Chevron, Intent on European Shale Gas, Buys Lithuanian Stake

LONDON - Chevron, the second largest U.S. oil company, after Exxon Mobil, said Thursday it had acquired a 50 percent stake in a privately held Lithuanian oil and gas exploration company, LL Investicijos.

Chevron, among the most active of the major companies in pursuing shale gas in Europe, said it was attracted to the exploration acreage controlled by Investicijos. The acquisition “fits in with Chevron's regional strategy,” Derek Magness, director general of Chevron's onshore European operations, said in an interview.

“We believe Lithuania is going to be a good host government,” Mr. Magness added, because it needs to develop its hydrocarbon resources for energy security. Lithuania is currently wholly dependent on Russia to supply its natural gas.

At a news conference Thursday, the Lithuanian Prime Minister Andrius Kubilius said he welcomed the Chevron investment, calling it “a significant event” because Lithuania had substantilal shale gas reserves to tap, Reuters reported.

Terms of the deal were not disclosed. Mr. Magness said Chevron would probably increase its stake in the future.

Shale gas, extracted through the environmentally controversial method of hydraulic fracturing, or fracking, has transformed the U.S. natural gas market. Mr. Magness is leading Chevron's shale gas exploration efforts in Europe.

The company has identified a belt across Europe from the Baltic countries to the Mediterranean that it predicts may hold large accumulations of extractable shale gas. It has already acquired roughly four million acres of exploration acreage in Poland and Romania. Chevron is also negotiating a production-sharing contract in Ukraine and is trying to coax Bulgaria into lifting its moratorium on shale gas drilling.

Mr. Magness says that so few wells have been drilled in most eastern European countries that it is almost impossible to assess the size of the potential resources or whether they are commercially exploitable at all.

Exxon Mobil stopped drilling in Poland earlier this year after just two wells. “The information strongly suggested it wasn't going to be commercially viable,” Tristan Aspray, Exxon Mobil's Greenland operations manager, said in an interview. But he emphasized that Exxon's view applied only to the area where it drilled - not the rest of the country.

Mr. Magness said he and his colleagues, in their hunt for data, have clambered around “in torn jeans” in the dusty repositories of state geological services trying to find old paper records of wells and rock cores. Chevron has drilled two wells on its Poland concessions and is planning to begin another soon.

The company is also planning to reopen one of the earlier wells, in southeast Poland, to perform further tests. Mr. Magness said that what he had found in the early efforts was enough to interest him in investing more time and money. “I am not seeing anything that would tell me to pull the drill bit up and go away,” he said.

Because of fears that the extraction method could pollute drinking water, several European countries, including France, have barred fracking in their territories, despite indications of promising shale gas deposits. Exxon Mobil temporarily halted drilling in Lower Saxony in Germany in deference to local opposition.

Stephan Singer, energy policy director for the World Wild Life Fund in Brussels said that the concerns about hydraulic fracturing included the large volumes of water that it uses for shale gas operations. Another worry: that fracking would damage geological formations, turning them into “a leaky swiss cheese” unsuitable for storing carbon dioxide in the future, as environmental groups hope.

Environmentalists also worry fear that tapping into huge troves of gas will lead to an enormous new volume of carbon dioxide emissions in the atmosphere, Mr. Singer said.

Mr. Magness, a crew-cut New Orleans native, contends that persuasion and data can overcome the environmental resistance. But Chevron has encountered protesters in Poland, including people blocking roads to its drill sites.

“We need to sit down and talk to folks and not have them put themselves in harm's way,” he said.

He said he was confident that a case could be made to at least some European governments that shale gas could bring them major benefits in terms of jobs and energy security. A big selling point is that successful development of shale gas would lessen the dependence of former Soviet satellites like Poland on gas imports from Russia's Gazprom monopoly.

Easing dependence on Russian gas is perhaps the strongest argument in the oil companies' arsenal when they approach countries in eastern Europe about shale gas. Europe received a painful reminder of this dependence in the winter of 2009 when a pricing dispute between Gazprom, the Russian gas export giant, and Ukraine led to a three week cutoff of gas that left hundreds of thousands of people without heat.

In addition, the European Union recently opened an investigation into whether the Russian export monopoly Gazprom blocks fair competition in the natural gas markets of Central and Eastern Europe. Gazprom raised strong objections to the investigation.

“It is incumbent on us to show a government what is there,” he said. “Once people know what is there we can have a conversation about developing it.”

A version of this article appeared in print on October 26, 2012, in The International Herald Tribune.