Poland is thought to have large deposits of shale gas located in a zone stretching across from the northwest to the southeast of the country. According to the U.S. Energy Information Administration, Poland’s technically recoverable shale resources are estimated at 4.2 trillion cubic meters of shale gas. As at the end of August 2014 there were more than 66 wells drilled in Poland and by the end of 2014 the government expects that this number will have risen to over 80. However, 100 wells are thought to be needed to credibly assess Poland's shale resources, meaning that further expansion is required to more accurately assess the potential size of the market in Poland.
The progress made so far is in part due to the fact that there has been great interest in shale gas in Poland for a number of years. Since 2000, exploration of shale gas has developed into a key Polish energy issue. As of 1 September 2014, there have been 68 licenses granted in Poland for exploration of ‘hydrocarbon mother lodes,’ including shale gas. These concessions are held by 25 Polish and foreign entities.
For the past ten years there has been discussion around simplifying the process required for entities to be permitted to explore potential shale gas sites. However, it is felt that the legal framework has so far not been fully adapted to the specific nature of shale gas exploitation.
Amendments to the Act on Geological and Mining Law
There have nevertheless been recent developments and on 1 August 2014, the Amendment to the Act on Geological and Mining Law was adopted which will enter into force on 1 January 2015.
The major changes introduced by this amendment are:
- Investors will only require one concession, valid for 10 — 30 years, for prospecting, exploring and extracting hydrocarbons. Several entities will be able to apply for a concession jointly. Concessions granted previously for individual sites may be extended or combined into a new single concession.
- Companies will be allowed to start production during the exploration stage after initial documentation of the deposit is prepared.
- The current requirement to obtain a permit in order to perform a geological survey will no longer apply. Once the law is in force, only a notification will be required.
- The requirement to obtain an environmental decision from the relevant local authorities will be compulsory just before the start of drilling, rather than earlier on in the process of obtaining a concession. This requirement has been seen as a reason that developers have needed to extend the initial stages of projects, to complete all formalities before gas exploration can begin.
- The new law encourages the exploitation of unconventional resources such as shale gas through economic incentives, including exemption from taxation.
Furthermore, on 25 August 2014 the Act on Hydrocarbon Tax was adopted with the aims of accelerating the exploration of hydrocarbons in Poland, with a particular emphasis on shale gas. The intention is to ensure an appropriate rate of return for investors while securing a relevant proportion of profits for the State Treasury. Included in the new law are:
- a hydrocarbon tax, which will amount to 0-25% of profits from the extracting business (depending on income and expenditure incurred by an investor); and
- An extraction tax, which will amount to 1.5 - 3% of the extraction value.
Additionally, an investor will be obliged to pay corporate income tax (CIT), real estate tax and an exploration fee. In order to maintain attractiveness for investors, the aggregated burden should not exceed 40% of total income generated from the extraction of the relevant hydrocarbons.
The Act on Hydrocarbon Tax enters into force on 1 January 2016; however, taxation of hydrocarbon extraction enters into force in 2020.
The investment process
The Polish government are also currently consulting on a new draft law designed to improve the investment process relating to the extraction and transportation of hydrocarbons. The draft law simplifies the relevant administrative procedures by, for example, classifying an investment in hydrocarbon as a public purpose investment, thereby making it easier to secure legal title to relevant real estate and obtain the required zoning and planning permissions. The draft law also reduces the timescales for administrative decisions by public authorities: administrative decisions regarding exploring for shale gas would need to be issued within a three-month period, instead of the current 12-20 months; and, decisions relating to extracting shale gas would need to be issued within a maximum of five months, instead of the current 12-24 months waiting period.