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Oil Companies Take a Punt on Offshore Ireland


Oil Companies Take a Punt on Offshore Ireland

UK: August 21, 2008

DUBLIN – Oil and gas companies are stepping up exploration efforts off Ireland’s coast, lured by an attractive tax regime and higher energy prices.

Offshore projects in Ireland had been overlooked by many firms due to high costs and a lack of commercial finds since drilling first began in the 1970s.

But prospectors such as US major Exxon Mobil and Norway’s StatoilHydro now hope to strike it lucky in Ireland as access to new fields elsewhere gets harder.

A study commissioned by the Irish government said early data showed potential reserves of 10 billion barrels of oil off Ireland’s Atlantic coast.

Ireland remains vulnerable to global supply disruptions because it is at the end of Europe’s pipelines, It has tried to woo oil companies with financial incentives and a recent series of offshore licensing rounds.

“The majors are looking for new places to explore and the favourable tax rate in Ireland makes it worth a punt,” said Andrew Harwood, energy analyst at Wood Mackenzie.

Exploration companies pay 25 percent tax in Ireland, which rises to 40 percent for the most profitable finds — lower than the 50 percent rate in the UK, 78 percent in Norway and over 80 percent levied in other regions.

The growing momentum is expected to result in offshore investment in Ireland of at least US$250 million this year, according to industry body IOOA. While small compared to elsewhere, it will be the highest level since 1978.

“High oil and gas prices, improved deepwater technology and a safe political environment means that we can expect higher drilling activity in the future,” Davy analyst Job Langbroek wrote in an investor note.

While the price of oil has fallen over 20 percent from a record high above US$147 a barrel in mid-July, prospectors are taking a longer-term view.

“The short-term nature of the spiking is not something that you could plan your exploration strategy around,” said John Conroy, licence and operations manager with StatoilHydro’s Irish unit, which has a number of offshore projects.


Exploration activity in Ireland has remained relatively slow with 177 wells drilled to date, compared with around 4,000 in the UK and around 1,200 in Norway. While much of the drilling has centred around the Celtic Sea off southern Ireland, no oil has been produced yet. Gas production has totalled a modest 1.7 trillion cubic feet (tcf).

Gas from there area had supplied the bulk of Ireland’s needs but fields are now nearly depleted.

Smaller Irish exploration companies such as Providence Resources and Island Oil and Gas aim to exploit firmer oil prices, better seismic surveying data and advances in drilling technology to develop older discoveries in the Celtic Sea and tie them to existing facilities.

The shallow water and existing infrastructure has made it easier to get production onstream much quicker.

But the biggest potential returns are seen in the frontier Atlantic margin on Ireland’s west coast, characterised by harsh conditions and waters which reach over 2,000 metres in some places.

Drilling here is much more expensive due to the need for support vessels, with a well estimated to cost US$80 million to $100 million.

“There is huge potential reward off the west coast of Ireland, but obviously it is higher risk,” said Tony O’Reilly Jnr, Chief Executive of Providence Resources, which has partnered Exxon Mobil on projects in the area.


The only commercial discovery made in the area is the Corrib gas field, found in 1996 and expected to come onstream in 2009 after being beset by delays.

It is hoped Corrib, which is operated by Royal Dutch Shell with estimated reserves of around 1 tcf of gas, will replace the Celtic Sea fields and help spur drilling in the Atlantic margin.

Patrick Shannon, a professor of geology at University College Dublin, said while no oil discoveries had yet been made around the Atlantic margin, tests showed it may lack sulphur, making it easy to refine and therefore more valuable.

“Everybody wants a Brent crude or a West Texas type crude and the Irish crude oil, certainly in the Atlantic margin is of that quality,” Shannon said. “We know there is a petroleum system, we don’t know its extent.”

This year Shell and StatoilHydro each drilled an exploration wellin the Atlantic margin, with the results awaited.

“It really does depend on near term exploration success whether people remain interested in Ireland’s Atlantic acreage,” said Wood Mackenzie’s Harwood. “There needs to be some kind of payback.”

Story by Jonathan Saul


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