Frontier Porcupine Basin round to the point
  from: Offshore Engineer
  by: Darius Snieckus
  Monday, April 07, 2008

Over the last 15 years a mere 23 wells have been spudded in the waters off Ireland. The country’s latest licensing round, a fast-track offering of 232 full and part blocks in the Porcupine Basin, aims to transform the fortunes of the Irish continental shelf as an offshore province. Darius Snieckus reports on resurgent interest in this swathe of the Atlantic margin.

As Ireland roared through its years as the Celtic Tiger, the country’s offshore region lived a tame, rather untigerly existence. Between 1992-2007 a scant 23 wells were spudded, with the Kinsale Head, Ballycotton and Seven Heads fields – all now slipping into decline – and the Corrib gas development, brought onstream in 1996, representing the only sources of indigenous oil and gas production.

Until Providence Resources confirmed a ‘significant good quality accumulation’ at Hook Head on 10 October in fact, the promising 2002 Dooish discovery in the deep waters of the Rockall Trough, plugged and abandoned in July 2003, looked to be leading a small group that included the Connemara, Burren, and Spanish Point finds and the Dunquin prospect as the only hopes for fresh production on the Irish continental shelf.

Steadily rising reliance on oil and gas imports has put Ireland’s feet to the fire. As the country’s energy and natural resources minister, Eamon Ryan, commonsensically put it recently as he opened a new-look oil and gas exploration licensing round in the Porcupine Basin: ‘Over the last decade our dependence on imported oil and gas has grown to over 85%. This reliance on imported fuels from areas of the world that are geopolitically volatile, contributes to price instability and vulnerability in Ireland. New domestic sources of oil and gas would ease this pressure.’

The offer of 229 blocks and three part-blocks in water depths ranging from 300m in the northern reaches of the Porcupine Basin down to 3000m on the westernmost edge of the ICS are the foundations of the Irish government’s plan to lessen this dependency on imported hydrocarbons. Covering unlicensed blocks in an area of some 63,500km2, the latest Porcupine Basin round aims to fast-track new exploration in the area, with bids due 18 December and plans for acreage awards by the end of January 2008.

‘The data available to us now and seismic technology necessary for prospecting have vastly improved in the intervening 15 years. Energy prices continue to rise. Both of these factors are leading to greater profits in the industry,’ argues Ryan. ‘Fewer prospective areas are open for exploration internationally, making Ireland’s unexplored basins more attractive. The Atlantic area is seriously underexplored.’

Andrew Vinall, technical director at UK upstream intelligence consultancy Hannon Westwood, shares this view. From his company’s work developing GMatrix Ireland, a prospect inventory database for Ireland’s Atlantic basins, it has emerged that there are some 160 prospects currently undrilled in the province, 75 of which lie in the Porcupine Basin, that range ‘from one-line leads in areas of the basin that haven’t been historically licensed to fullyworked prospects that have actually had wells on but retain residual potential’. Stratigraphic targets in the Tertiary and Cretaceous down to structural prospects in the Mesozoic and Palaeozoic are all represented.

Ireland has been trying to get the drillbit turning offshore for some time, awarding four blocks in the deepwater Rockall Trough to Shell and co-venturers Eni and OMV in August 2006 in the hopes that a find near Dooish would bulk up area reserves and boost the economics of a standalone development.

‘Very little’ of the North Atlantic part of the ICS has ever been under licence, as Vinall points out, and statistics for the area highlight the low level of exploration to-date: in the two decades following the award of first Atlantic blocks in 1975, the extent of licence coverage had been restricted largely to the northern swathe of the Porcupine Basin – 55 blocks in total, with around 30 awarded in the Slyne and Erris basins, an area equal to less than three UK North Sea quadrants.

Even the latest Porcupine Basin licensing round was put back from a planned launch in late-2006 by the government’s restructuring of its profit resource rent tax legislation and an extensive environmental impact assessment of the whole of the basin.

