It's official: Ireland is back in vogue, and it's got nothing to do with fashion or nightlife. In fact the reason lies hundreds of metres below ground and occurs naturally.

While interest in Ireland's natural resources is nothing new - the first offshore well was drilled in the Celtic Sea back in 1971 and the first gas produced in 1978 - the pursuit of oil and gas in the country's waters is hotting up. An area once reserved for the minnows of the exploration world is now looking more attractive to the large multinationals thanks to declining resources elsewhere and an increase in the price of oil to a record of about $60 (€50.5) a barrel.

"From a geographical point of view Ireland has always been attractive to exploration groups, but the decline in resources elsewhere and the rise in the price of oil serves to increase this attraction," says Peter Hutton, an exploration analyst at NCB in London. Locations that were examined back in the 1990s using a long-term oil price of about $15-$20 a barrel can now be re-examined quite comfortably with a long-term oil price of $35, according to Hutton. "This makes a material difference to the economics," he says.

Earlier this week ExxonMobil, the world's largest oil and gas company, signed an agreement with Irish exploration group Providence Resources to drill the Dunquin Prospect for oil and gas in the Porcupine Basin off the west coast. According to Tony O'Reilly jnr, Providence's chief executive, the site has the potential to produce enough oil and gas to power the whole of western Europe, but Providence alone didn't have the funds or resources to drill to the depths necessary to locate the material.

The entry of such a large player into the Irish market - ExxonMobil had record profits of $36.1 billion last year, equal to $116 million every 24 hours in the fourth quarter - was welcomed by industry experts, including the Minister for Communications, Marine and Natural Resources, Noel Dempsey. Ireland currently produces no oil and has limited supplies of gas coming from Kinsale Head and Seven Heads, both off the Cork coast. While the Corrib gas field in Co Mayo was intended to reduce imports by about half over the next decade, the project is currently on hold because of the environmental concerns of local people. Even if these are overcome, it is unlikely to produce any gas for the next year or two.

With demand for gas forecast to increase by 15 per cent by 2010 and 71 per cent of Irish electricity expected to be generated using natural gas by 2020, it is essential that indigenous discoveries are encouraged, says Fergus Cahill, chairman of the Irish Offshore Operators Association.

According to Cahill there are three main reasons why Irish discoveries and production are to be encouraged. Firstly there is the issue of self-sufficiency - currently 80 per cent of gas is imported, and most of that from the UK, which itself has recently become a net importer of gas. Then there is the issue of security - as the recent dispute between Russia and Ukraine showed, Ireland could be vulnerable to any change in export policy by the Russians; and then there are the benefits to the economy of producing gas locally, in terms of both job creation and reducing the cost of gas.

"It's very, very desirable to get our own supply going," says Cahill, who believes that what is needed is for one company to make a large discovery, and the rest of the exploration companies will follow suit and come looking for supplies in Ireland.

Job Langbroek, an analyst at Davy in Dublin, agrees. "With the oil companies it's a case of follow my leader," he says. "It will only take one decent-sized economically viable discovery and Ireland will be back in vogue."

However, Ireland's success rate so far isn't one to shout about. Industry sources estimate that over the past 30 years more than €2 billion in today's terms has been invested in exploration and appraisal wells, though there is very little to show for it. So far, four commercial discoveries have been made in Ireland from 125 wells, This compares with 182 commercial discoveries from 1,498 wells in the UK and 46 from 456 in Norway.

While the renewed interest is great news for Ireland we should be careful not to get carried away, says Cahill. The potential supplies are all quite a way offshore and therefore the costs of drilling are significant and most of the smaller Irish players would struggle to foot the bill. Exxon said earlier this week that it may cost as much as $50 million for each well drilled at the Dunquin site. Cahill is also quick to point out that conditions off the west coast are not ideal for exploration because of the very strong swell in the area and also the poor weather conditions.

Still, the real test of the increased interest in exploration in Ireland will come next month with the deadline for the latest licencing round. In the last round, only two licences were awarded. This compares with the 1970s when dozens of licenses were awarded in each round, while in 1978 alone 15 exploration wells were drilled. Cahill said he expects two wells to be drilled this year, probably in the Celtic Sea.

So while ExxonMobil is the first multinational to move into Irish waters in recent years, it is unlikely to be the last, according to Gerry Hennigen, an oil and gas analyst at Goodbody.

"What is surprising is not the fact that Exxon had signed the agreement with Providence, but that it took so long to do so," says Hennigen.