Since Providence Resources plc scored a major success with its Barryroe discovery in the spring of 2012 off the south coast of Ireland in the Celtic Sea, offshore Ireland has seen increasing interest not only from junior explorers but from super majors like Exxon Mobil Corp. and Spain’s Repsol S.A.

Barryroe holds more than a billion barrels of oil (P50 case) and Providence reported last October that it has “significant productive potential”. The find has given the company the confidence to press ahead with exploration elsewhere offshore Ireland. Providence is involved in several exploration projects and licensing options off the west coast of Ireland as well as in the Irish Sea and St Georges Channel.

Having noted Providence’s success off the south coast of Ireland, ExxonMobil is currently partnering with the junior on the FEL 3/04 license where drilling began on the Dunquin exploration prospect in late April this year. The drilling of the 44/23-1 well is expected to take several months to complete. The target is a gas prospect estimated to contain up to 1.7 billion barrels of oil equivalent, so Providence (which has a 16-percent interest in the license) is hoping that ExxonMobil can repeat its own success at Barryroe.

Repsol, which has a 25-percent stake in the Dunquin license, in March 2012 took the opportunity to become an operator offshore Ireland itself and took over Licensing Option 11/11, located within the Goban Spur Basin west of Ireland.

At Spanish Point on the FEL 2/04 license, independent explorer Cairn Energy plc is planning on drilling an appraisal well in 2014. Here, a consortium of companies flowed oil in 1981 from one of four pay zones in the Upper Jurassic layer. Cairn and its partners believe that there could be up to 200 million barrels of oil equivalent, while the nearby Burren discovery could hold up to 66 million barrels.

All of this is very exciting for ExxonMobil, Repsol and for investors in juniors like Providence. But what will Ireland, and the Irish people in particular, get from the exploitation of the country’s offshore resources?

Amid a general downturn in Ireland’s economy since the advent of the eurozone crisis, various voices from within the country have emerged that have been highly critical of the Irish government’s relationship with the oil industry. Describing the situation as “The Great Oil and Gas Giveaway” campaigning groups such as Own Our Oil and Shell to Sea are concerned that rules introduced by Ireland decades ago are, in their current form, too heavily weighted in favor of exploration companies – particularly when compared to the rules governing oil and gas exploration in other western European countries like Norway and the UK.

Among their concerns are:

•no royalties are paid to the state

•resources found can be exported directly abroad (so that Ireland will not necessarily enhance its energy security by allowing exploration in its territory)

•resources found do not have to be landed in Ireland or use Irish services or workers for their recovery

Indeed, the only guaranteed benefit to Ireland is a tax on profits on the sale of the oil or gas (which varies between 25 percent and 40 percent). But the critics say that plenty of this tax revenue will not be seen past exploration and development costs going back 25 years can be written off against it.

However, the Irish oil industry – which is still at a very early stage – is “a less attractive location for oil and gas industry investment than the UK or Norway” in spite of a more favorable tax regime, according to a report published last month by PricewaterhouseCoopers. PwC listed several reasons for this, including:

•low rates of success for explorers in both absolute and relative terms

•a perception that Ireland presents significant planning and regulatory challenges

•relatively high exploration, development and production costs

•uncertainty regarding the future fiscal regime

•limited opportunity for explorers to share risk

Providence, which commissioned the PwC report, concedes that more needs to be done to capture benefits for the Irish people but that this will come with more success and more developments.

A ‘Call to Arms’ to Irish Contractors

In response to questions from Rigzone about what the oil and gas sector can do for Ireland, Providence CEO Tony O’Reilly commented:

“As an Irish company, Providence has a policy to utilize Irish workers as appropriate. Unfortunately, there are no Irish rig owners (yet) so naturally we have to use international contractors. Hopefully that will change as the industry develops. Likewise, there are limited support service operators – so again, we have to take resources where we can get them from for now.”

The “Offshore Oil and Gas Opportunities in Ireland” conference held in June was “a call to arms” for Irish contractors and subcontractors to step up to the plate, become compliant with the procurement rules required by large operators and identify partners so that they can get involved in the sector, O’Reilly said.

Whether a “mini-Aberdeen” will emerge in Ireland is still an open question, but O’Reilly reckons that the country already has ports that can adequately service the industry.

“Cork has serviced Kinsale [a gas field off the south coast of Ireland] for the past 35 years and is still doing so. Also, Providence used it for Barryroe and ExxonMobil has used it for Dunquin … Killybegs in Donegal has been used for Corrib [Shell’s gas field in the Atlantic Margin] and other wells drilled in the past off the northwest coast,” he said.

“So the problem is not suitable ports – we have loads of them. What we need is more activity and that is what Providence’s multi-basin drilling is all about. With more certainty on more drilling activities, support services and vessels will locate more in Ireland. So it is good to see the arrival of Kosmos, Cairn, PGS and others to further build on what is already being done by incumbents.”

As far as the question of Irish energy security is concerned, O’Reilly pointed out – as does PwC’s report – that any imposition by the Irish government of obligations for oil and gas firms to land hydrocarbons onshore Ireland would be illegal under European Union legislation. In any case, there is only one refinery currently in Ireland and there is no guarantee that this will be operating after 2016.

Meanwhile, O’Reilly dismissed the criticism that the Irish tax regime is too generous.

“The fiscal terms are appropriate for the current state of the industry – i.e. little production but increased exploration. The fiscal policy is designed to attract in the necessary inward investment to help develop the industry. Ireland does not have a sufficient balance sheet to do this itself, so it requires foreign direct investment,” he said.

O’Reilly also pointed out that the practice of writing off past exploration and development expenditure against future income is in line with other countries, including Norway and the UK.

Providence itself is doing all it can to bring the economic benefits of oil and gas exploration to Ireland, according to O’Reilly, through its multi-basin drilling program. After Barryroe and the current Dunquin drilling, Providence will be involved in at least four more wells next year and in 2015.

“I like to think that we have also elevated the debate, by commissioning the PWC report, on fiscal terms and regulatory issues to ensure that there are clear facts and figures – instead of emotive mis-statements by the anti-oil lobby – that can be used by all stakeholders in ensuring appropriate policies to foster more investment and develop the industry,” O’Reilly said.

“As an active member of IOOA (Irish Offshore Operators Association), we are also trying to educate people on the industry through a media campaign.

“Finally, we are working with third level institutions to ensure that courses are being introduced – such as geology, engineering, etc. – to create more talent in Ireland. This includes fostering opportunities for specialized fields like coolangatta jobs to meet the demands of various industries. Currently, most graduates have had to go overseas to work, but that will change and an educated workforce will only enhance a growing vibrant industry.

“So we are doing quite a lot. It is early days but I think we are beginning to see the growth of the industry in Ireland. And of course, every dollar and new job created that comes in is incremental to what we have now.”