After being abandoned by oil companies for decades, offshore Ireland has become hotter than a bowl of Irish stew following Providence Resources' (PVR) huge "rediscovery" of the Barryroe oil field in the Celtic Sea earlier this year. The potential 1.6bn-barrel find has prompted junior explorers to snap up prospective licences in the underexplored waters surrounding the Emerald Isle, while several major multinationals are also planning a $500m (£310m) joint drilling campaign there.
The last time things looked this good for Irish oil was in the 1970s and early 1980s, when a similar spurt of drilling yielded several small oil discoveries - although none was ever developed due to technical or commercial barriers.
Now, however, advances in deepwater drilling technology, higher oil prices, more favourable tax laws, better infrastructure and a dearth of good prospects in other safe jurisdictions have made oil companies take a closer look at Ireland's offshore prospects.
Indeed, 12 companies won licences to explore off the country's Atlantic coast in the country's last licensing round. And a half a dozen junior oil companies on London's Alternative Investment Market are now talking up the vast exploration potential of their blocks.
Leading the charge is Providence, which owns 80 per cent of Barryroe but wants to farm down its interest to a major oil company in return for being carried on development expenditure.
First discovered by Esso in 1974, Barryroe sits about 50km off the south coast of Ireland in the relatively shallow waters (100m) of the North Celtic Sea Basin. Drilling and 3D seismic modelling by Providence has shown the size of oil-bearing reservoirs at Barryroe to be much larger than originally thought; the latest oil-in-place estimates for the two main reservoir intervals, Middle Wealden and Basal Wealden, calculate 1.04bn barrels of probable reserves, rising to 1.61bn if possible reserves are included. Oil-in-place estimates for two other intervals, Lower Wealden and Purbeckian, add a further 778m barrels and 1.16bn barrels on a probable and possible reserves basis, respectively, although no recovery factor has been assessed for these reservoir intervals at this time.
Tony O'Reilly, chief executive officer of Providence Resources Plc, second right, speaks during a Bloomberg Television interview.
And while there are lingering concerns about future recovery rates, Barryroe is rapidly shaping up to be one of the largest oil fields found in waters around the UK over the past 15 years - rivalling even the giant Buzzard discovery in the UK North Sea in 2001.
What's more, Providence has exciting prospects to drill in five other geologically distinct basins offshore Ireland. Oil majors ExxonMobil, Repsol, ENI and Petronas have all partnered with Providence on various Irish oil licences, agreeing to collectively spend up to $500m on a multi-year, multi-target drill program. They are targeting large geological structures off the west coast of Ireland in an area called the Irish Atlantic Margin. Irish government estimates from 2006 suggest up to 10bn barrels of oil-equivalent resources could be found there.
The first well to be drilled will be the high-risk, deep-water Dunquin prospect. ExxonMobil is the operator of the licence and plans to drill a frontier exploration well there early next year (Providence holds a 16 per cent interest in the licence). Identified through seismic surveys, Dunquin is likely to cost as much as $200m to drill; the sheer size of the target, however, with prospective resources of about 8.4 trillion cubic feet of gas and 316m barrels of oil - make it well worth the risk.
Still, history perhaps suggests that the chances of finding oil offshore Ireland are only slightly higher than finding a pot of gold at the end of a rainbow. According to Fergus O'Dowd, Ireland's natural resources minister, 157 wells have been drilled offshore Ireland over the past 40 years. This has led to just four significant gas discoveries and no commercial oil discoveries (not counting Barryroe, which has yet to be officially deemed commercial, although it seems likely to be) - a miserable discovery rate by most accounts. Nevertheless, optimists might contrast this figure with the amount of wells drilled in waters attributable to the UK - over 4,000 - making offshore Ireland seem very underexplored by comparison. Exxon's geologists, clearly in the second camp, estimate that the Dunquin well has a 16 per cent chance of success.
TOP JUNIOR OIL & GAS COMPANIES ON AIM WITH INTERESTS OFFSHORE IRELAND
PROVIDENCE (PVR) 684p
Despite its huge share price rise this year, Providence has to be the preferred pick of the junior Irish oil explorers. The company controls a large pipeline of advanced, drill-ready prospects which it acquired over the past decade when very few other companies were interested. It has also attracted several prominent industry partners who have the technical expertise, not to mention the cash, to carry out successful exploration over the coming years. We decided to book profits on our long-term successful buy tip earlier this summer, but will look to re-enter the stock over the coming months.
Last IC view: Take profits (650p, 1 Aug 2012).
LANSDOWNE OIL & GAS (LOGP) 61p
Dublin-based Lansdowne has a 20 per cent interest in Barryroe along with interests in several other oil and gas plays in the Celtic Sea. With a market capitalisation of roughly £85m, Lansdowne could be seen as a potential takeover target should Providence find a willing partner for Barryroe.
Last IC view: None.
SAN LEON (SLE) 9.2p
Another original partner on the Barryroe licence, San Leon traded its 30 per cent interest for a 4.5 per cent net profit interest in Barryroe. This way, San Leon won't have to pay any further appraisal or development costs as the project moves forward, but could book handsome rewards in several years' time. While the company has a diverse range of projects - ranging from shale gas in Poland to offshore oil and gas exploration in Morocco and Albania - it also boasts a sizeable portfolio of Irish offshore oil and gas assets stemming from its 2010 takeover of Island Oil & Gas. Importantly, it holds interests in several gas fields in the Celtic Sea as well as operating four licences along the Irish Atlantic Margin, where most of the excitement will be over the coming months.
Last IC view: Hold (10.5p, 28 Sep 2012).
EUROPA OIL & GAS (EOG) 8.25p
Awarded two exploration licences in the 2011 Irish Atlantic Margin licensing round, Europa is currently trying to find farm-out partners to help advance its prospects. Hugh Mackay, Europa's chief executive, told Investors Chronicle: "We're not putting out reserve sizes just yet, but they're potentially pretty large. It [offshore Ireland] reminds me of Cyprus some years ago." The company's blocks cover some 2,000 sq km of the Porcupine Basin, where previous drilling proved the existence of a viable petroleum system.
Last IC view: Fairly priced (18.75p, 26 Apr 2011).
PETREL RESOURCES (PET) 6.25º
Formed in the last big Irish oil rush during the early 1980s, Dublin-based Petrel is now mainly focused on Iraq, where it has been seeking an agreement to develop three existing oil fields. However, it also won two exploration licences in the 2011 Irish licensing round covering part of the vast Porcupine Basin, and is currently interpreting available seismic data to identify potential drill targets.
Last IC view: Speculative buy, 20p, 16 September 2010.
