Posts Tagged ‘Russia’

Energy companies are shifting their focus away from the Middle East and toward the West—with profound implications for the companies, global politics and consumers

DECEMBER 5, 2011

By GUY CHAZAN

Big Oil is redrawing the energy map.

For decades, its main stomping grounds were in the developing world—exotic locales like the Persian Gulf and the desert sands of North Africa, the Niger Delta and the Caspian Sea. But in recent years, that geographical focus has undergone a radical change. Western energy giants are increasingly hunting for supplies in rich, developed countries—a shift that could have profound implications for the industry, global politics and consumers.

Driving the change is the boom in unconventionals—the tough kinds of hydrocarbons like shale gas and oil sands that were once considered too difficult and expensive to extract and are now being exploited on an unprecedented scale from Australia to Canada.

The U.S. is at the forefront of the unconventionals revolution. By 2020, shale sources will make up about a third of total U.S. oil and gas production, according to PFC Energy, a Washington-based consultancy. By that time, the U.S. will be the top global oil and gas producer, surpassing Russia and Saudi Arabia, PFC predicts.

That could have far-reaching ramifications for the politics of oil, potentially shifting power away from the Organization of Petroleum Exporting Countries toward the Western hemisphere. With more crude being produced in North America, there’s less likelihood of Middle Eastern politics causing supply shocks that drive up gasoline prices. Consumers could also benefit from lower electricity prices, as power plants switch from coal to cheap and plentiful natural gas.

And the change is reshaping the oil companies themselves, as they reallocate their vast resources to new areas and new kinds of fuel. Working in the rich world—with its more predictable taxes and investor-friendly policies—removes some of the risks about the big oil companies that worry investors, making them less vulnerable to the resource nationalism of petrostates like Russia and Venezuela.

“A company like Exxon Mobil can eliminate the technological risk” of developing unconventionals, says Amy Myers Jaffe, senior energy adviser at Rice University’s Baker Institute. “But it can’t eliminate the risk of a Vladimir Putin or a Hugo Chavez.”

This new way of looking at risk is at the heart of the transformation. International oil companies traditionally face a choice: They can either invest in oil that is easy to produce but located in politically volatile countries. Or they can seek opportunities in stable countries where the oil is hard to extract, requiring complex and expensive production techniques.

Now, in a sense, the choice has been made for them. Big onshore fields in the world’s most prolific hydrocarbon provinces are increasingly the preserve of national oil companies, state-owned behemoths like Saudi Aramco and Russia’s OAO Rosneft and OAO Gazprom. For foreign majors like Royal Dutch Shell PLC and BP PLC, their former heartlands in the Gulf sands are now largely off-limits.

Shut out of the Middle East, they have responded with a huge push into new areas, both geographic and technological. Over the past few decades, they have built vast plants to produce liquefied natural gas, or LNG. They have drilled for oil in ever-deeper waters, ever farther offshore. They have worked out how to squeeze oil from the tar sands of Alberta. And they have deployed technologies like hydraulic fracturing, or fracking, and horizontal drilling to produce gas from shale rock.

Wood Mackenzie, an oil consultancy in Edinburgh, says that more than half of the international oil companies’ long-term capital investments are now going into these four “resource themes”—a huge shift, considering how marginal the companies once considered them.

There are also drawbacks to the new focus on nontraditional kinds of hydrocarbons. Environmentalists strongly oppose shale-gas extraction due to fears that fracking may contaminate water supplies, the oil-sands industry because it is energy-intensive and dirty, and deep-water drilling because of the risk of oil spills like last year’s Gulf of Mexico disaster.

There are financial considerations, too. While conventional assets are relatively easy to develop and historically have offered good returns, projects in some more technically difficult sectors—like deep-water and LNG—typically take longer to bring on-stream, and are higher cost, meaning returns are lower.

But there is an upside for the majors. “The silver lining is the shape of the profile of these projects, which is different than conventional ones,” says Simon Flowers, head of corporate analysis at Wood Mackenzie. LNG ventures, for example, can deliver contract levels of gas at a steady rate over 20 years. “So the returns may be lower, but overall you have a more dependable cash-flow stream,” he says.

