Ireland's oil and gas deposits could make us rich, but finding them is hard, extracting the stuff is tricky and as for making money . . . don't hold your breath, writes RONAN McGREEVY
FOUR YEARS AGO the Department of Natural Resources published Atlantic Ireland: An Exciting Petroleum Province, a report about the potential for fossil fuels in Ireland's territorial waters.
Oil and gas are found in sedimentary basins on the ocean floor where the detritus of plants and animals decomposes over millions of years. Ireland is surrounded by such basins with potential for gas and oil. There is the vast Rockall Basin, 200km off the west coast; the Porcupine Basin, off the southwest; the Celtic Sea Basin, off the southeast coast; the Slyne Basin, where the Corrib gas field is located; the Donegal Basin, off the north coast; and the Kish Basin, off Dublin.
The report concluded that these basins alone could contain 10 billion barrels of oil. At current market prices that amounts to €850 billion worth of oil, about 10 times the size of the EU-IMF bailout fund. There is also an unquantifiable amount of gas. With such riches Ireland is a bit like a man whose home is about to be repossessed who cannot find his winning lottery ticket down the back of the sofa.
Fergus Cahill, the chairman of the Irish Offshore Operators’ Association, wrote to economists and opinion formers this week urging them not to forget oil and gas as a potential source of revenue. He notes, though, that we do not have the natural advantages of some other countries. “Historically, about one well in 25 drilled in Ireland is commercial,” he says. “It is one in two off the coast of Angola, one in five in Norwegian waters and about one in seven in British waters. We are in a worldwide competition for exploration.”
Providence Resources is Ireland’s largest indigenous exploration and production company. Its chief executive, Tony O’Reilly jnr, was in the US this week for Ireland Day at the New York Stock Exchange. He says many in the audience were dumbfounded that Ireland had such potential in traditional hydrocarbons. On the other hand, he admits that in 30 years exploring off the coast of Ireland “we haven’t made a penny out of it as a company”.
But he cites the spike in oil prices and new technology as game-changers. Later this year Providence is going to drill an appraisal well, to see if oil already found is available in commercial quantities, in an area called Barryroe in the Celtic Sea, where it believes it can find 60 million barrels of recoverable oil. Oil was first found there in 1990 but was not commercially viable because the price then was only $35 a barrel. It is going to be comfortably above that for the foreseeable future. The company hopes to make a “declaration of commerciality” this year, which would make it Ireland’s first commercially successful oil field.
A similar appraisal well will be drilled in Hook Head. Bigger still is Spanish Point, 200km out to sea off the west coast, where gas was first discovered in 1981. O’Reilly says it is another example of a large field that has become potentially commercially viable. “When it was first discovered, you might as well have found gas on the moon,” he says. “The infrastructure wasn’t there, the price wasn’t right or there wasn’t the technology. All those things that worked against us in the past are working favourably for us now. The market has moved to us.”
But the experience of the Corrib field, where gas was discovered in 1996 but has still not started to flow, shows that, even when hydrocarbons are found, processing them is another matter. Though O’Reilly maintains Corrib has never been an issue for his investors, Fergus Cahill of the operators’ association says it caused many in the industry to ask questions about Ireland’s planning system. Investors need certainty and “Corrib has not been a help”, says Cahill.
Outside the industry, others say there is a more general problem: Ireland’s low taxes on exploration, and how little the State stands to make from natural resources. Campaigners say the 25 per cent corporation tax on profits from the Corrib gas field are too low, amounting to a giveaway to exploration companies and too little income to the public. Many on the left want a state exploration company to be set up and a rate of taxation applied that is more than 50 per cent of profits.
Fine Gael has held out the possibility of the State taking an equity share in new finds but acknowledges that this would mean the State meeting some of the investment costs. Its election manifesto did not suggest changing the licensing terms. Labour, on the other hand, made the revision of the terms granted to Shell for the Corrib gas field a manifesto commitment, as part of a general review of the taxation regime for oil and gas. There is no mention of oil or gas in the programme for government.
The previous minister for energy Eamon Ryan upped the State’s take from 25 per cent to 40 per cent for the most profitable fields. By contrast Norway has a tax take of 78 per cent of profits, but it has proven reserves. O’Reilly says Norway was able to set up a state oil company, Statoil, and a sovereign wealth fund only after it had found substantial reserves of oil and gas. “They got that after private companies went and invested and had success. Over years the tax revenue came in and allowed them to underpin their sovereign wealth fund.”
Irish licensing terms are “absolutely fair” and competitive, according to Pat Shannon, professor of geology at UCD. “If they were overgenerous we would have every big company in the world in here. The fact that we don’t have companies queuing up means that they don’t see Ireland as a giveaway. To me that is the bottom line.”
Last year the government announced a new round of Atlantic licences, which will be the most comprehensive round to date. They cover an area of 250,000sq km and, crucially, allow exploration firms a two-year licence for the first time, so they can assess if their blocks are worth further exploration. The uptake will be known later this summer.
Along with offshore developments, there are two significant onshore prospects. Last month the government gave onshore petroleum licences to two companies, Lough Allen Natural Gas Company (Langco) and the Australia-based firm Tamboran Resources, to look for gas reserves in Lough Allen, Co Leitrim, where previous studies have found the equivalent of 9.4 trillion cubic sq ft of gas worth the equivalent of €108bn at today’s prices.
Langco’s chief executive, Martin Keeley, says the two companies will spend millions investigating the site’s prospects with no guarantee of success. Previous studies found gas, but in rock formations that made it hard to extract commercially. The companies are hopeful new technologies will make the gas extractable. A similar licence was given to look for gas in the Clare Basin, an area comprising Co Clare, north Kerry and west Limerick.
Pat Shannon says, “There is a huge element of luck. If nobody drills any wells we won’t find any oil, but if we have a reasonable number of wells, say five to 10 wells drilled every year for four or five years, I would be very disappointed if we did not find anything.”
