IAN LEWIS, Contributing Editor, EAME
The chairman of the Irish Offshore Operators’ Association (IOOA), Fergus Cahill, recently defended the relatively generous fiscal terms on offer to offshore explorers in Ireland, partly on the grounds that companies needed incentives to drill in a sector that, for all its touted potential, has a low success rate.
The mega-find that has been sought in parts of Atlantic acreage to the west of Ireland remains elusive. Cahill estimates that the commercial success rate for exploratory wells in Ireland is about one in 25, compared to around one in five in Norway. While around 200 wells have been drilled in Ireland over recent decades, only two relatively small commercial discoveries have been made—the Kinsale Head and Corrib gas fields—holding about 2.5 Tcf of gas reserves between them.
However, there is an intensification of interest in blocks within the Porcupine basin, to the west of the country in the Atlantic Ocean, from companies with some serious clout. This suggests that if there is enough oil and gas out there to make this a major new hydrocarbons province, we may be about to find out.
Driven by sustained high oil prices, and similarities between the geology of Ireland’s Atlantic blocks and other areas of the Atlantic Margin where hydrocarbons have been discovered, a number of firms have bought licenses in the Porcupine basin and other acreage, in Ireland’s most recent licensing rounds.
The probability of making a discovery in Ireland has increased over the last decade, to around one in three, but nothing found in that period has been deemed commercially viable. That may change. Providence Resources has been assessing the commerciality of its Barryroe discovery in the North Celtic Sea basin, just off the southern coast of Ireland, where a sixth well was successfully drilled in 2012. The field holds over 1 Bbbl of oil-in-place, with more than 300 MMbbl recoverable (2C). In addition to looking for a farm-in partner for that asset, Providence has been involved in several tracts in the Porcupine. Although the firm has farmed-out its operatorships and reduced its holdings, it still retains 32% of these tracts. For more details, see the Cairn Energy write-up in the “Other Operators” section.
News that Exxon Mobil had spudded the first well to be drilled in the Porcupine Basin for many years in April 2013 attracted considerable interest. However, the company said in July it had found mainly water plus residual traces of hydrocarbons and were plugging the well on their Dunquin North prospect.
Providence, one of Exxon’s partners, reported that the primary target comprised a thick overpressured carbonate reservoir system. The well was terminated having drilled a total thickness of around 800 ft of massive porous carbonate reservoir. While analysis indicated the reservoir was water bearing, petrophysical log interpretation, elevated gas levels, and oil shows in sidewall cores over the upper 144-ft section of the reservoir suggested the presence of a possible residual oil column.
While Exxon Mobil said it had no further plans to drill in Irish waters, Providence said the outcome was potentially positive for its nearby Dunquin South prospect, given the signs of a working hydrocarbons system. It gave no indication of its plans for that acreage.
North of the Dunquin acreage, Antrim’s Licensing Option (LO) 11/05, the Skellig Block, which contains the Dunree prospect, has been mapped as a Cretaceous fan complex.
WOODSIDE SEEKS NEW PASTURES
Meanwhile, farm-in activity on the Porcupine acreage acquired in the 2011 round is picking up. The most significant arrival, to date, is Woodside Petroleum, which is farming into three licensing options in the eastern portion of the basin, Fig. 1.
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| Fig. 1. Woodside Energy is one of the larger companies to jump into the Porcupine basin in the last several years, entering into licenses operated by Bluestack Energy and Petrel Resources. |
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The Australian company has agreed to acquire an 85% interest in six blocks, in Licensing Options 11/6 and 11/4, from Petrel Resources, as well as a 90% interest in a further six blocks in Licensing Option 11/3 from Bluestack Energy. The terms were not disclosed. Assuming the deals are approved by the Irish government, Woodside will operate three options. For details on these blocks, please see the Petrel and Bluestack write-ups in the “Other Operators” section of this article.
At this early stage, Woodside has yet to hint at what its drilling program might look like. Chief Executive Peter Coleman gave little away in his comments when announcing the deals, saying only that the Porcupine basin was an emerging province, witnessing increasing activity over recent years. He also said, “Woodside has an outstanding track record working in deepwater environments, and these opportunities fit with our core capabilities and corporate strategy.”