By pursuing these nontraditional fuels, the oil companies are committing themselves ever more deeply to the wealthy nations of the Organization for Economic Cooperation and Development. Wood Mackenzie says $1.7 trillion of future value for all the world’s oil companies—52% of the total—is in North America, Europe and Australia. The consultancy has identified a “significant westward shift” in oil-industry investment, away from traditional areas like North Africa and the Middle East “towards the Brazilian offshore, deepwater oil in the Gulf of Mexico and West Africa and unconventional oil and gas in North America.” And then there’s Australia, far out east, “which is in the early stages of a spectacular growth phase.”

Consider Shell. Seven years ago, the oil giant, synonymous with turbulent hot spots like Nigeria, decided to shift resources to more-developed nations that offered a friendly environment for investors and predictable tax regimes. Shell used to split spending on the upstream—the basic business of exploring for and producing oil and gas—roughly 50/50 between nations in the OECD and those outside of it. It’s now 70/30 in favor of the OECD, with the bulk going to Canada, Australia and the U.S.

“The risks in OECD are technical, but they’re easier to manage than political risk,” says Simon Henry, Shell’s chief financial officer. “In the OECD, you have more control of your operations.”

With the new turf comes a new focus: Shell will soon be producing more natural gas than oil. That might have scared investors a decade or two ago. But with gas demand set to grow strongly, especially in Asia, the future for gas-focused companies is looking increasingly rosy—especially after the Fukushima disaster, which prompted a rethinking of nuclear power in Japan and elsewhere.

Entrenching Its Position

Like Shell, Exxon Mobil Corp. is entrenching its position in the Americas, home to just over half its resource base. Its unconventional resources have grown by almost 90% over the past five years to 35 billion oil-equivalent barrels—partly thanks to its 2010 acquisition of XTO Energy, a big shale-gas player. Exxon’s U.S. unconventional production alone is expected to double over the next decade.

Some giants are looking further afield. Chevron Corp.’s three focus areas—the parts of the world that account for the bulk of its exploration budget—are the U.S. Gulf of Mexico, offshore West Africa and the waters off western Australia.

In particular, the company has staked out a huge position in Australian natural gas; its Gorgon LNG project in Australia is one of the world’s largest. The push is based on expectations of surging demand for the fuel in Asia, largely in China, which wants to improve air quality in its heavily polluted cities by switching from coal to gas in power generation and running more commercial vehicles and buses on natural gas.

It “wasn’t a conscious decision” to move into the OECD, says Jay Pryor, head of business development at Chevron. The company doesn’t decide what projects to pursue based on where they are in the world, but on the quality of the resource, the commercial terms and the geopolitical risk. “The best rocks with the best terms are going to get the quickest investment,” he says. Money has flowed into the U.S. and Australia because they offer the best incentives to oil companies, he says.

In recent years, Chevron has also expanded into another promising part of the OECD—Europe, which some estimates suggest has shale-gas reserves comparable to those in the U.S. Chevron has picked up millions of acres of land in Poland and Romania, where it will soon be drilling for shale gas. That’s part of a wider trend: Dozens of companies are now exporting to Europe technologies used to open up shale deposits in the U.S.

Holding Back

Not all oil companies have piled into unconventionals the way Shell and Chevron have. BP, for one, has far fewer investments in tar sands and shale gas than its peers, though it has an unrivaled position in deep-water oil. That means it has less of a presence in the OECD than Shell: Its biggest projects are in poorer countries like Angola, Azerbaijan and Russia, and in recent years it has won a string of licenses and contracts in India, Iraq, Egypt and Jordan.

Yet even BP has been bolstering its position in the OECD. It said recently it was pressing ahead with a £4.5 billion ($7 billion) investment in the North Sea’s Clair oil field, part of a five-year, £10 billion program.

