While 2016 proved to be another year of big hype, but little activity, in Irish offshore exploration, hope of the sector eventually taking off and providing measureable long-term tax revenue for the State is still alive and well.
However, that is now not only dependent on the industry’s big players remaining interested in what lies beneath Irish waters but also wider - not-insignificant - things like Opec’s oil production deal surviving; oil prices remaining at a steady level of $55-$60 per barrel, the global economy holding up and Brexit concerns (among them the tightening of workers’ freedom of movement) not driving up drilling and production costs or threatening our security of energy supply.
“I think we need to think in terms of five years [to judge the viability of Ireland’s exploration sector] rather than just next year; 2017 will be an important year – with companies working data, trying to attract farm-in partners and undertaking seismic studies - but not a make-or-break one,” said Pat Shannon, chairman of the Irish Offshore Operators’ Association (IOOA).
“Globally, it’s been a tough year. The UK saw its lowest ever level of drilling, with 16 exploration wells drilled. Only 440 exploration wells were drilled globally – close to a historical low – down from 740 just two years ago and companies continued to cut their exploration budgets; something which is likely to continue next year.
"That sets the scene and shows what Ireland is competing with,” he added.
That said, Mr. Shannon views 2016 as having been a good one for the Irish offshore – noting the Corrib field finally coming on stream (albeit, nearly two decades late and hugely over budget) and the outstanding success of the Government’s latest licensing round ushering in a number of new players to Irish waters.
The real outcome of the latter remains to be seen, however.
“The real crunch will be what becomes of the licensing options awarded in 2016 [when they reach the end of their lifespan] in two years’ time,” Mr Shannon said, “will they be handed back and expire [as happened with six options, covering 55 exploration blocks, in the Celtic Sea earlier this year] or will they be converted into exploration licences.
"If the latter happens, then we’re moving in the right direction,” he said.
The excitement of Irish oilrig-spotters has been piqued, sporadically, in recent years, but on each occasion — Exxon and Providence at Dunquin, off the west coast in 2013 and Lansdowne Oil and Gas and Kinsale Energy in the Celtic Sea in 2015 – high hopes have been dashed.
This coming year will, surely, see more quizzing over when Providence Resources can finally close a farm-out deal at its Barryroe field in the Celtic Sea and whether Europa Oil and Gas (the other really active player in Irish waters, just now) can find development partners for its highly-rated asset portfolio off the south-west coast.
But, one thing is for sure, 2017 will see drilling activity, which is kind of crucial if the sector is to develop, and it will be Providence operating the drill bit – at its Druid prospect off the west coast.
Mr Shannon views Druid as being “interesting” but not the be-all and end-all. He sees positives associated with each of the high-profile official Irish drilling failures in recent years.
“A failure [at Druid] would be disappointing, but not fatal; but a find would be tremendous”.
“If five or six wells were to be drilled and nothing found, then there’d be a worry and, I think, Ireland would have to take stock,” he said.
In a research note, published earlier this year, Davy Stockbrokers’ exploration analyst Job Langbroek bigged-up the ‘five-year plan’ theory for Ireland’s burgeoning exploration scene.
“Notwithstanding the presence of four discovered gas fields, the single biggest factor, offshore Ireland, is that no oil field has produced, or is producing, oil. This has denied the sector of a catalyst to attract industry attention,” Mr Langbroek said in the note.
“It is difficult not to conclude that the next five years, or so, will determine the outcome of the Irish offshore. The farm-out and development of [Providence Resources assets] Spanish Point and Barryroe will be the biggest actors in the short-term to ensure success.
"In the longer-term, the Atlantic Margin has one more substantial pulse of drilling activity, probably towards the end of the decade. From where we stand now, these events will determine how the history of the Irish offshore is ultimately written,” he added.
The IOOA, however, is also calling on the Government to keep an eye on what other countries are doing with their tax terms surrounding exploration firms and to tighten regulation surrounding offshore exploration in this country.
“The fiscal terms are fair,” said Mr. Shannon, “but Ireland needs to keep an eye on other countries and what they’re doing. If they move to change, we need to do likewise,” he added.
A recent PwC study found that 70% of explorers in Irish waters are unhappy with the Government’s fiscal terms — a rise from 40% to 55% in the headline tax rate on oil find profits and a 5% annual royalty take — on the back of the massive drop in global oil prices.
It also found the amount of legal red-tape, and nothing being done to improve it, is hindering exploration growth.
The review said only 28% of explorers here feel upbeat about the Irish offshore’s prospects for the next two years, let alone the next five.
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