The global economy is growing and oil prices have rallied to a point where companies feel compelled to drill.
Added to that, confidence in what lies beneath Irish waters — amongst explorers — has heightened considerably in the past 12 months.
That would lead one to believe that it is all systems go — again — for Ireland’s offshore.
However, unrest and caution exist when explorers turn their thoughts to Ireland. While Brexit remains a worry, as it does for many sectors, the real threats facing the development of an Irish oil industry may well lie even closer to home.
The country’s reputation and regulatory regime are seen to be concerns.
While it took years to come on stream — massively over budget, to boot — the Corrib gas field has, for the past 12 months, been providing close to 50% of Ireland’s gas requirements.
However, its turbulent journey to production —marked by opposition and, at times, violent protests — has had an effect.
“While the continued successful operation of the Corrib field is a good news story, it is clear that the difficulties experienced during its development continue to cast a shadow over Ireland’s reputation internationally,” according to Ronan Mac Nioclais, author of PwC’s annual Irish oil and gas sector survey.
That survey forecasts that €502m will be invested in the Irish oil and gas sector in the next two years, with nearly three quarters of companies with an Irish interest rating the overall outlook for the sector, here, as encouraging — up from 28% this time last year.
Furthermore, nearly 90% of companies said they are optimistic about the level of petroleum reserves yet to be discovered in Irish waters.
However, when asked what the Government could do to help the industry, improvements to the regulatory framework and fiscal/tax take terms were high on the agenda.
“In times of economic uncertainty it is crucial that the Government takes positive steps to encourage investment into the Irish oil and gas industry,” said Mr Mac Nioclais.
“It is clear that steps need to be taken to improve the regulatory and planning processes to fast-track developments, as these are causing companies difficulties and impacting on Ireland’s reputation internationally.
“The survey calls for a clear commitment from the Irish Government to facilitate developments, with changes to the planning and regulatory regime required, as it is felt that the current regime is not fit-for-purpose to enable large-scale developments,” he added.
“Just under half of respondents who have had experience with the Irish licensing authorities indicated that they have had good or excellent experiences. This leaves room for improvement as over half of those have not had a positive lasting impression, which is likely hindering development.”
“It was clear that maintaining — if not enhancing — the fiscal terms was seen as the most important measure. The planning and regulatory regime also came in for particular criticism and it was noted that this was an area requiring significant overhaul to make it more efficient and streamlined,” Mr Mac Nioclais said.
Representative body the Irish Offshore Operators’ Association concurs.
“Brexit continues to cast a shadow of uncertainty around Ireland’s long-term energy security and against that backdrop, it is important that the current balanced fiscal environment remains to ensure Ireland’s international competitiveness as an exploration destination for industry investment,” its chairman Pat Shannon said.
A lack of commercial discoveries, the negative impact of the developments at Corrib, more attractive investment opportunities elsewhere, and the current regulatory regime, rank as the main hurdles to the development of the sector in Ireland, according to Mr Mac Nioclais.
“There are significant linkages between commercial discoveries and costs and opportunities elsewhere, as investors will choose locations with proven track records and lower cost bases,” he said.
On an operational level, 2017 was a mixed bag for the Irish offshore.
Farm-out deals returned — Providence selling tranches of licences to French oil giant Total, and Europa Oil and Gas striking a deal with Scottish explorer Cairn Energy, and saying it remains on course for further partnerships regarding its Irish assets.
Providence also had an end-of-year fillip by being able to announce that it has — after so many near-misses — almost got a deal with an unnamed development partner for its much-touted Barryroe field in the Celtic Sea over the line.
However, drilling proved a failure, with water discovered at Providence’s much-anticipated Druid-Drombeg prospect in the southern Porcupine Basin off the south-west coast.
That didn’t dampen spirits though and the Porcupine Basin — both north and south parts — is still viewed as the favoured location for the Government’s next licensing round by the bulk of explorers with an interest in Ireland.
“This well, 220km off the southwest coast, was located in 2,233 metres of water and was the deepest water ever for an exploration well offshore Ireland.
“While the well was not a discovery, it provided valuable information on the geological development of the basin and its results have not impacted adversely on the prospectivity or potential of the basin,” said Mr Shannon.
He added: “There were several large 3D multi-client seismic surveys acquired in the southern Porcupine Basin during 2017. The exploration momentum of recent years has also been boosted by the arrival of Total back into the Irish offshore.”
Oil prices are expected to remain close to the $60 per barrel mark in 2018, with producers — who have largely adhered to Opec’s production cutback agreement — ready to raise production to stabilise the market should any number of global factors cause a price spike.
“During the past year the oil price has stabilised and risen steadily from $55 per barrel last December to approximately $64 per barrel 12 months on.
“This has provided increased investment confidence to the global oil and gas industry,” said Mr Shannon.
Oil may be trading at its highest level for two and a half years, but doubts to its recovery remain with US shale likely to dominate production again.
“The tug-of-war between Opec and the US will continue to pressure oil from trading above $60 a barrel in 2018,” said Kim Kwangrae, a Seoul-based commodities analyst at Samsung Futures.
“Like we’ve seen this year, geopolitical risks will be the key factor going forward for oil to breach $60,” added Mr Kwangrae.