Friday 23 March 2018

Record oil price fuels surge in drilling

Reports suggest Exchequer might get windfall of up to €245bn over coming years from oil and gas fields scattered around the Irish coast

Finds: A new licensing round for exploration closes next month
Finds: A new licensing round for exploration closes next month

AS the oil price hit $124 a barrel last week, it will help exploration companies strengthen the business case for drilling in Irish waters in the hope of finding oil and gas worth billions of euro that, with a bit of luck, might deliver a much needed multi-billion euro windfall to the State coffers over the coming years.

Using figures from brokers Cenkos and the companies themselves, the potential oil and gas finds of Providence Resources, San Leon Energy and Serica Energy -- three exploration firms working with major partners including Exxon Mobil -- could be worth between €136bn and €245bn in taxes for our beleaguered nation over the coming years, based on one estimate by the Irish Offshore Operators Association (IOOA).

Dublin-based Providence Resources is leading the charge, investing €350m in well-drilling and seismic studies over the next two years. Its oil prospects, in particular at Dunquin, Spanish Point and Barryroe, together with others off Dalkey and off Hook Head, could be worth billions of euro in tax revenue if oil is successfully recovered, based on IOOA figures.

The IOOA said that a major oil discovery of about 750 million barrels recoverable would deliver €16.5bn in taxes over its lifetime, while a gas find twice the size of Corrib is worth €5bn in taxes over its lifetime.

The Department of Natural Resources estimates that there are potentially 10 billion barrels of oil or oil equivalent off the north-west coast. But these are just estimates.

"Saying there is the potential is not the same as saying something is probable. You can assign a number to a probability, but you can't do that with a potentiality. This is an estimate based on looking at structures and geology and comparing it to an area with similar characteristics," IOOA chairman Fergus Cahill said.

San Leon Energy believes there could be the equivalent of 12 Corrib gas fields -- 12 trillion cubic feet of gas -- in its Killala, Kingfisher and Inishmore prospects, while its prospect known as Tir na nOg beneath the Atlantic Ocean south-west of our shores could hold either 14 Corribs or 5.8 billion barrels of oil, according to the company's figures.

Again extrapolating from the IOOA figures, these could deliver as much as €30bn and either €35bn for Tir na nOg gas or €124bn for oil there, respectively, in taxes. Its prospect in the Porcupine Basin in the Atlantic could hold up to a billion barrels of oil, and may earn the State up to €22bn in tax.

A new licensing round for exploration in the Atlantic Margin -- the huge expanse of the Atlantic Ocean owned by the State -- closes next month.

"A lot of other companies will be watching what we do. Further proof of the pudding will be if companies apply and if perhaps some of the other major oil and gas firms are willing to come here.

"But the relative lack of commercial success in the past means we haven't had a huge interest in exploration up to now," explains Providence Resources chief executive Tony O'Reilly Jr.

New finds here would not only bring jobs and tax revenue, but also improve the country's energy security over the coming years. In light of the ongoing political tension in the Middle East and in the wake of the Japanese nuclear crisis, there is a renewed emphasis worldwide on securing gas and oil supplies that are closer to home.

Serica Energy chief executive Paul Ellis is realistic about Irish prospects.

"Much of the potential is expected to be gas rather than oil. Since gas fetches a lower price than oil, the interest in Ireland is not as strong as in more 'oily' areas.

"Many more exploration wells need to be drilled before the potential that may be there can be established. Until then, Ireland needs to maintain an unchanged fiscal regime, currently 25 to 40 per cent tax, rather than a volatile one like in the UK, which has just hit North Sea oil firms such as Statoil with a £2bn (€2.27bn) windfall tax," he says.

While this may prompt a renewed interest in Ireland, we are not as attractive for exploration as Norway, for example, which can afford to reimburse 78 per cent of the costs of unsuccessful drilling, meaning only 22 per cent of a company's money is at risk.

"The general view is that higher oil prices are here to stay, not necessarily at these spiked prices. In the North Sea, companies are looking again at old discoveries through new lenses of pricing and drilling technology," continues Mr O'Reilly.

The hope is that they'll do so here too.

"It all depends on the size of the resource and the quality of the oil or gas there. These resources have a perceived value, which is different from their real value. Earnings also have to be discounted over the time it takes to take oil or gas out of the ground.

"As we have seen with Corrib, you have to spend several billions of euros before you even get a look at a valuable find," he concludes.

Sunday Indo Business

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