Could Ireland finally be about to see some good news?
After crashing into a deep recession, the Irish are now hoping that one industry could pull the economy out of trouble. That industry is oil and gas.
Last month, Tony O’Reilly Junior announced Ireland’s first commercial oil find, and he believes that it could trigger interest from the international oil industry and set off a new round of oil exploration.
I say ‘new’ because those with good memories will recall a wave of exploration that culminated in a wholesale plunge on a share called Atlantic Resources.
Founded and financially backed by Tony O’Reilly Senior (now Sir Anthony), Atlantic Resources reported an oil find off the coast of Waterford. Half of Ireland piled in behind their favourite son, rushing Atlantic’s share price up.
The rumoured reservoir of black gold turned out to be no more than a puddle, and the Irish oil business went into hibernation for the next 25 years.
Now, though, there is a revival of interest, and it is not only due to this first commercial oil find, made by Providence Resources.
Keen to stimulate activity, the Irish government has set attractive fiscal terms. It allows a complete write-off of exploration costs and then levies corporation tax at a rate of just 25%, compared to the 62% tax rate of North Sea oil production.
The oil price is also much higher than it was back in the 1970s and 80s, and oil exploration techniques have improved.
The Providence oil find could be the catalyst for renewed exploration. It has found oil in the north Celtic Sea, to the south of the country. This Barryroe licence has been estimated to contain over 1.6 billion barrels of oil, with a high recovery factor of 27% estimated for the stratigraphic levels assessed so far.
Providence is now looking for development partners to bring Barryroe into production, but it also has its sights set on another massive target: the Dunquin prospect which lies out to the west of Ireland.
Partner ExxonMobil expects to begin drilling next year, and with an estimated 14 trillion cubic feet of gas and 500 million barrels of condensate, this is another whopper. This really does have the potential to kick off a flurry of activity on the Atlantic margin.
The seas around Ireland are thought to be promising for hydrocarbons. In a 2008 report, the influential Irish stockbroker Davy described the geological conditions. It said:
‘Ireland is surrounded by basins (depressions in the earth full of sediment) that have the potential to host oil and gas. These occur in the Irish Sea, in the Celtic Sea and off the west coast. Some of these are very large and have up to ten kilometres of sediment piled up.’
This is promising for the presence of hydrocarbons, but there are complications. Firstly, while the seas to the south and east of Ireland are relatively calm and shallow, the Atlantic margin to the west is a hostile deep-water environment. And that means high cost exploration.
Secondly, as well as the existence of oil-bearing sedimentary rocks, an oil zone needs geological fault lines that enable the oil and gas to migrate to a point where it can become trapped and accessible.
However, in the Celtic Sea Davy refers to multiple and micro-faulting, which makes oil reservoirs small and hard to intercept.
Another problem that presents itself is that where oil has been found in the Celtic Sea it has been waxy, meaning that it does not flow easily. This is the quality of the Providence oil discovery. But new techniques developed can ensure that oil is kept warm and thus viscous, which can overcome this problem.
Finally, the story of the Corrib gas discovery 52 miles off Ireland’s north-west coast has not endeared the country to the industry. Capable of meeting 60% of Ireland’s gas requirements, the project, run by Royal Dutch Shell, has been endlessly postponed by protestors concerned by the proximity of pipes to their homes and the impact on the environment.
Oil exploration off the shores of Ireland is not unprecedented. ‘A review of the 162 wells that have been drilled,’ said Davy in 2008, ‘shows that over half are officially recorded as having encountered oil or gas shows.’
Indeed, Providence’s Barryroe find was drilled by Esso back in the 1970s, and there have been some quite large finds, such as Statoil’s 220-million barrel Connemara field. ‘The challenge for the Irish offshore industry,’ says Davy, ‘is to convert such discoveries to value.’
Perhaps now this turning point has been reached. Watch this space.
Tom Bulford
Contributing Editor, Money Morning
Publisher’s Note: This is an edited version of an article that originally appeared in MoneyWeek
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