Gas field reserves to be downgraded

THE Seven Heads gas field off the Cork coast suffered a major setback yesterday as its operator, Scottish energy firm Ramco, said they were preparing to downgrade the value and amount of reserves in the field.

The move sent the company’s shares plummeting by 60%.

The reassessment of the reserves in the gas reservoir is the second blow for the company this year, after it had seen product of gas slow significantly due to water in the wells. It had expected to extract 60 million cubic feet of gas from the wells but it had fallen to an average of 40mmscf.

Ramco has been looking at data collected after the pressure dropped and was preparing to “reassess the field’s future deliverability and recoverable reserves.”

“Our technical team believe the process successfully removed most of that water from the wells enabling more accurate reservoir pressures to be obtained,” said a company statement to the stock exchange.

“Our understanding of what is a significantly more complex reservoir than we had thought now requires a fundamental reappraisal. Ramco will be postponing its preliminary announcement for the year ended December 2003, until early May, to allow an initial reassessment of reserves to be completed,”

The news saw Ramco’s share price crumble again and end the day at 40p, a drop of 57p, or 60%.

The shares have lost around 90% of their value this year.

Ramco’s vice-president for Ireland, Steve Boldy, said the company was extremely disappointed by what had happened.

The Seven Heads field was seen as a boost for offshore exploration in Ireland and a boost for production for when the nearby Kinsale field finally ends products. The gas was also seen as vital to supply given the continued delay with the Corrib field in Mayo.

The Sevens Heads was explored several times in the 1970s, but the cost of extracting the gas was considered too expensive. However, with modern drilling techniques it was thought that the gas, which had the potential to supply up to 15% of the country’s needs, would have been taken out easily.

“Lots of the data that would have been gathered in the 70s was incorporated with ours but when you drill an exploration well it is only tested for a short period and that doesn’t give a feel for how the reservoir will behave over a long period of time,” said Mr Boldy.

The field was estimated by some analysts to have been worth around £500 million. The company did not say how much it expected its proven reserves to decrease by.

To compensate the company that buys the gas the Seven Heads produced, Ramco imported the shortfall from Britain. It was making a small profit on this as the price of gas in Britain is cheaper, but it is not a situation the company will want to continue indefinitely.

The Seven Heads field is majority-owned by Ramco, which has a 86.5% in the venture. The other investors are: Island Petroleum Developments, with a 12.5% holding and Sunningdale Oils (Ireland) with a 1% stake.

Before the problems emerged earlier this year, London stockbroker Seymour Pierce said that the shares could be worth up to £7.64 based on demand and the strength of gas prices.

Yesterday, the company was valued at just under £12 million.