However, the firm is unlikely to sit on its hands for long. Licenses must be surrendered, if they remain inactive or an exploration program is not carried out. Those terms resulted in all unworked licenses, awarded in the 1995 and 1997 licensing rounds, being given back to the state. More importantly, Woodside will also be keen to make an Irish discovery and extend its reserves portfolio, following some high-profile delays and setbacks in Australia, and a downward revision to its 2013 production outlook.
In mid-2012, the company put on hold its plans to expand its $14-billion Pluto LNG project, after a five-year search for gas failed to find enough to support further trains. Then, in April 2013, Woodside announced that it was putting on hold plans to develop its Browse gas reserves off Western Australia, using an onshore LNG plant as originally envisaged, amid doubts that the $45-billion project would be economically viable. A scaled-down, floating LNG option is now being investigated.
In early July, Woodside reduced its 2013 production target to 85 MMboe to 89 MMboe, down from a previous estimate of 88 MMboe to 94 MMboe, citing a reduction in output from Pluto, due to an unplanned LNG train shutdown and the longer-than-expected refurbishment of its Vincent FPSO vessel.
Uncertainties back in Australia have left Woodside eager to broaden its horizons and invest in a wider pool of projects worldwide. Entry into the Porcupine basin is the latest move in this more globalized strategy.
OTHER OPERATORS/PARTNERS
After some moderate activity in 2009 and 2010, including one success, there was no exploratory drilling offshore Ireland in 2011 and 2012, including the Porcupine basin. What follows are details of activities and plans for individual operators and their partners.
Cairn Energy, et al. The now Cairn-operated (38% interest, effective May 2013) Burren and Spanish Point discoveries lie in adjacent blocks in LO 11/2 of the Porcupine basin, Fig. 2. Burren was discovered over 30 years ago by well 35/8-1, after oil flowed during evaluation tests from the Lower Cretaceous. Spanish Point was discovered in 1981 after the 35/8-2 well tested oil and gas from the Jurassic. The well flowed 1,000 bopd and 5 MMcfgd from sandstones of Upper Jurassic age.
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| Fig. 2. In addition to the Spanish Point and Burren discoveries, Cairn Energy operates the Mullen and Kiernan prospects. |
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In return for the interest that it acquired last May, Cairn will pay a pro-rated share of back costs amounting to $4.1 million and a 63.33% share of future exploration and appraisal costs for up to two wells, subject to a cap. Costs in excess of the cap will be shared by the parties, according to their equity interests.
The estimated, recoverable, contingent resources at Spanish Point are 100 MMboe (2C) and 202 MMboe (3C). Providence stated that with the 3D seismic coverage over eight surrounding blocks, a significant number of adjacent prospects have been identified, with an upside of an additional 500 MMbbl.
Antrim Energy/Kosmos Energy. Antrim was awarded Frontier License Option 11/05 by Ireland’s Department of Communications, Energy and Natural Resources, under the Irish 2011 Atlantic Margin Licensing Round on Oct. 17, 2011. The license option area covers Blocks 44/4, 44/5 (part), 44/9, 44/10, 44/14, and 44/15, an area of about 1,409 sq km in the Porcupine basin, situated approximately 110 km offshore southwestern Ireland.
In April 2013, Antrim reached a farm-out agreement with Kosmos Energy. Kosmos will assume operatorship and shoot approximately 1,000 sq km of 3D seismic, to earn a 75% interest in the license. In addition, Kosmos will reimburse to Antrim, a portion of the exploration costs incurred on the blocks, to date.
Europa Oil and Gas/Kosmos Energy. In the Porcupine basin to the west of the Antrim/Kosmos holdings, Europa Oil and Gas reached a farm-in agreement with Kosmos Energy in April 2013. As part of the agreement, Kosmos will acquire an 85% interest in, and operatorship of, both LO 11/7 (Mullen prospect) and LO 11/8 (Kiernan prospect), Fig. 2.
In return for the interest, Kosmos will fully fund the cost of a 3D seismic program on each license, in addition to paying 85% of costs incurred by Europa, to date. Contingent upon an election by Kosmos and Europa to enter into an exploration drilling phase on one or both of the licenses, Kosmos will fund 100% of the costs of the first exploration well on each license, subject to an investment cap. The per-well investment cap for the first well is $90 million on LO 11/7 and $110 million on LO 11/8.