Still, being in the OECD doesn’t guarantee oil companies an easy ride. Operators in the North Sea were shocked earlier this year when the U.K. government suddenly increased taxes on oil producers. In France, authorities recently banned hydraulic fracturing. And in the U.S., the drilling moratorium in the Gulf of Mexico, imposed after the Deepwater Horizon blowout, threw many of the majors’ plans into disarray.

But still, for the most part, the risks are much greater in the non-OECD. “The majors went to Venezuela and lost their property,” says Ms. Myers Jaffe of the Baker Institute. “They went to Russia and had to whisk their CEO off to a safe house. They went to the Caspian and realized they couldn’t get the oil out. I for one would much rather invest in a company that had 70% of its spending in the OECD.”

Mr. Chazan is a staff reporter in The Wall Street Journal’s London bureau. He can be reached at guy.chazan@wsj.com.

SOURCE ARTICLE

Dr Shamil Yenikeyeff analyses the reasons for the collapse of BP’s Arctic partnership with the Russian state company Rosneft. He argues that the BP–Rosneft deal was inauspicious even before it was signed due to the history of the Kremlin’s reluctance to back BP plc in its often uneasy relations with the AAR consortium – BP’s Russian partners in the TNK–BP joint venture. Dr Yenikeyeff analyses the motives of the key players involved and looks at the possible future of BP’s involvement in Russia.

FULL OXFORD ENERGY 17 PAGE COMMENT

The big question is: Can Shell keep riding this tiger? What prevents PetroChina’s parent, CNPC, from exploiting the Western producer for what it wants and then tossing it aside or perhaps even taking it over?

After 11 years and $39 billion of investment, Exxon Mobil Corp., Royal Dutch Shell Plc (RDSA) and their partners have yet to sell a drop of oil from what was touted as the world’s biggest discovery in four decades.

Purported leaked email with video link received from an anonymous source with the covering message:

“Potential for another Shell director playing *General Patton…listen to the video…”

THE INTERNAL EMAIL

On behalf of Bob Turner,

All,
We have just posted the latest video clip on the IPO website. In this clip I talk about Gas to Offshore and our preparations and some issues around our culture which I call “NO” will no longer be the low risk option”.

Please have a look. I hope you find it informative and topical. My previous clips will be archived in the Library folder.

As always I welcome your feedback.

Have a safe day

Bob.

Bob Turner Video

ENDS

*From Wikipedia article “List of plagiarism controversies“

On 6 June 2007, the Financial Times published a front page article under the headline: “‘Pipeliners All!’ Shell’s memo to Sakhalin”^[24]

The article was about a leaked motivational memo in the form of an email from David Greer, the deputy chief executive of Sakhalin Energy circulated to Sakhalin-2 staff. Some keen eyed readers noticed that inspirational passages were appropriated from a famous speech given by the legendary U.S. General George S. Patton, on 5 June 1944 on the eve of D-Day the Sixth of June. On 7 June 2007, a quarter page follow-up article was published in the Financial Times newspaper and on the FT.com website, under the headline: “Sakhalin motivational memo borrows heavily from Patton”^{[25][citation needed]}

On Monday 11 June 2007, the Financial Times published another article at^[26] on the subject, this time headlined: “Motivational memos must make their message clear”. One of the opening paragraphs stated: “The memo (www.ft.com/shell) is crass, poorly punctuated and most of it wasn’t even written by its author, David Greer, deputy chief executive of Royal Dutch Shell‘s Sakhalin Energy Investment Company. He had lifted the words of General George S. Patton with no attribution, and clumsily adapted them to spur on his team of recalcitrant pipeline engineers”.^{[citation needed]}

On 9 June 2007, The Moscow Times published a front page article on the controversy headlined: Sakhalin Pep Talk From ‘Old Blood and Guts’.

On Friday 22 June 2007, The Moscow Times published a front page story with the headline: “Sakhalin Energy’s Greer Steps Down”. The newspaper reported that “David Greer, the Sakhalin Energy deputy CEO running the giant Sakhalin-2 oil and gas project, has left the company unexpectedly just weeks after a leaked e-mail he wrote revealed the pressure that managers working there were facing”. The article said that Greer had been a 27-year Shell veteran, and was leaving to pursue other business interests.