‘The general perception of offshore Ireland is that it has never performed to its potential,’ Vinall notes. ‘But most of the wells out there have hydrocarbon shows and there are several discoveries that have been made that are potential commercial developments if incremental reserves can be found nearby to improve their economics.’

Highly prospective

‘I think this is a highly prospective basin,’ Vinall continues. ‘What has been shown by the Corrib and Dooish wells, the Spanish Point and Connemara discoveries is that there is a working hydrocarbon system along with the whole of that Atlantic margin. The stratigraphic thickness in the south of the Porcupine Basin is so thin that it was felt to hold no prospectivity, but we now see that on the margins of the basin there are thicker sedimentary sections. Operators are starting to combine the work all around the North Atlantic to understand how the wider petrogeology of the region opened up and this is changing the view of the various basins because they all have a common origin.’

The potential of this wider ‘connectivity’ has lured several majors back onto the ICS, with ExxonMobil, for one, returning after a long absence to farm-in to Providence’s Dunquin licence and take new stakes in the Goban Spur area. ‘These are very large intrabasinal, structural prospects,’ underlines Vinall, noting that Dunquin though unproven is considered ‘a world-class target’ thought to represent in the region of 25tcf of gas. ‘At last year’s Exploring Atlantic Ireland conference, there were around 25 oil companies in attendance that ranged from the small Irish national companies to the majors,’ he adds. ‘There are certainly more companies now actively looking at the region, not least those that are working the Atlantic margin in the UK and Norway.’

The new licensing terms instituted for the upcoming round in the Porcupine Basin are based around a profit resource rent tax (PRRT) – to be paid on top of the 25% corporate rate currently in place – that will operate on a graded basis of profitability. The top bracket will see operators paying an additional 15% on fields where the profit ratio exceeds 4.5, 10% where the ratio is between 3.0-4.5, 5% where the ratio is between 1.5-3.0, and nothing more if the ratio is less than 1.5.

Ireland’s government reasons that this sliding scale will ‘ensure a greater return to the state from our own natural resources, while maintaining the incentive for companies to explore off our shores’.

Though not overtly ‘incentivised’, the new PRRT is in keeping with a regime that has always been ‘benign at least’, says Vinall, and ‘still makes offshore Ireland an attractive set-up insofar as if you do find oil and/or gas it is not going to be heavily taxed either’. Quality – and indeed quantity – of acreage, not tax breaks, he suggests, are the drivers here. ‘This system says if you do find something then the Irish people will need to have a share and the bigger the find the more it is right to tax you on it because the greater your profit margin is going to be.’

Ministry analysis of the ‘Atlantic area’ calculates risked reserves in the order of 10 billion barrels off Ireland. Hannon-Westwood’s figures suggest an un-risked, yet-tofind potential of 35 billion boe in the region, based on known prospects and leads, of which some 18.5 billion boe are in the Porcupine Basin – a volume similar to the yet-to-find potential for the Atlantic margin areas of the UK continental shelf and Norway.

‘Although activity has been relatively slow for the last two years, we are now seeing a progressive increase in activity, particularly in the Celtic Sea Basin where about four wells are to be drilled this year, including one to appraise the Old Head of Kinsale gas discovery made in 2006,’ says Vinall. ‘Commercial activity is also on the up too, with several farm-ins to Celtic Sea licences announced this year.’

He points to Hess’ recent farm-in to two of Shell- StatoilHydro licences in the Slyne-Erris Basin, where new seismic acquisition and the drilling of a well are slated for 2008, ExxonMobil’s re-entry into the province, and the news that Shell had chartered Ocean Rig’s Leiv Eiriksson semisubmersible drillrig to undertake ‘one or possibly two’ wells near Dooish as proof of a reawakened interest in exploring off Ireland.

‘I’d like to think that the Irish government has done enough to stimulate new interest in the Atlantic area and that this year’s round will be a success and lead to further discoveries that will improve the perception of the potential out there,’ Vinall offers.

‘The Porcupine Basin is still a frontier basin so there are wider risks at play, but the quality of the individual prospects should out.’ OE

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