Romania is a good place to do business

Interview with Tom Holst, the head of Chevron for Romania

Reporter: At what stage is the project which you have begun in Romania?

Tom Holst: We have two areas of interest in Romania. Last year we had an interesting concession in the Bârlad region, which is located in the Vaslui county. Over there, we had some seismic reports and we are looking for potential drilling locations. So far we have investigated to see what is underground, and the next step will be to drill a well, to see whether shale gas is present.

In 2010 we have attended a call for tenders for the granting of licenses in the Dobrogea area and we had the best bid for the three areas. We are currently negotiating with the Government and the ANRM to conclude the contracts and to obtain the licenses which would allow us to begin work. At this moment, our activity is focused on the Bârlad area, where we are involved in the pre-drilling activities.

Reporter: What amount do you intend to invest in Romania?

Tom Holst: Considering that we will take it step by step, we will not engage in a total investment, we will actually do it in stages. In Bârlad we have made the commitment of drilling one well, and possibly a second one, and then, if nothing happens, we will stop investing. We have conducted the seismic studies, we do not work based on accurate figures, because we have no accurate benchmarks. We have a series of investments in scientific studies to see whether we would be able to extract gas in five years. That's when we will see how much gas we can count on and we will be able to commit to a major project. At this moment however, we are in the initial probing moment.

Reporter: Will you invest using your own sources or loans?

Tom Holst: "Chevron" invests through investment funds, we use our own finances.

Reporter: What profit did you have in mind when you began your investment in Romania?

Tom Holst: It is too early to talk about profit. First of all, we need to know what kind of resources we can rely on, how much gas the location contains, how big our costs will be, because no one has done any drilling in that area before, no one has produced shale gas in Romania before. We can not estimate what will happen 15 years from now. We are here to see whether the resource exists and whether it is possible from a commercial point of view to begin production.

Reporter: What is exactly does the process of extracting gas from shale consist of?

Tom Holst: The exploration process is similar to the conventional drilling for oil and natural gas. One of the methods - seismic acquisition - uses sound waves to capture images of the earth's crust which are used to map the potential of finding gas in high depth areas. Drilling installations test the locations, by digging wells in the shale layers, which have a thickness of a few hundred meters and are located at more than 2,500 meters deep.

There are several stages, first of all seismic and geological studies are conducted which follow the composition of the layers of the soil , then the well is drilled, rock samples are taken and various other measurements are made, and then the rocks are studied in a laboratory to see whether gas exists. After this, the decision is made on whether a portion of the well will be tested hidraulically to see whether any gas comes out, and then it will be decided whether there is enough gas to make it commercially worthwhile to begin drilling. This means that extraction can begin in about five years.

Reporter: You mentioned the hydraulic method for the exploration of shale gas. What is the operating principle for this method?

Tom Holst: The development of the exploitation conditions through hydraulic fracture is a well established technology, safe and which yields good results, used on over 1 million wells, ever since 1960. The process involves the pumping of a mix of water, sand and small quantities of additives through a drill, which go into the layer through the holes of the drilling column, creating fissures. These fissures are filled with sand to cause the gas to flow. The additives used in this process are the ones used in the conventional operations and are regulated in the EU member states. In the experimental exploitation stage, the findings are evaluated through the fracturing of small testing areas with vertical wells and by monitoring the gas flow. After moving to commercial exploitation, companies drill horizontal wells in the gas-carrying rock and fracture the shale on its entire area of development.

Reporter: Are the technologies you are using harmful for people and for the environment, like many people say?

Tom Holst: We produce this kind of gas daily. We drill wells daily - in the USA, in Canada, we have begun doing so in Poland. From a technical, scientific and industrial and engineering practices point of view, these technologies are safe. The sensationalist pieces brought forward by the mass-media rely on testimonials of some government agencies. The development of this industry relies on technologies which have existed for decades, in the case of horizontal drilling, and for more than 60 years in the case of rock fracturing.

By combining the two technologies which I mentioned, we have succeeded in drilling out huge volumes of gas in the US, which have caused the price of gas to fall and have made the US independent from this point of view. These new gas volumes can create market modifications and a stable domestic supply in Romania. There is a lack of comprehension and information when it comes to technologies which have been around for a very long time. Many aspects which concern oil and natural gas are technical and it is hard to understand what is happening there, but there is also a political angle to it, meaning that politicians make up this kind of issues, to create problems where there aren't any.

Reporter: More to the point, how is "Chevron" protecting the environment, the phreatic waters?

Tom Holst: "Chevron" protects the underground aquifers from the fracturing fluids and from the natural gas by padding or "coating" the wells with multiple layers of steel and cement. Tested for pressure resistance, the columns endure for the entire lifetime of the well. The hydraulic fracture fluids are usually used at depths of 2-3 kilometers, or more, below the level of the aquifer, and are separated from it by multiple layers of impermeable rock. After the fracturing, the wells which generate shale gas also release small quantities of deposit waters with increased mineralization, which are either spilled into certified treatment stations, according to the legal regulations, or are treated and reused or reinjected into the deeper rock layers, into injection wells.

"Chevron" is a leader in this industry, from the point of view of using the highest safety and environmental standards. Our activity is conducted in compliance with a "Rigorous System for the Management of Operating Excellency". For this purpose, complex studies are being conducted to assess the environmental, social and health impact, which help us establish and maintain good relationships with the communities neighboring our oil operations.