By Motley Fool Staff Posted 9:58PM 11/03/11

EXTRACTS

Last week, my Foolish colleague Alex Planes wrote a superb article offering the conclusion that “Cheap Oil Isn’t Coming Back,” an assessment with which I completely agree. Beyond that, though, I’d add, “And Cheap Gas Has a Brief Future, Too.” With that in mind, it’s crucial to look back at the recent earnings season to garner what we can about which major oil companies appear to offer the biggest boosts for our portfolios.

Shell’s full of LNG
Royal Dutch Shell also doubled its earnings in the past quarter, chalking up a growth rate that one advertisement used to refer to as “a silly millimeter” beneath Chevron’s. The company is casting a major lot with LNG, where it leads the world in production and distribution. That’s a sufficient reason for placing the Anglo-Dutch giant next to Chevron as another member of Big Oil’s most promising trio.

As an indication of the potential in natural gas — obviously including LNG — Shell’s gas earnings jumped by a whopping 40% outside the Americas, while they eked out just a 1% increase in this part of the world. A large part of that massive differential stemmed from the fact that gas is sitting near a paltry $4 in the U.S., while it yielded $15 for Shell in Asia. That being the case, should we deny that the U.S. price is headed for higher ground? Indeed, Asia’s levies appear to be headed even higher.

And then there’s Russia. Several years ago, I began a Motley piece with the observation, “Only a few things are absolutely inevitable in today’s world: death, taxes, and the Russian government’s lusting after energy projects once they’ve been developed by Western companies.” For instance, you’re probably aware that Shell was squeezed out of the operatorship of the country’s Sakhalin-2 project precisely five years ago.

I’m not certain of Shell’s likely future with the Russkies, since, with the world running low on potential major oil finds, the Western companies have displayed a curious tendency of dusting themselves off after having been body-checked by Vladimir Putin’s minions and heading right back into the game.

FULL INTERESTING ARTICLE

By Anthony DiPaola – Oct 31, 2011 2:47 PM GMT

Royal Dutch Shell Plc (RDSA) is “very interested” in renewing its right to pump oil in a venture with Abu Dhabi’s state-run crude producer after its concession there expires in 2014, an executive with the Anglo-Dutch company said.

Shell wants to develop natural-gas resources in the sheikhdom to help meet rising domestic demand and to bolster its partnership there, John Barry, the company’s country chairman in the Persian Gulf emirate, said at a conference in Abu Dhabi.

International oil companies aim to develop oil and gas deposits to replace energy they consume by pumping at current fields. Shell, along with Exxon Mobil Corp. (XOM), Total SA (FP), and BP Plc (BP/), all partners in the Abu Dhabi concession, also signed agreements with Iraq to boost output there. Shell is exploring for gas in Saudi Arabia and will produce more of that fuel than it will pump oil next year, Barry said.

“Shell and the other IOCs will want to maintain their stake in Abu Dhabi,” said Robin Mills, head of consulting at Dubai-based energy advisory Manaar. “It’s a major part of their production and reserves. It’s also important to them as a test- bed for new technologies, and a way of maintaining a Middle East presence which they can use to win business elsewhere.”

Onshore Stake

A decision about renewing Shell’s holding is in the hands of Abu Dhabi National Oil Co., known as Adnoc, and the emirate’s Supreme Petroleum Council, which decides oil policy for the capital of the United Arab Emirates, Barry said.

Shell has a stake in Adnoc’s onshore unit, Abu Dhabi Co. for Onshore Oil Operations, until 2014. Adnoc owns 60 percent of the unit, with Shell, Exxon, Total, BP and Partex Oil & Gas holding the rest. Abu Dhabi holds more than 90 percent of the crude in the U.A.E., which in turn contains about 7 percent of the world’s proven oil reserves, according to BP data.

Partex, based in Portugal, is in discussions about renewing its stake in the partnership, said Antonio Costa Silva, chairman of the company’s management commission. The current arrangement has been a success, and “keeping that balance in mind is very wise,” he said in Abu Dhabi.

