a 35% interest in the licence, and ConocoPhillips (with a 65% interest) is the operator.
• The PL1064 licence, in which PGNiG UN obtained a 30% interest, is located near the Skarv field in the immediate vicinity of the PL1009 and PL1009B licence areas. The operator is ConocoPhillips (a 40% interest) and the other partner, apart from PGNiG UN, is Aker BP (30%).

The new licences have significant gas production potential. All three licence areas are located close to existing production and pipeline infrastructure, so if a decision to proceed with their development is made, the process will be much simpler and faster. The PL1009B and PL1064 licence areas are located near the Skarv field, the largest field in the PGNiG UN’s asset portfolio, and near the Åsgard field, allowing the company to leverage its extensive experience in oil and gas exploration in this region.

Jointly with its partners, PGNiG UN also continued work in other exploration licence areas. In the second half of 2019, the company drilled an exploration well under the PL838 licence and discovered the Shrek field. This makes PGNiG UN the first Polish company to have drilled a borehole in the Norwegian Sea as the operator. Located in the Norwegian Sea, the PL838 licence area is directly adjacent to the Skarv and Ærfugl fields, in which PGNiG UN holds 12% interests as a partner.

In February 2020, PGNiG UN entered into an agreement with Aker BP to purchase an interest in the Alve Nord field and to increase its interest in the Gina Krog field. Following the transaction, PGNiG UN’s interest in the Gina Krog field rose by 3.3%, to 11.3%. In exchange, PGNiG UN will transfer to Aker BP a 5% interest in the Shrek field it discovered recently, under the PL838 licence. On the basis of the same agreement, PGNiG UN will also purchase an 11.92% interest in the PL127C licence, covering the Alve Nord field where production operations have not started yet.

As at December 31st 2019, PGNiG UN held interests in 26 exploration and production licences on the Norwegian Continental Shelf, in four of them as the operator. At the beginning of 2020, the number of licences grew to 31 following resolution of the last licensing round (three licences) and the transaction with Aker BP (two licences).

Sales of hydrocarbons

Crude oil is sold directly from the fields to Shell International Trading and Shipping Company Ltd (crude from the Skarv, Vilje, Vale and Gina Krog fields) and to TOTSA Total Oil Trading S.A. (from the Morvin field). All fields, except for Vilje, also produce associated gas, which is transferred via gas pipelines mainly to Germany, where it is received by PST, a Group company.

From January 2019, the corporate income tax rate was lowered in Norway from 23% to 22%, which was offset by an increase in the special petroleum tax from 55% to 56% and a reduction of the uplift tax incentive from 21.2% to 20.8%. The marginal tax rate on production activities remained at 78%, thus the changes have only a minor impact on the company’s business.

Activities supporting the segment in Poland and abroad

Geophysical services and seismic surveys

GEOFIZYKA Toruń has gained a leading position in geophysical surveys in Europe, and its principal business involves exploration geophysics (seismic data acquisition, processing and comprehensive interpretation) and drilling operations (downhole geophysical surveys and their interpretation). In 2019, GEOFIZYKA Toruń engaged in the following activities:

• Seismic data acquisition in: Poland, Germany, the Netherlands, United Kingdom, Hungary, Georgia, Egypt, Mozambique, the United Arab Emirates;
• Seismic data processing and interpretation in: Poland, the Netherlands, Austria, India, Pakistan, Colombia, Mexico;
• Well logging and measurement of gas drilling parameters services, with Poland and Slovakia as the key markets.

Drilling works and oilfield services

In 2019, the PGNiG Geology and Hydrocarbon Production Branch carried out drilling operations on 35 wells with a total depth of 78.9 km.

A company of the PGNiG Group, EXALO, provides seismic survey, oilfield and drilling services both to other Group members and to third-party customers. It is one of the leading European onshore drilling companies. Key contracts performed by EXALO in 2019 included:

• For PGNiG: operation of the 2000 KM drilling rig and provision of oilfield services, including drilling; drilling wells in Pakistan;
• For third-party customers: well drilling for customers in Pakistan, Chad, Kazakhstan, and provision of oilfield services in Ukraine under a drilling contract.

Underground gas storage facilities

The segment’s operations are supported by two nitrogen-rich gas storage facilities (Daszewo UGSF and Bonikowo UGSF), whose main role is to regulate the operation of the nitrogen-rich gas system and store gas from nitrogen-rich gas production facilities. 

The classification of these storage facilities is different from the high-methane gas storage facilities (which are part of the Trade and Storage segment) because of the different type of gas stored and tehir different function.

Exploration, appraisal and extraction of coal bed methane

In 2019, work continued on the Geo-Metan II project, involving exploration for, appraisal, and extraction of coal bed methane.