OPINION:Assertions that Ireland is 'giving away' its oil and gas resources ignore some very basic facts, writes FERGUS CAHILL.
WHEN MARATHON Oil discovered gas off Kinsale in 1971 there was much anticipation of a series of major discoveries, such as were being found in the North Sea. Sadly, this did not happen.
Since then, the only commercially significant discovery has been Corrib in 1996, 25 years later, along with some modest gas discoveries in the Celtic Sea.
To change this situation and to improve energy security, Ireland must become a more attractive exploration area for oil and gas companies. Ireland currently imports 95 per cent of its gas and all of its oil. Some 60 per cent of our electricity is generated in gas-fired power stations. The Kinsale Head gas field, with its satellites at Ballycotton and Seven Heads, is nearly exhausted and the Corrib field, discovered in 1996, has yet to come on stream. Our consequent exposure to supply interruptions has been emphasised by Forfás and the International Energy Agency. Sustainable Energy Ireland forecast that this exposure will become more acute as our traditional sources of supply from the North Sea become depleted and we import gas from farther afield.
Undoubtedly, industry interest in the Irish offshore area has waned. Despite the considerable promotional efforts of the Department of Communications, Energy and Natural Resources, only two applications for new exploration licences were made under the Rockall Licensing Round this year. In similar recent rounds in the UK and Norway, there were 193 and 46 applications respectively.
This is the context in which we must examine the validity of Andy Storey’s claims (State losing billions in natural gas giveaway, Opinion and Analysis, June 19th).
Why, if Irish fiscal terms are said to be so attractive, is the industry not beating a path to the Minister’s door? Why are companies flocking to the apparently penal tax regimes of Norway and the UK? The answer lies in taking account of the whole picture, rather than single elements.
When drilling a well In Norway, the odds of making a commercial discovery are as good as 5 to 1, and the average size of discovery is large. Norway has well-developed infrastructure and services. Most tellingly, in order to maintain the momentum of exploration and to attract new entrants, the State refunds about 78 per cent of the cost of unsuccessful exploration wells.
These are the factors that enable Norway to apply a high tax on production. In Ireland, in contrast, the odds of making a commercial discovery are historically about 25 to 1. Infrastructure is limited, costs are high, and the full cost of exploration is at risk.
Storey also quotes “credible estimates” that €50 billion worth of oil and gas reserves exist offshore. Why are Irish and international companies not scrambling for a slice of this enormous cake? The fact is that offshore Ireland is a high-risk, high-cost area. The industry has expended over €2 billion in today’s money, drilling 155 exploration and appraisal wells over the last 35 years, with quite limited commercial results.
In reality, Ireland is competing for exploration funds with other jurisdictions where there is the ready availability of acreage with good prospects, easy access to geological data, a welcoming climate for exploration companies, and favourable terms specifically designed to attract new entrants.
For instance, the New Zealand government has recently funded a major seismic survey to identify hydrocarbon prospects, the results of which will be made available free to potential licence applicants.
The UK operates a system of “Promote Licences” in which geological data is made available for a nominal fee. This easy access to data encourages small companies to apply for short-term licences with a view to identifying exploration prospects and attracting a partner with the resources to finance further surveys and possibly to drill a well. The UK government has also recently announced relaxation of its fiscal terms in an effort to encourage exploration.
These types of initiative generate a steady flow of new licence holders, which together with existing, long-term licence holders creates the critical mass of exploration that is vital for success and that is currently lacking in Ireland. However, the picture is not all gloom and doom.
Existing holders of Irish licences, such as Island Oil and Gas, Providence Resources and Serica Energy, have shown their ability to attract investment from larger players.
Many of the wells drilled offshore Ireland have encountered “shows” of oil or gas, and improved seismic and drilling technology may unlock more of the geological secrets. Serica, together with its German partner RWE, has recently discovered oil at its Bandon prospect west of Achill, which is the first oil find off the west coast for almost 30 years. While much effort and funds must be expended to determine if this discovery is commercially viable, this is a hopeful sign for the area.
Mechanisms such as those identified above, which would not prejudice the State’s tax take in the event of a commercial discovery, could be adapted to the Irish situation. All the stakeholders, and especially the State, should now focus on generating a substantial increase in the level of exploration activity.
Fergus Cahill is chairman of the Irish Offshore Operators’ Association which represents companies licensed by the Government to explore for and produce oil and gas in Irish waters. Members include: Eni UK Ltd, ExxonMobil International Ltd, Lansdowne Oil and Gas, PSE Kinsale Energy Ltd. Providence Resources Plc, Serica Energy, Shell EP Ireland Ltd, and StatoilHydro