Exxon and Total said last year they wanted to continue in the partnership with Abu Dhabi and said they could use expertise in gas development and oil recovery to benefit the emirate. Exxon’s vice president of production in the Middle East and Russia, Mark Nolan, said Nov. 2 the company wanted a new partnership structure that allowed them to be operator of the fields in the Adco concessions and work directly with Adnoc.

More Flexible System

“The question, of course, is what form the concession will take post-2014, and what the financial arrangements may be,” Manaar’s consultant Mills said. “I suspect a more flexible system will emerge. The question is whether the terms will be economically attractive enough for the IOCs to make the most of the potential. I’m also curious to see whether any new companies enter.”

Partex may also partner with Abu Dhabi on solar and wind projects in the emirate, in Europe or elsewhere, Silva said.

Barry said Shell’s focus in Abu Dhabi until now has been on producing oil through the Adco venture, renewing its oil rights and maintaining its 15 percent stake in Abu Dhabi Gas Industries Ltd., known as Gasco, which is developing the sheikhdom’s onshore gas reserves. Adnoc owns 68 percent of Gasco, with Total and Partex owning the remainder.

Shell wants now to contribute technology to help Abu Dhabi find and develop gas to help resolve what Barry called a “crisis” in domestic gas supply.

“There’s the paradox that economic success gives rise to a gas shortage,” he said, noting Abu Dhabi’s needs for gas to generate power and supply industries. “We are looking at where we can work in Abu Dhabi and more widely in the U.A.E.”

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net.

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net.

SOURCE ARTICLE

A version of this editorial appeared in print on October 21, 2011, on page A34 of the New York edition

The Interior Department has been inching closer to approving Royal Dutch Shell’s ambitious plans to drill for what are believed to be huge deposits of oil in the Arctic Ocean off Alaska. In August, it approved an exploratory drilling plan for the Beaufort Sea, and two weeks ago it upheld the validity of leases in the neighboring Chukchi Sea that had been challenged by environmental groups.

The Interior Department and Shell both insist that they have learned the lessons of the disastrous BP spill in the Gulf of Mexico. They must prove it. The Interior Department has written tough new regulations governing drilling, including requirements for subsea containment systems to plug a runaway well.

Before issuing final permits to drill, the government must insist that Shell test such a system and verify that it can operate in Arctic conditions. The company must also have on hand a rig capable of drilling a relief well, as well as the equipment — skimmers, booms and other equipment — to clean up any oil that escapes.

The stakes here are undeniably huge. Shell has already paid nearly $4 billion to acquire leases in the Beaufort and Chukchi Seas. Estimates of the recoverable reserves range as high as 30 billion barrels of oil, the equivalent of more than four years’ worth of annual oil consumption in this country. The cost of a mistake would also be huge. Arctic waters provide nutrients for large fish populations, extensive habitat for wildlife and sustenance for native peoples.

The Arctic presents an extremely forbidding environment, with sea ice, howling winds and stormy conditions that will make drilling difficult and any cleanup far more complicated than it was in the warm and relatively benign waters of the gulf. Shell says it knows all this. It has agreed to drill only in warmer months and notes that these will be shallow wells, drilled at an average of 150 feet instead of 5,000 feet (the depth of the BP’s Macondo well), making a blowout easier to reach and contain.

Yet much remains to be done. The containment system, for instance, is in what Shell calls the “fabrication” stage. The Interior Department obviously has to insist that this and other equipment actually exists.

A 2008 report by the United States Geological Survey produced a mean estimate of 90 billion barrels for the waters north of the Arctic Circle. Some of these waters are international, some belong to other nations like Russia. As global warming opens up sea lanes, the opportunities for drilling, shipping and commerce will grow. So, too, will the risks of grave environmental damage. Unless the United States makes smart decisions about drilling in American waters others are unlikely to do any better.