The Mullen prospect is a Lower Cretaceous Aptian play deposited as deepwater turbidite channels, sourced from Barremian marine shales. It is close to the boundary of the south Porcupine basin. The Mullen prospective P50 resources are estimated at 318 MMbbl and are supported by amplitude shut-off at a constant depth.
The Kiernan prospect is a stack of three stratigraphic traps at various levels within the Cretaceous section, Barremian, Valanginian A and Valanginian B. Reservoirs at the Barremian and Valanginian A levels are interpreted to be deepwater turbidite sandstones. The hydrocarbon type in the Middle Cretaceous reservoir is predicted to be most likely oil, with gas predicted in the Valanginian A and B reservoirs. Europa estimates gross, mean, unrisked indicative resources in all three stratigraphic levels at Kiernan to be 1.612 Bbbl in the oil case, and 10 Tcf in the gas case.
Cairn announced in July 2013 that it has contracted the Blackford Dolphin semisubmersible (Fig. 3) to drill a planned Spanish Point appraisal. The Blackford Dolphin underwent a $400-million updgrade in 2006. Subject to regulatory approvals, the well should spud in second-quarter 2014.
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| Fig. 3. The Blackford Dolphin semisubmersible will drill the third of six wells originally envisioned by Providence Resources, before Cairn assumed operatorship. |
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Bluestack Energy. The company is actively seeking farm-in partners to progress the Ventry prospect, LO 11/3, into a Frontier Exploration License. Bluestack Energy was awarded the license for a two-year period, commencing Nov. 1, 2011. The Ventry prospect is a large, stratigraphically trapped, deepwater fan complex of uppermost Jurassic age. The seismic character shows this to be developed as an extensive, sand-prone stacked channel and basin floor fan complex, analogous to the Miller, Magnus and Burns reservoir sandstones of the North Sea. Ventry has P50 gas-in-place potential of 8 Tcf.
Petrel Resources plc. The firm recently opened a data room for two of its LO 11/4 and LO 11/6 licenses, where prospects have been identified. In LO 11/4, these are interpreted as stacked targets, an Eocene shelf clinoform sheet sands target, and a Lower Cretaceous fan sandstones target with a 1.0-Bbbl potential. Further south, the multiple prospects in LO 11/6 are also thought to be vertically stacked targets, mapped against a major fault boundary.
INVESTOR UNCERTAINTY
Any sizeable find off Ireland in coming months is certain to raise industry concerns over possible tightening of the country’s generous fiscal terms (see p. 86, North West Europe regional report, for details of current terms).
The claim by IOOA’s Cahill, in a June speech, that the present terms accurately reflect the current stage of exploration in Ireland, is largely supported by a recent report from consultancy PWC, commissioned by Providence Resources. In “Making the most of our natural resources,” PWC finds that, while Ireland’s fiscal regime is significantly more attractive than that of established players, it is on a par with frontier exploration countries in Europe, such as France and Portugal. “There is a broad correlation between state of establishment of the industry, levels of production and the maximum headline rate of taxation,” said PWC.
However, there are worries over future tax framework changes, given that Ireland’s generous tax regime has been subject to criticism, both at home and internationally, over recent months. PWC describes certainty on future fiscal treatment, in the event of a commercial discovery, as a “key consideration.” PWC went on to say, “While Ireland has not introduced retrospective taxation, the debate on the issue of the tax treatment of the industry has engendered a degree of industry nervousness.”
Planning problems, which PWC says have damaged Ireland’s reputation as a credible location for investment, are also highlighted. The fact that Shell has still not brought gas from its Corrib find onstream, two decades after its discovery, due to environmental protests and planning delays, may have played no small part in a lack of enthusiasm for in the 2011 Atlantic Margin licensing round. In that round, acreage went mostly to minnows.
Estimated returns on exploration in Ireland, based on actual costs during 1970-2012, totaled just €1.8 billion. PWC estimates that expenditures on 158 exploratory wells drilled, plus development costs and other expenses, totaled more than €5 billion, including €2.4 billion for Corrib field.
Legislative changes and licensing improvements, such as the introduction of licensing options in 2011, have helped, but more needs to be done. “The general industry perception is that the regulatory and planning process is still overly complex, needs to be streamlined, requires more technical expertise, and lags behind countries, such as the UK and Norway, in terms of transparency and timeliness,” said PWC. 
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