€203m Corrib Gas writedown

A FURTHER €203 million has been written down in impairments in connection with the Corrib Gas Field project.

Last month, one of Shell’s partners in the project, Statoil, confirmed a writedown of €196m on its investment in the gas project “triggered by changes in market conditions and project delays”. Now, confirmation of a separate €203.4m writedown is contained in accounts for 2009 recently filed by Vermilion Energy Ireland Ltd with the Companies Office.

The Canadian-owned energy company, Vermilion Energy, last year purchased 18.5% of the Corrib field from Marathon Oil Corporation. A spokesman for Vermilion Energy confirmed the writedown appears in the VEIL’s accounts, but stated Marathon Oil Corporation recorded the writedown in 2009.

VEIL was formerly Marathon International Petroleum Hibernia Ltd. According to Marathon Oil, it wrote down what it anticipates from the sale of its share of the field by $154m (€112.65m) as the fair value of the sale to Vermilion.

Marathon stated that it initially expected between $235m to $400m for the sale, but anticipates the final proceeds will be between $135m to $300m.

The figures reveal that between zero and $165m due on the deal is dependent on when the first commercial gas is produced from the field.

In addition to the $154m writedown, Marathon confirms a further $70m was written off in the fourth quarter of last year on the basis of “new public information regarding the pipeline that would transport gas from the Corrib development”.

This public information is understood to relate to an An Bord Pleanála ruling up to half of the proposed on-shore pipeline was unacceptable on safety grounds.

Gas was initially due in late 2010-early 2011 and the Bord Pleanála ruling has delayed the project by two years, necessitating Shell E&P Ireland Ltd to lodge plans for a 4.9km sub-sea tunnel to bring the gas ashore.

A decision is due by An Bord Pleanála on the tunnel before the end of the year and, if granted planning, the tunnel is expected to cost €120m.

As a result of the €203m writedown, VEIL recorded pre-tax losses of €208.3m last year with the value of its share of the field going down from €372m to €188m to the end of December last.

Separate figures for Vermilion Energy Ireland Holding Ltd reveal it carried out an impairment review into its investment in VEIL last year, writing down its investment by €42m.

A spokesman for the Canadian-owned Vermilion said yesterday the company “does not anticipate making any impairment of its own on Corrib Gas. It is a very good asset”.

The Vermilion investment in Corrib Gas is expected to add about 30% to Vermilion’s production volumes and 40% of fund flows when the gas comes on stream.

The VEIL accounts state: “The Corrib asset will further enhance Vermilion’s global asset base and is anticipated to deliver strong, accretive returns.”

The Vermilion spokesman said in the very, very early days of the project, very big mistakes were made in not including the local community. He said however: “Shell and the partners are being as open as possible in trying to achieve a solution that is environmentally benign as possible.”

It is now eight years since the Corrib gas project plan was approved by Government and it is anticipated that near to €2.5bn will have been spent on developing the field before gas is produced. The field has one trillion cubic feet of gas and is expected to meet 75% of Ireland’s peak winter gas needs for a decade.