SOURCE ARTICLE

COMMENTS FROM A ROYAL DUTCH SHELL RETIREE ON CURRENT NEWS STORIES

Interested in the report on this leak they are trying to stop in Athabasca…

Oilsands leak turned mine to pond

Few people probably realise this is a nightmare and very likely unstoppable until the whole aquifer runs out of energy. Compare it with a blow-out.  I think it is a major mishap but have no other info then what I read in the article.

And the oilwells in Sakhalin going to sand is a disaster of great magnitude.

6 Oil Wells On Sakhalin Go Offline

With winter starting they presumably cannot re-enter the wells and try to fix it. It also shows the original design was flawed. I bet that even those atheist Russians (and the secular Shell folk as well)  are praying the same will not happen on the gaswells because then they really are f*cked!

Finally, will Malcolm Brinded be attending the funeral of his friend Gaddafi, or is Shell’s focus solely on its slick switch of allegiance to the new government?

Shell execs in Tripoli discuss Libya return

After the Government granted 12 firms permission to look for oil and gas around Ireland this week, Peter Flanagan and Donal O’Donovan ask if the next big oil field is really on our doorstep

Thursday October 20 2011

IRELAND has watched for years as neighbours in the UK and Norway reaped the benefits of staggering oil strikes in the North Sea.

This week, efforts to emulate that success here stepped up a gear when the Government granted licences to 12 companies from four countries to search for hydrocarbons off the west coast.

Five of the winning companies — Ireland‘s Providence Resources and San Leon Energy, and the UK’s Chrysaor, Serica Energy and Sosina Exploration — already have a presence in Ireland; while the other seven licence winners — Canadian firm Antrim Energy, Bluestack Energy and Petrel Resources from Ireland, the UK’s Europa Oil & Gas, Two Seas Oil & Gas and First Oil Expro, as well as Spanish firm Repsol Exploration — are new to Irish waters, although another arm of Repsol recently announced it was entering into another licence off Ireland with Providence.

In all, 13 new licences were granted as companies search far and wide for new reserves.

Oil prices

High oil prices look to be here to stay as the fear that we may be reaching “peak oil” seems to get worse every year.

Russia has already staked its claim to the Arctic’s natural resources, while the mantra of “drill baby, drill” — usually in the Alaskan wilderness, a protected nature reserve — has been taken up by right-wing politicians in the United States as a solution to the country’s dependence on “foreign oil”.

Given this sort of geopolitical climate, it is no surprise there was a record number of applications for licences to explore off Ireland this year.

If the exploration works, and it is commercially viable to produce oil off Ireland, the rewards could be enormous. But how viable is Ireland as a centre for oil production, and how will the country benefit if private companies are going to take most of the profits?

The history of exploration around Ireland is a chequered one, to say the least. In nearly half a century, almost 200 wells have been drilled around Ireland but only one field — Kinsale — has been a commercial success while Corrib’s problems have been well documented.

In truth, a variety of factors have played against sustained development around the island. Most of the areas of interest for explorers — and the focus of the licences issued this week — are about 200km off the west coast in what is known as the “Atlantic Margin”.

Phillips Petroleum struck oil there as long ago as 1978 but the low oil price for most of the ’80s and ’90s, as well as logistical difficulties — the nearest hub for exploration is Aberdeen — have counted against developing the area. Many of those negative factors have now been overcome, however.

Energy Minister Pat Rabbitte said there could be up to 50 billion barrels of oil equivalent (BOE) around Ireland, but while one report estimated there were 10 billion BOEPD “yet to be found”, we really have no idea how much oil there is and, until exploring is done, we won’t know.

Most of the Atlantic Margin play involves drilling in deep water — up to 2,000 metres — in the middle of the Atlantic. These are not hospitable conditions at the best of times and present unique, and costly, challenges to drilling.

Market sources estimate the cost of exploring a single licence could run to $175m (€126m), with no guarantee oil will be found. When oil was between $7 and $10 in the early ’80s, it was simply not worthwhile to pursue it.

Viable drilling

With an oil price of close to $100 now the norm, however, drilling has become economically viable. As well as that, North Sea oil appears to have peaked and instability in the Middle East makes a country with a stable political environment like Ireland more attractive for prospecting.

