Ireland's prospects for producing oil to become clear in 2013

Wed Feb 27, 2013 11:22am EST

* Two tests will be key to determining industry interest

* Majors now looking at offshore Ireland

* One large find could make Ireland self-sufficient in oil

By Lorraine Turner and Conor Humphries

DUBLIN, Feb 27 (Reuters) - Ireland's prospects for cashing in on its offshore oil and gas reserves will become clear in 2013 as a series of tests determine whether a recent flurry of interest can be converted into commercial production.

Hopes that oil production will provide revenue for a debt-laden government and a path towards energy independence picked up last year after Irish explorer Providence Resources reported the first commercially viable oil-flow rate at its first drilling target, Barryroe.

Providence will announce in the coming months whether the field will be the first in Ireland to be declared commercial. Companies will also drill two deep wells, which are expected to give the clearest indication yet of how large the resources might be on its large Atlantic shelf.

The results of this exploration will determine whether oil companies are likely to take options on fields off the west coast when a government deadline approaches in October, which is crucial to maintaining the momentum of the industry.

"This year ... will determine whether the potential is there and the level of future industry interest in Irish offshore" said Fergus Cahill, chairman of the Irish Offshore Operators' Association.

"In the top-end scenario we'd hope to see a markedly increased level of activity," he said. "If the results are disappointing, momentum could be lost. We would just stagger along as we have been for the past 10 or 15 years."

Analysts estimate the Barryroe field at full production could provide the government with up to 500 million euros ($653 million) a year in revenue, equivalent to the tax increases planned next year under Ireland's austerity programme.

Unlike Cyprus, Ireland is not pinning its hopes on petrodollars to reduce its debt mountain. It would take a number of large wells to put a dent in its national debt of around 200 billion euros, 120 percent of its annual economic output.

The output from one large field, however, could cover Ireland's oil consumption, which BP estimates at 143,000 barrels per day, said Pat Shannon, a professor of petroleum geology at University College Dublin.

That would take a chunk out of Ireland's 5 billion euros of annual net imports of oil, gas and related products and improve its balance of payments. The country imports 95 percent of its gas and has some of the highest electricity prices in Europe.

Barryroe could be onstream by 2017, assuming a partner is found to help finance its development and the field is declared commercial with an estimated productive life of 25 years.

ON THE RADAR

The first test of Ireland's prospects will be the drilling of a deepwater well at the Dunquin prospect this year, a less explored block off the west coast which is creating a buzz in the industry due to its unusual geological structure.

Exxon Mobil will be the operator in a consortium that includes Italian oil major Eni, Spain's Repsol , Providence and Sosina Exploration Ltd.

"The majors are, (now looking at Ireland), judging by who we're getting," Europa Oil & Gas Chief Executive Hugh Mackay said in an interview last week, noting interest from household names and echoing similar statements from Providence.

The second significant result will be from an appraisal well at the Spanish Point Gas Condensate discovery, to be operated by privately held British oil company Chrysaor, with Providence and Sosina holding stakes in the project.

The Irish government estimates that what it calls the Irish Atlantic Margin, which includes Dunquin and Spanish Point, has unproven potential oil and gas reserves of 10 billion barrels of oil equivalent.

"We believe that offshore Ireland is emerging as an exploration hotspot for oil and gas companies," analysts at Oriel Securities said in a note last month.

But Ireland has attracted similar interest in previous decades and so far has little to show for it.

Nearly two decades after the discovery of gas at Corrib, the ill-fated site is still not on stream, and operator Shell recently said it would not start up before 2014.

Corrib has been beset by protests and delays as locals have objected that a planned pipeline to bring gas from the offshore field to a terminal on the mainland posed risks to safety and the environment. Project costs have soared from 1 billion euros to 3 billion, cancelling out any possible tax revenue.

Corrib's troubles and the fact Ireland does not yet have a major commercial oil field have prompted the government to take a cautious approach on its tax rate on oil and gas to entice explorers. The current taxes include a 25 percent corporation tax and a resource rent tax of zero to 15 percent of profits.

"If we had a Norway-style find, I would be minded to recommend to the minister for finance that he change the tax structure," Energy Minister Pat Rabbite said in an interview late last year, referring to Norway's upper tax bracket of 78 percent.

"Whether it's commercially extractable, we're not yet satisfied about that. There is more work to be done (but) it looks encouraging".

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