Reporter: If Romania were to begin producing shale gas, would our consumers have cheaper gas?

Tom Holst: This thing differs from one market to the next. In the US there were high gas prices before the supply of shale gas increased and then the amounts of such became so high that they caused the market price to drop. According to the Administration of Energy Information of the USA, over the last decade, the output of shale gas of the United States has rapidly increased, from 3% to about 25% of the country's total output, and could reach 50% by 2035. But the American market is different from the European market and from the one in Romania, so we cannot tell how until we have a notion of the volume of gas that we are talking about. It also depends on the way the market works, because Romania is a market with regulated prices, whereas in the United States the market is not controlled. At the moment, discussing how the market and the prices would evolve in Romania or in Europe would be pure speculation.

Reporter: Is the cost of generating unconventional gas higher or lower than the one of producing natural gas?

Tom Holst: In Eastern Europe we have no ongoing activity, and we are therefore talking about higher costs, at first - this is what happens when you launch an investment of the kind - and they later decrease as we advance and we bring the technology and service providers into the country. If you want to bring know-how from another country it costs a lot. We also expect costs in Romania to drop, as we gradually expand. Part of the operations of companies like ours is having expertise in drilling and production, so that we can be increasingly efficient as we develop these resources. We do not know the degree of difficulty in Romania, but we have expertise in the exploration and identification of resources. What is fundamental is that Europe needs a lot of energy.

Reporter: Do you intend to obtain lands in other Romanian locations as well for this type of business, or maybe for oil exploration?

Tom Holst: At the moment we are focused on these two areas, because we feel that is where there is potential. Romania has a history of 150 years of oil exploitation, but oil is limited and we are not interested in that part. Shale gas is a better opportunity for a company like ours.

Reporter: What is your opinion on the Romanian legal framework?

Tom Holst: I find it robust, in line with that of the EU, it is a structure typical to the European market, you have agencies which deal specifically with oil and gas, environmental agencies which know the processes which they need to assess, a structure which any kind of project needs to go through. You have a very well represented and viable regulatory framework and you have a relatively stable political situation, even though some changes happen. Like in any democracy, there are votes, the governments come and go... From my point of view, Romania is a good place to do business.

Reporter: You obtained a concession on the Bulgarian territory as well. Why did you halt the project in Bulgaria?

Tom Holst: In Bulgaria we had a similar situation to the one in Dobrogea. We were allocated a license for a certain zone. We are negotiating with the government to complete the contract. So, in Bulgaria we are progressing at a normal rate, but what happened there was also an overreaction, which became an element of dispute between the political parties. The ruckus was so big, that the prime minister thought it best to halt the process, to get a chance of educating the population, and the academic environment and the political decision makers on what this technology means. This is not a halt, it is an opportunity to provide information, from our point of view. The government continues to be very interested in exploring shale gas and developing this new technology, but it wants to make sure that the public knows that this technology is safe.

Reporter: What is the difference between shale gas and natural gas?

Tom Holst: First of all, gas is methane no matter where it is extracted from, so the gas we are looking to extract is natural gas. The gases which are naturally present in the shale rock are not different in any way from any other natural gases, but they are captive in layers of dense rock and they need other extraction methods than the ones of the traditional gas deposits. What is unique is the rock layer which this gas is extracted from. In other areas of Romania there is gas which has accumulated and has remained stuck. The rock formations which contain shale gas do not allow the movement of the gas. When we speak about shale gas or unconventional gas we are only talking about the way the gas is stored in the ground from a geological point of view, but the gas in itself is the same.

Reporter: Do you think that producing unconventional gas in Romania has a future?

Tom Holst: If there are resources, yes. The future will be positive, because there will be a need for a stronger growth, for more investments, it will have effects on the supply side, it will create more highly qualified jobs, supported by service providers, technicians, by the ancillary industries, etc. It could have important economic benefits.

Reporter: How much did the company invest last year, on a global level?

Tom Holst: We have invested about 29 billion dollars, in 2011. The profits were almost wholly reinvested. The key message is that investing in energy is a very good idea because demand for energy is increasing at such a pace, that you need to reinvest in order to find new sources.

Reporter: Does the company have any other lines of business, aside from oil and gas?

Tom Holst: "Chevron" is mostly involved in oil and gas, but we are also involved in energy - geothermal, biofuel and solar.

We are a company that is 125 years old and we have partnerships in every area of the world which has oil and gas. We know how to find it, we know how to drill for it, we know how to produce it, we know how to apply the environmental protection and safety procedures, we work with governments and communities of all shapes and sizes.

Reporter: In closing, what other projects do you have in Eastern Europe, aside from the ones of Romania and Bulgaria?

Tom Holst: We have projects in Poland, in incipient stages. We are a little more advanced than in Romania. In the Eastern region, since 1990 we have a deal with Kazakhstan to develop an oil field - one of the biggest in the world. We have a pipeline that goes through Russia, to the Black Sea, thus we have a presence in the Caspian Sea area which goes back 20 years. Across the world, our main operations areas are in the US, Canada, Indonesia, Thailand, Southern Asia, Australia, Angola, Nigeria, the North Sea etc.

Reporter: Thank you!