“[The record number of applications for licences this year] probably reflects in part the flexible nature of the options but also the worldwide trawl that is under way by the industry for new oil and gas basins that can be developed,” says Davy Stockbrokers‘ Job Langbroek.

The other big change has come in technology. Advances in surveying equipment allow prospectors to estimate underwater reserves with much greater accuracy than before, and at lower cost.

These changes have attracted the likes of Providence Resources, which is the biggest player in the offshore Ireland space. As well as out and out prospecting, the company is going back over old discoveries and prospects, with new technology and modern geological techniques.

Apart from the economic and technology developments, the confidence in Ireland as an oil producer also comes from good results elsewhere in the Atlantic.

In the south, Tullow Oil has struck black gold with the massive Jubilee Oil Field off the west coast of Africa, and only last month the Irish-led company announced it had discovered oil off the coast of French Guiana on the east coast of South America.

That discovery helped re-inforce the “Atlantic Mirror” theory, which suggests large reserves of hydrocarbons are available on both sides of the Atlantic.

Reserves

In the North Atlantic, the Labrador Coast off Canada has huge proven oil fields. Therefore, the Mirror theory suggests, there should be large reserves on the eastern side of the ocean — right where Ireland is.

Another attraction of the Atlantic Margin is the quality of oil available. The international standard is Brent Crude.

When reporters say oil rose to, say, $105 a barrel yesterday, they are referring to the price of pure Brent. If a field produces oil with a lot of impurities, such as waxiness or high sulphur content, then the producer will get less for it.

Atlantic Margin oil, in particular that from the massive Porcupine basin — an area about three times the size of Ireland — is believed to be very close to Brent, with an especially low sulphur content making it very attractive to prospectors.

If that is the case, however, why weren’t the “supermajors”, as the biggest oil companies in the world are known, involved in this year’s round of Atlantic licences?

The lack of applications from an Exxon or a Chevron-Texaco has been taken in some quarters as evidence of a lack of credibility in Ireland as a drilling site, but the well documented problems at Corrib may well have made high-profile companies think twice before moving into Ireland, says Mr Langbroek.

In any case, Repsol is a top-tier firm with interests around the world. Exxon, while not involved in this round, bought into Providence’s Dunquin Prospect off the Kerry coast in 2006 and drilling will take place there by 2013 at the latest. Mr Langbroek believed the licensing round was “a solid success and compares very well with previous rounds”.

“It is quite usual in the industry for smaller companies to act as pathfinders and idea generators for the larger companies. If these companies can generate targets, the larger companies will ultimately follow,” he added.

If explorers do start producing large quantities of oil here over the next few years, how would Ireland benefit?

There have been calls from Socialist TD Joe Higgins and others for the Government to create a national exploration company so we can keep the profits from natural resources ourselves, but could the Government afford to put up to $175m (€126m) into a hole in the ground? Mr Rabbitte is adamant it can’t.

“We don’t have the investment capacity to do it ourselves but the tax-take is very significant,” he said when he made this week’s announcement.

Ireland’s tax regime for oil exploration is far more favourable to companies, compared with our closest neighbours. The lower tax has been controversial over the years but the Government insists it reflects the realities for the industry here.

Tax rates

If firms do succeed in getting oil ashore, they will pay a standard 25pc tax, with a maximum 40pc tax rate on the most profitable wells, a rate set in 2007. The rules are being reviewed by an all-party Oireachtas Committee.

In any case, it will be some time before companies, and Ireland, start to reap the benefits from the licences granted on Monday. Tullow struck oil off Africa in 2007 in conditions similar to here. From that point, it took four years before the field was producing oil commercially.

Monday’s announcement was the latest significant move in a calculated gamble that has been decades in the making. The next moves will happen far from the eyes of the public, in the boardrooms of The City and Wall Street as the winners raise capital to finance exploration, and in the murky and bitterly cold waters of the North Atlantic.

It will be some time before Ireland can report a staggering oil strike to match its near neighbours.

FULL ARTICLE