• The DCENR estimates “potential, yet-to-find” of up to 10 billion barrels of oil equivalent (BOE) in the Irish Offshore. There is a crucial difference between “potential, yet-to-find” and “proven”.

• The industry has been exploring offshore Ireland for almost half a century. Despite a number of hydrocarbon discoveries, to date no oil field has been developed and only 2 gas fields have been successfully commercialised. The proven gas to date amounts to less than five per cent of the DCENR estimates.

• The Irish offshore is significantly under explored. Only 3% of the Irish offshore area is under licence. Only 130 exploration wells have been drilled to date. Contrast this with over 1000 exploration wells in the Norwegian sector and well over 2000 in the UK offshore.

• All of the 8 licences issued in the 1995 Licensing Round have been handed back to the Government. Of the 11 licences issued in 1997, 10 have been surrendered.

• In 1995, IOOA had 17 members. 13 of these companies have since left the Irish offshore. We now have 8 member companies.

• Since 1975, only one significant field has been discovered offshore Ireland. In 2009 alone, in the UK sector, 8 new fields came into production with a further 6 approved for development.

• The 2009 Irish Licensing Round attracted only two applications, neither of which was from companies new to the Irish offshore. One licence was awarded. A similar round in the UK in 2010 attracted 350 applications with 145 licences awarded, and a further 45 under consideration.

• The only way to prove oil and gas reserves is to drill exploration wells. Drilling offshore Ireland is running at around one exploration well per year. In 2009, 23 exploration wells were drilled in the UK sector, with 45 drilled offshore Norway

• The low success rate of exploratory drilling to date;
• the delays in bringing the Corrib gas field into production;
• the relative absence of infrastructure;
• the harsh and difficult operating conditions;
• and the high cost of operating offshore Ireland,

have all been discouraging factors.

• The Irish offshore has potential, but that potential can only be tested with continuing inward investment by oil and gas companies. With offshore exploration wells costing anywhere from $20 million to well over $100 million per well, the investment atmosphere must be attractive to bring this inward investment

Industry Potential

• Success in exploration could make a real and tangible contribution to resolving the fiscal and economic challenges facing the country. For instance, the development of a major oil discovery off the North West Coast, of the order of 750 million barrels recoverable, would deliver some €16.5 billion in tax to the Exchequer. A medium-sized gas/condensate field, say twice the size of Corrib, would, over its lifetime pay some €5.0 billion in tax. (above figures from DCENR “Cost-Effective Field Development Study for Atlantic Margin Basins)

• Major discoveries offshore Ireland would have an immediate and possibly dramatic effect on the markets’ view of Ireland’s economic prospects, lowering the cost of borrowing and easing the immediate financial pressure.

• Oil and gas activity in the UK currently supports 440,000 jobs, co-incidentally about the level of unemployment in Ireland



The Fiscal Terms

• The Irish offshore fiscal terms were reviewed by Indecon in a report to Minister Eamonn Ryan three years ago. Indecon concluded that the tax level of 25% was broadly appropriate to the level of risk in offshore Ireland, but recommended 35% in the event of very profitable fields. The Minister increased this to 40%. These rates are comparable to other low-activity countries in NWE, such as Spain, France and Portugal.

• Unfavourable comparisons are frequently made with the fiscal regime in Norway. These comparisons do not take into account the high success rate offshore Norway, the large average size of discoveries, and the fact that the Norwegian Government refunds 78% of the cost of unsuccessful wells. Thus the level of risk offshore Norway is low.


• As a levy on production rather than profits, royalties can seriously damage the economics of high-risk, high-cost projects. The UK abolished royalties on new production in 1982. Norway did likewise in 1986. Ireland followed suit in 1987 in order to maintain a minimum level of exploration. Denmark and the Netherlands followed shortly afterwards. Royalties are now rare offshore NWE.




Realising the Potential

• To encourage exploration off our shores, we need to learn from the mistakes of the past and put in place a transparent, robust and legally binding administrative and regulatory regime for field development, so that all stakeholders have a clear understanding of the issues involved and how they are to be addressed.

• We need to separate the regulation and promotion of the sector, and properly resource promotional activity.


• Most of all, we need proactive governmental, political, media and public support to convince the industry that Ireland is a good place to invest exploration funds.


Finally

• The industry bears the costs and the risks; the rewards are shared by all of us.
• The measures needed are modest; the benefits potentially immense.