However Providence’s top man is optimistic, insisting the prospect is a real game changer, writes Kyran Fitzgerald
IT’S almost 30 years since Dallas, JR, Bobby and Miss Ellie; 30 years since punter investors lined up to acquire shares in Atlantic Resources; 30 years since the great Irish oil rush.
It has been a long wait, but is it now time to finally think in terms of Ireland as a player in the world of oil production — Tony O’Reilly, chief executive of Providence Resources — the O’Reilly family vehicle that eventually emerged from the embers of Atlantic Resources — certainly thinks so.
He is upbeat, insisting that this week’s news from the Barryroe prospect is a real game-changer.
The latest well test results are being taken seriously in the wider oil business. David Horgan, CEO of Petrel Resources, says that “it looks like the first commercial discovery of oil (in offshore Ireland), a psychological and maybe a material turning point for the country.”
Horgan cautions that we are not quite yet there, but Tony O’Reilly is upbeat to the point of euphoria.
Based on an oil price of €85 a barrel, a find worth 58m barrels gives one a present value, net of capital expenditure, of over $800m (€608m), but he is confident that over 100m barrels can be achieved, producing a net present value of $2.7bn.
Privately, some may speculate that the project could be worth several billion.
So is big oil about to move in and scoop Ireland’s oil and gas pool — The Exchequer stands to pick up 25% of this in corporation tax, with the take rising to 40% where profits exceed a particular threshold.
O’Reilly bats off suggestions that Ireland should, at this stage, revamp its exploration tax regime.
He insists that there would have been no exploration offshore had the State insisted on tougher terms. He quotes with approval energy minister Pat Rabbitte in this regard. Rabbitte put it succinctly when questioned about the need to hike the tax rate: “90% of zero is zero.”
O’Reilly believes it is pointless comparing Ireland’s regime with that of Norway, adding that people are not aware that the State there will recompense 72% of the cost of drilling a well where it turns out not to be commercial.
He also accepts that the Irish tax regime will change in the event that a serious oil and gas industry develops, here.
Providence is now moving on to the next phase as it lines up companies with the clout to actually develop the prospect.
The company, after all, is still a minnow with a core staff of around 15.
A big oil major can deploy into the field an army of thousand of technicians and oil workers.
Barryroe has been checked out in the past, but for several reasons, the majors passed up on the opportunity.
Back in the 1980s, oil prices were far lower , dipping to $12 a barrel at one stage. They are currently around 10 times as high.
Ireland’s exploration regime was tougher. Since then, technology has come on in leaps and bounds.
But Tony O’Reilly still found Ireland a tough sell as he toured the finance houses of London. “There were a huge amount of nay sayers. People would say, dismissively, “good luck to you!” But it is not about war stories from the Ireland of the Seventies.”
It has been a long walk, financially speaking. “Our family has certainly put in €100m, in today’s money, since 1981.”
“Yesterday’s result means that we are slightly vindicated!” He believes that it is time for the Government, here, to start “planning for success” by putting in place the building block for an oil and gas service industry. As Barryroe and other areas including Dunquin, Spanish Point and offshore Donegal are developed, this will means local jobs in these areas.
“We should start planning to put support services in Cork, shannon.” everything from helicopter bases to rig manufacturing.
He suggests that Richard Bruton, the enterprise minister, should get together soon with the Irish Offshore Association to start planning.
this, in turn, would allow more expatriates to return from places such as the Gulf to work in Ireland.
O’Reilly accepts that the Corrib gas controversy has acted as a deterrent to outside investment in the sector, though Providence has already built relationships with companies such as Exxon, Petronas and ENI.
He points to the good relationships between Marathon and the local community when the Kinsale field was being developed. “It is all about communication.”
Such skills will certainly be needed when Providence sets out to develop its prospect off Dalkey.
“There is scaremongering about oil spills, but our industry is absolutely into risk management.”
What about BP and the huge spill off the coast of louisiana? “The Irish offshore sector operates at the same standard of safety as England or Norway — the highest in the world. You could not believe the amount of attention that goes into health and safety.”
And as for profitability: “We don’t see (current) oil and gas prices going away”, says Tony O’Reilly. “There is such demand. You can see people rushing to the Falklands looking for oil.
Providence will now begin the process of sharing the spoils with those with the capacity to take finds such as Barryroe all the way from appraisal hopefully to full production.
“As a company you make plans and hope you can deliver on them. For Barryroe to come and practically double the commerciality threshold is fantastic. It will derisk the perception of Ireland as a potential oil producing region.”
Using horizontal drilling techniques, we could do forty, fifty, or even sixty thousand barrels a day.”
JR, Bobby, Mills Ellie, Sean Citizen — start dreaming again. Dallas here we come!
* Born: 1966. Dublin. Grew up in Castlemartin, Kildare, and Fox Chapel, Pittsburgh.
* Education: Harrow, Clongowes Wood; Brown University, Rhode Island — honours degree, history, economics.
* Career: Worked as teenage supermarket stacker for a week. Worked briefly for investment bankMorgan Grenfell after graduation; Coopers & Lybrand accountants. 1992-96: Planning and corporate development, Arcon.1996-2000: CEO, Arcon. 2001-2005: Chairman Arcon: 1998: Appointed as director, Waterford Wedgewood. September 2005 to date: CEO, Providence plc.
* Career: Family: Married: (1) Robin Radford — US-born oncologist, society columnist; three children. (2) Michele Clements, Maltese-born interior designer; three stepchildren.
* Other: Divides time between Dublin and London.