Island Oil to focus on gas storage over exploration

ISLAND Oil & Gas has said exploration investment will largely be shelved in favour of increasing its gas storage facilities.

The Dublin-headquartered exploration and production company yesterday announced it has declined to take up a farm-in option agreement it had with Lansdowne Celtic Sea Ltd regarding a number of that firm’s blocks off the south coast of Ireland.

Farm-in agreements see companies take on other firms’ drilling costs in certain projects, in return for either an equity stake in the firm or a share of the profits if the relevant mines or wells become commercially viable.

The money saved from that investment will now be put into building up Island’s gas storage capacity.

A spokesperson for the firm said that while buying existing sites wouldn’t be ruled out, the preferred option would be the transformation of some of the firm’s existing facilities.

Island missed out on the chance to increase its level of gas storage assets when it failed to land the Irish assets of Marathon Oil, the US company which exited the Irish market late last year.

Marathon sold its interests in the Celtic Sea, which included gas storage facilities, to Star Energy for $180 million (€136.7m). The area is seen as a vital ingredient — in terms of potential — for gas storage in Europe, as security of supply becomes an ever increasing issue of concern.

“Star Energy’s plans for the Celtic Sea are not yet disclosed but gas storage is likely to be on the agenda, all the more so given European gas supply disruption this winter. Island is well placed to participate in any opportunity that opens up in this respect,” said Job Langbroek of Davy Stockbrokers.

In its more detailed future strategy published in December, Island said it would only look at very large exploration projects and ones close to where it already has wells. Sales of assets to finance further growth is also planned.

Elsewhere, yesterday, West African Diamonds — the John Teeling-chaired diamond and gold exploration company — has said that its Bomboko diamond mine in Guinea is due to come on stream in March. The company also reported a reduction in losses. Operating loss for the six months to end of October was €113,000, against €146,000 a year ago.