Mixed views on Ireland’s oil and gas E&P sector prospects

A look at the future for the exploration and production industry in Ireland.

The outlook for Ireland’s offshore oil and gas exploration and production sector looks like a case of the cup half full or half empty depending on the perspective of the observer. Certainly, as consultants Wood MacKenzie observed in the context of their review of Ireland’s fiscal terms, Ireland remains high risk and high cost as it competes for its share of global E&P investment capital.

There have been all too few major commercial discoveries since petroleum exploration activity began in Ireland in 1960. There have been no commercial oil finds as yet and the only major commercial gas find following the Kinsale/Ballycotton/Seven Heads finds in the north Celtic sea was the Corrib Field, which was declared commercial in 2001 and is due to flow this year. And although Ireland remains relatively unexplored compared to countries like the UK and Norway, where thousands of well have been drilled, the return in terms of commercial discoveries from the 160 exploration and appraisal wells drilled around Ireland since 1971 has been disappointing. Drilling has also slowed down dramatically with only four wells drilled in the last five years.

Against all of this negativity however, the Government and the E&P sector generally, remain cautiously optimistic about the future for Irish oil and gas exploration. The Government, which has often argued that ‘proven resources’ is not the only measure of E&P success, can point to the fact that most of the 2011 Licencing Options were converted to Exploration Licences and that the number of offshore authorisations is running at a record high. The Government can also point to the technical and financial strength of the growing list of companies getting involved in the sector, a fact borne out by the growing membership of its sector umbrella association the Irish Offshore Operators Association (IOOA). It can also be satisfied about the increased investment in seismic data acquisition indicating that whatever difficulties there may be at present, there is a long term appetite for Irish E&P activity.

The major difficulty in viewing future investment in Irish E&P is the price of oil. The collapse in the oil price in the past year, from over $100 a barrel to around $50 a barrel, has seen companies cut back, worldwide, on exploration budgets and deferring planned developments and drilling. Although the sector with its lengthy lead times tends to ride out market and price fluctuations over the long term, there is no doubt the low oil price has had a dampening effect in the short term. Certainly the capital markets (as ever) have taken the short term view with Irish E&P companies experiencing very substantial share price markdowns in recent months. Providence Oil’s share price has fallen by over 80 per cent, and Irish oil companies operating beyond Ireland such as Petroceltic and former investor’s favouriteTullow, have had similar share price falls.

Despite the short term concerns, there is some ongoing activity on the Irish offshore with PSE Kinsale engaged in seismic acquisition and drilling a further exploration well near its existing field in the Celtic sea. Also, Cairn Energy subsidiary, Capricorn, is currently acquiring 2D Seismic data with a view to drilling an appraisal well later this year on its Spanish Point discovery in the Porcupine Basin.

As regards 2016 activity, IOOA Chairman Patrick Shannon was cautiously positive “Depending on the results of the evaluation of currently licenced acreage and of recent and anticipated farmouts, 2016 may see a further welcome increase in drilling activity subject to wider macro-economic conditions”.