Ireland's Atlantic Margin attracts Majors interest

The latest licensing round for Ireland's Atlantic Margin has attracted the interest of the Majors. And it saw the largest number of awards made yet, with 28 licensing options awarded to a total of 17 companies. This is an endorsement of the potential of the frontier, particularly the Porcupine Basin, which the Majors have targeted. We examine how the Majors will approach the area and what the future economics of a significant find would be.



Ireland offers competitive fiscal terms and acreage
at a very low cost.


 
Heather Forgan
Senior Research Analyst - Continental & Mediteranean Europe

Interest in this round of licensing has been driven by recent exploration successes in other deep water Cretaceous-Tertiary plays on the Atlantic Margin. Off the west coast of Ireland, only 45 exploration wells have so far been drilled, resulting in six discoveries. Only one of these has been developed and brought onstream: the Shell-operated Corrib field. Yet the Majors see the potential for material prospects in the order of multi-hundred mmboe.

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Terms the majors like

The 2015 round was the busiest to date in Ireland, in terms of bids received and number of awards and companies. Over 30% more blocks were awarded in the first tranche of the 2015 round alone, when compared to the 2011 round. The main difference in the 2015 round is the entrance of the Majors and larger IOCs as direct bidders.

Ireland also offers competitive fiscal terms and acreage at a very low cost which fits with upstream companies' current strategies to add inventory at minimal near-term spend. The current licensing option (which was introduced in 2011) offers this – meaning there's no commitment to acquire seismic or drill. The entry of the Majors at the licensing option stage is an endorsement of the potential of this frontier part of the Atlantic Margin.

Mapping the potential of the acreage

We've looked at the potential and modelled a 500 million barrel oil discovery, using our latest oil price, cost and fiscal terms. Our analysis shows that a discovery of this size would be commercially robust and would break even at US$50/bbl. But it needs to be discovered first. There has already been 3D seismic activity from Statoil and ExxonMobil, and they could start drilling within the next two to three years (although there is no commitment to drill before 2021).

An updated fiscal regime

On 18th June 2014 the Irish Government announced the fiscal terms to be applied to the 2015 Atlantic Margin licensing round. The revised terms provide for an increase in overall government take and an earlier share of revenue for the State, resulting in a new maximum government take of 55% for new licences, compared with 40% under the old fiscal regime. Although this is an increase in the tax bill for operators, it gives them more certainty on which to base future investment decisions.

Success so far, but drilling and discoveries are required

Factors pointing to a successful outcome for the Irish upstream sector:

  • The large number of bids and awards
  • Wide range of awardees including the high calibre Majors and large-caps
  • The commencement of seismic acquisition soon after the first phase awards

The high level of interest shows that the Irish terms have not deterred investors despite an increase in government take from 40% to 55%. While success seen elsewhere on the Atlantic Margin is promising, Ireland now needs proven commercial discoveries. Deepwater drilling costs have fallen but exploration budgets are smaller following huge cuts in response to the lower oil price.

With drilling on the 2015 acreage not required until the next decade, the lack of drilling commitments are beneficial to awardees during the period of low oil price. It will be drilling results that ultimately determine if this round is a success.

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