Oil price hike fails to spark Irish exploration: ThePost.ie


TCH Archives > Sunday Business Post > 2005/08/21 > Oil price hike fails to spark Irish exploration

Oil price hike fails to spark Irish exploration
Sunday, August 21, 2005 - By Laura Noonan
Spiralling oil prices are luring oil exploration companies to waters where exploratory drilling was previously considered uneconomic.

However, companies in Ireland have been slower than most to respond. Despite our favourable tax regime, not a single oil exploration well will be drilled in Irish waters this year.

“Higher oil prices do lead to higher levels of exploration. It's a logical assumption that better returns encourage people to become more active,” said Job Langbroek, an industry analyst with Davys.

“But it's hard to point to any particular project that's going on in Ireland and say that it is a direct result of higher prices.”

Fergus Cahill, chairman of the Irish Offshore Operators Association, said that oil prices did not seem to have had an impact on exploration levels in Ireland so far.

“Look at the licences just announced in Rockall Basic - there were only two applications,” he said.

However, Paul Griffiths, chief executive of Island Oil and Gas, said his company was responding to the oil price increase. “Higher prices for oil do give us a greater incentive to look at oilfields,” he said.

“The prices don't guarantee that sites can be made economic, there can still be technical difficulties and issues to resolve, but it does mean that there is a greater chance.

“Worldwide, there has been a significant increase in oil and gas exploration. But in Ireland it has taken time to filter through.”

David Horgan, managing director of oil exploration company Petrel Resources, said the poor history of oil finds around Ireland meant that exploration levels were not increasing in line with those around the globe.

“Ireland is a true disaster for exploration - there have been some discoveries, enough to give hope, but nothing economic.

“We would never explore off Ireland. Why would you?

“It is expensive and the returns are poor. The only positive thing was thinking there was zero political risk, but with the hummings and hawings the minister made about Shell taking up the pipe, that might not ring true any more.”

Experience of the Irish market shows that, for every 50 wells drilled, one turned out to be commercially viable, Cahill said. In Norway, one commercially-viable well is found for every three drilled. In the North Sea one is found for every six drilled.

“Companies have just left Irish exploration - BP, Elf, Total - they're all gone,” said Cahill. “Not long ago, we had 16 members, now we have eight.”

Horgan said that even though oil exploration in Ireland was uneconomic, there would always be companies looking to try it. “No matter how ugly you are, you'll always find a drunken sailor,” he said.

Even Shell, one of the most active companies in Irish oil exploration admits that the exercise has so far been uneconomic.

“Shell looks at other areas in the Atlantic, so we can take our expertise from there. But just looking at Ireland on its own, it probably does not warrant the effort required,” said Andy Pyle, managing director of Shell Exploration and Production. “It is a very difficult market.”

Shell spent $30 million exploring a site at Dooish on the Atlantic coast. When it eventually found gas, it was so deep it was uneconomic to develop.

So far Shell has spent more than €500 million on its gas site in the Corrib. Work on the site has been halted because of local protests about the routing of a pipe through Co Mayo.

Most of the 350 staff on the project have been laid off.

Industry sources also agreed that the fiscal terms in Ireland were attractive because the state had no participation in explorations and demanded no royalties.

“But considering the lack of exploration success, they have to make the terms attractive,” Griffiths said.

Griffiths said his company remained optimistic about the prospects of finding oil off the Irish coast, so much so that they now had nine Irish oil licences.

Earlier this year Griffiths' company and Shell were offered 16-year licences to look for oil in the Rockall Basin frontier area in the Atlantic.

“There is oil to be found here, oil has already been found. It's just a matter of trying to find oil in sufficient quantities,’' Griffiths said.

Pyle said the oil prices “obviously helped'‘ Shell's explorations. “But short-term oil prices do not make much of a difference, we are looking at long-term oil prices, over the next ten years,” he said.

Langbroek said that most companies in the industry here were taking a long-term view and were not easily swayed by high prices. Prices would have to remain high for several years in order to affect activity, he said, and most exploration companies were still using prices of $20 to $30 a barrel for their forecasts.

“It would be very stupid to commit major funds to any thing that would only be profitable at $50 a barrel,” said Langbroek.

He said companies had begun to “adjust their expectations upwards'‘ and he expected a number of wells to be drilled next year.