Is the Irish Atlantic Margin at a pivotal point?

 The Irish Atlantic Margin is one of the last underexplored and poorly understood frontier regions in north-west Europe, however recent successful exploration in Canada, the UK and West Africa has drawn attention to the potential of the area.

The 2015 Atlantic Margin Licensing Round closes on 16 September and the Irish Government is hoping for more interest than the 2011 Round. However, the consequential collapse in global exploration resulting from the 2014 oil price crash since the Round opened last year could dissuade players without a long term perspective from participating.

Geologically the margin is divided into discrete structural areas or basins; Porcupine, Slyne, Erris, Donegal and Rockall. Working petroleum systems have been proven in all but the Donegal Basin. Until recently the geological evolution of these basins has been poorly understood, however major studies by the countries and provinces bordering the North Atlantic have made significant strides in developing a coherent regional picture. Hannon Westwood’s prospectivity database shows Porcupine and Rockall holding the greatest estimated yet-to-find prospective resources; 7.8 billion boe and 10 billion boe respectively. The Slyne, Erris and Donegal basins have estimated yet-to-find prospective resourcees of 1.37 billion boe, 0.75 billion boe and 0.28 billion boe respectively.

The highs and lows

The Irish Atlantic Margin is nearly one and a half times the area of the UK equivalent, yet activity has remained comparatively low.

Since the first petroleum licence was awarded in 1976 approximately

60,000 km2 has been licensed (Figure 1) and 54 wells drilled. Focus has been around the northern Porcupine, Slyne and Erris basins, with the southern Porcupine and deep water Rockall basins largely ignored.

In a burst of activity between 1977 and 1982, 26 wells were drilled; in the next 30 years, 28 wells were drilled. Although several discoveries were made, only Corrib has reached commerciality and is due to come onstream this year, 19 years after discovery. Commercial success has been elusive, but there are positives signs for the region.

Eight discoveries from 43 exploration wells gives a technical success of 19 per cent, favourably comparable with other frontier basins. The UK Atlantic Margin is 32 per cent, but when the results of the first 43 wells in both areas were compared, Ireland initially appeared better than the UK (Figure 2). That was before the recent reassessment of the Clair Ridge discovery following a determined appraisal campaign by BP, which now makes the early stages of exploration in the West of Shetlands look better than Ireland. A similar re-assessment of Irish discoveries could be possible.

Historic exploration concentrated on large structural features, with Triassic and Jurassic reservoirs accounting for 75 per cent of the targets, but large discoveries in stratigraphic traps in West Africa, (Tullow’s Jubilee and Mahogany Fields) have attracted successful companies to look for similar plays in Ireland. Such plays have been successful in the UK (Foinaven and Schiehallion fields) and its extension into Ireland seems logical. The Dunquin North well in 2013 attracted giant players ExxonMobil, ENI and Repsol exemplifying how new ideas can be leveraged from other parts of the Atlantic Margins. Although the well was not ultimately successful, it demonstrated the potential of the area and might yet point the way to a world class field.

The value of data

2D seismic coverage is generally excellent, but much was acquired before 1995. New acquisition and processing techniques provide vastly improved results, at lower unit costs. In 2013-2014, new surveys were acquired by Seabird Exploration (4,872km south Porcupine multiclient 2D) and by BGP for the Irish Petroleum Affairs Division (16,800km in the Rockall Basin, where availability was largely non-existent). This government subsidised data is available for purchase from the PAD now.

Only 10 exploration wells have been drilled on 3D seismic. Acquisition started in 2000, but recent surveys by Dolphin for Cairn South of Spanish Point (proprietary) and by Polarcus for Kosmos (proprietary) and on the eastern and western margins of the Porcupine Basin (multiclient) presage new drilling.

Fiscal changes

The Irish Government revised its fiscal terms for the petroleum industry in 2014 to stabilise the taxation system and encourage investment in offshore exploration. The revamped regime comprises a combination of Corporation Tax (CT) and Petroleum Production Tax (PPT). It applies to the 2015 Round, but is not retrospective PPT is levied by field with a minimum rate of 5 per cent increasing to 40 per cent according to profitability. CT remains at 25 per cent, with PPT deductible. Capital allowances include accelerated depreciation and immediate write-off for 100 per cent exploration and development costs once a field commences production. There is provision for the deduction of abandonment expenditure. Losses can be carried forward indefinitely and there are incentives for research and development. There are no incentives for unconventional oil and gas or any direct incentives for exploration drilling.

The headline tax rate ranges from 28.75 to 55 per cent and though higher than the previous rate (25-40 per cent) is more generous to smaller, less commercially attractive fields as PPT can be deducted against CT. Ireland has a lower comparable government take compared with the UK (50-75 per cent) and Norway (78 per cent).

Commerciality in a low oil price environment

Hannon Westwood’s new Atlantic Margin Study details 54 prospects in the Rockall Basin where only three wells have been drilled, one making the Dooish Discovery.

Using proprietary software a breakeven model using government data and field analogues has been developed. Of the prospects, 42 exceed a 30 mmboe cut-off; each is assessed separately with no synergies for dual targets or potential cluster developments.

At an oil price of $60/barrel 32 prospects with a potential resource of 7.5 billion boe out of an estimated 10 billion boe will breakeven or better and could be economically developed in the event of successful exploration.

The future

Improved seismic techniques and continued research are unlocking our understanding of the prospectivity of the Irish Atlantic Margin, with technical advances benefiting exploration and development. Technology is becoming more efficient and less expensive, facilitating operations in challenging environments and achieving greater oil recovery.

Companies are applying new ideas to unlock the potential of the Atlantic Margin, many are experienced in similar operating conditions or have had success with analogous plays in West Africa.

The Irish Government has done its utmost to put Ireland in the best position it can ahead of the 2015 Licensing Round, with new subsidised seismic and a favourable fiscal regime which works for both the Irish people and the oil companies.

All the elements are in place to transform Ireland from the last frontier to an exploration hub with a strong offshore industry and the potential to supply the country with reliable sources of energy.

Please contact us for more information on our Irish study and services

By Andrew Vinall, Catherine Caulfield and John Corr

Hannon Westwood, 100 Brand Street

Glasgow, G51 1DG

Tel: 0141 534 7903

Email: info@hannonwestwood.com

Web: www.hannonwestwood.com