Thursday 17 January 2019

From Iraqi factions to finding a vast under-sea kettle off Cork

Oil and gas exploration industry proved in 2018 it's still a sector like no other, writes Ellie Donnelly

Return: Iraq is home to oil companies, and David Horgan believes Petrel has a good future there. Photo: REUTERS
Return: Iraq is home to oil companies, and David Horgan believes Petrel has a good future there. Photo: REUTERS
David Horgan, Petrel
Ellie Donnelly

Ellie Donnelly

"There were requests for large amounts of cash… and security issues."

These were just some of the reasons Irish oil company Petrel Resources decided to pull out of Iraq following the Anglo-American invasion, having been active there between 1999 and 2010.

"There had been a deterioration in governance, it became very corrupt, there were requests for large amounts of cash and also the fiscal terms became less and less attractive, and there were security issues, though we never lost anyone to the security situation," David Horgan, CEO of Petrel Resources, told the Irish Independent.

The comments highlight just how different the oil and gas sector is from anything else in Irish business.

Petrel, chaired by veteran investor John Teeling, is looking at Iraq once more, seeing opportunity in a return to power of the Saairun party.

"In this year's elections, the most successful party was the one that had previously encouraged us to come to Iraq. We are now rebuilding our Iraqi team with a view to re-­entering, but the formation of a government has taken a long time - it is still not complete."

Sanctions: A woman refuels a car at a petrol station in Iran. Photo: Bloomberg
Sanctions: A woman refuels a car at a petrol station in Iran. Photo: Bloomberg

Mr Horgan added that once a contract is awarded to the group "on favourable terms", it is ready to start work. "We have already done very extensive work, worked up drill targets and there has been a lot of interest from international majors, particularly a large Japanese company, Itochu, who joint-ventured with us in Iraq before," he said.

"If we can get confirmed title in the western desert of Iraq, we would go ahead and drill within a year. So if we confirm the contract with the government of Baghdad, I think we could get back into the tribal communities and negotiate a work programme."

"In the past we have always used local people - if you want to defend a facility against attack you hire the people who are going to do the attacking.

"You go to the local chief, and it is enormously important to show basic respect and hire whoever he recommends. We never had any issue, we never lost as much as a screwdriver."

US President Donald Trump’s economic actions proved less severe than thought. Photo: REUTERS
US President Donald Trump’s economic actions proved less severe than thought. Photo: REUTERS

Meanwhile in Ghana, the company is stepping up its work, having previously been hindered by changes in the government.

"We signed an agreement and then the government we signed with lost an election - it's a democratic government - and the new government basically was looking for money from us. We refused to pay, we took them to court and we got an out-of-court settlement," Mr Horgan said.

With the government that had granted Petrel its original licence back in power, there's now a push to get through the licensing ratification process.

"We would aim to do that within six months of final contract ratification, then aim to be drilling a well the subsequent year - for that we will probably bring in a larger partner. Although costs have really fallen in the last four years, you are probably talking $25-30m to build a well in off-shore Ghana. In comparison in Ireland at current prices it would cost maybe $50m."

Departure: Aidan Heavey has retired as chairman of Tullow Oil.
Departure: Aidan Heavey has retired as chairman of Tullow Oil.
Tullow operations in Singapore

Meanwhile, 2018 was a "very exciting" year for Providence Resources. The Dublin-listed company signed a farm-out agreement with Chinese company Apec Energy at the potentially huge Barryroe field off the coast of Co Cork.

The structure of the agreement means Providence has no upfront risk or capital exposure for the drilling programme. In addition, it will benefit from a $19.5m (€16.6m) advance in funding.

The agreement comprises the drilling and testing of four vertical wells and one horizontal sidetrack, plus the optional drilling of two additional horizontal wells.

Tony O'Reilly Jnr, chief executive of Providence, said 2018 had been "a good year" for the company.

"The key thing was the farm-out agreement - this has increased our scope. We are now in the process of finalising contracts, with drilling expected to commence in the third quarter of 2019," Mr O'Reilly said.

The Barryroe field off the Co Cork coast has huge potential
The Barryroe field off the Co Cork coast has huge potential

"It is nice to see the current level of activity in Ireland. We were out there before everyone else; big companies have now decided Ireland is attractive as a place with hydro-carbon potential, and success will produce more success," he added.

Mr O'Reilly's sentiments were backed up by Davy analyst Job Langbroek, who described the agreement between Providence and Apec Energy as "the big signature event" of 2018 in the Irish oil and gas industry.

"The agreement will lead to between five and seven wells in the Celtic Sea from 2019 onwards … it was a pretty big number, and a very good outcome," Mr Langbroek said.

Providence also ended the year with the news that it is evaluating whether it can generate electricity from billions of barrels of boiling water found under the sea bed - a twist in the tale of the decades long search for Irish offshore energy sources.

At Tullow Oil, this year marked the end of an era as Aidan Heavey retired as chairman after 33 years with the business he'd founded.

Tullow, now primarily focused on Africa, named Dorothy Thompson as Mr Heavey's successor as chairman - he had already handed over the chief executive's reins to Scotsman Paul McDade.

A Roscommon native, Mr Heavey founded Tullow to exploit opportunities at oil fields considered uneconomic for majors. He sold his vintage cars and mortgaged his home to raise £1m (€1.27m) and initially targeted assets in Senegal in west Africa.

This year marked a turnaround for Tullow as it announced plans to pay shareholders a dividend from next year based on its free cash flow generation, with it expecting to pay out at least €88m in 2019.

Tullow has also announced that, going forward, it plans to drill between three and five oil wells a year globally.

"Tullow Oil has a new lease of life, it has managed its debt profile and now looks like it will go through a new phase of production growth. It appears to be through the financial risk phases that the market didn't like," said Mr Langbroek.

However, the group did run into some difficulty. It took a hit from a dispute relating to the share of liability of costs in respect of the termination of a drilling rig contract and was ordered to pay €120m in damages, plus $50m in costs. Tullow maintains it was entitled to terminate the deal.

Among the other movers and shakers, Dublin-headquartered Falcon Oil & Gas announced in August it had signed an agreement to amend its farm-out agreement with Origin, its partner in its Australian business, to commence stage two of its drilling programme in the Beetaloo sub-basin of Australia's Northern Territory. Falcon Australia holds a 30pc interest in 4.6 million gross acres in exploration permits in the area.

Elsewhere, in November Dennis Francis, CEO and founder of Dublin-listed oil and gas explorer PetroNeft, announced that he was to step down.

Mr Francis described his decision as "bitter-sweet", as he said much of his life over the last 14 years had been devoted to developing the company's assets in the Tomsk region of Russia.

For the industry as a whole, a Dáil Private Member's Bill proposed by the left-wing Solidarity-People Before Profit party has proposed an outright ban on any new Irish oil and gas exploration licences.

It is opposed by the Government, but garnered significant support as it wended its way through the parliamentary process, alarming some in the industry.

Internationally, US President Donald Trump's sanctions against Iran proved to be less severe than people had expected, but the US-China trade war, as well as concerns about a global economic slowdown, contributed to a decrease in the demand for oil. This, coupled with increases in production, has seen real volatility in Brent oil prices, from highs of $85 to $60 a barrel.

With an eye on keeping prices up, Saudi Arabia-led Opec and its allies have said they would curtail the production of oil from January, reducing output by as much as 1.2 million barrels per day.

Irish Independent

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