Colm Rapple
Irish Mail on Sunday, December 14, 2008
Oil giant Shell is keeping very tight lipped about the results of an exploratory well it drilled this year on the so-called Dooish prospect some 150 km north-west of Donegal. Earlier wells in this area yielded oil and gas finds which were described at the time as very encouraging. So encouraging, indeed, that Shell was willing to spent over €100 million on this latest well.
Mind you, the Irish taxpayer will be picking up the tab for a large chunk of that cost since Shell can write off the expense against its profits from the Corrib field. Because of that tax concession we effectively pay a quarter of the exploration and development costs of getting oil or gas ashore. That, of itself, would justify the 25% tax we can hope to get on the profits from a find.
With larger finds the tax take can now go up to 40% but even that’s a pittance given that we own the oil and gas. We own the oil and gas, pay 25% of the exploration and development costs and yet, in the case of the Corrib find, for instance, will only get 25% of the profits.
But this latest drilling did cost Shell over €75 million so it was clearly optimistic about the prospects. But neither it, nor the Government, will reveal if that optimism was justified.
We are being denied information that would be very relevant in making a judgement about the appropriate of current Government policy on offshore exploration, in particular it’s approach to Shell’s development in Mayo and its decision to licence further key oil and gas prospects off the west coast on terms that are decidedly soft by international standards.
It suits both the Government and Shell to keep us in the dark. They have been playing down the possibility of other gas finds that could be routed through the Glengad landfall near Rossport in Mayo to the gas refinery being constructed at Bellinaboy. But if there is more gas out there, that’s where it will end up.
And the prospects are good.
While Shell was drilling on the Dooish prospect this year, one of its partners in the Corrib project, StatoilHydro, was drilling on the Cashel prospect which is only about 50km north-west of Belmullet and a lot closer to the Corrib find that Dooish. It was the first drilling into a structure that was believed to be very promising although the industry speculation is that StatoilHydro was disappointed with its results.
But speculation is only that but we won’t really know until StatoilHydro makes a formal statement. Exactly why it is keeping quiet is anyone’s guess.
The Dooish prospect off Donegal is even more promising. An initial well in 2002 encountered a column of hydrocarbon condensate, oil and gas. Shell’s predecessor, Enterprise Oil, was reported to be very encouraged by the results and confirmed that view by returning to the well in 2003, drilling a fresh hole at an angle to the original one. It once again encountered hydrocarbon flows.
These wells are in particularly deep water, some 1700 metres, so it is not surprising that even a very promising find would be left for some years before being revisited. But Shell was obviously sufficiently encouraged by the results to return this year to drill again in an area west of the original find.
The well was spudded on May 19 and plugged on July 28, all without any fanfare, not even a one-line press release from either Shell or the Department.
If the news is in any way good, it calls into question Green Minister Éamon Ryan’s decision to go ahead with another licensing round covering an offshore area the size of the country. We’ve known about his intentions for some time but it’s only in recent weeks that he formally requested applications for exclusive licences to a massive area off the west and north-west coast.
The companies will be able to cherry pick the choice areas and hold exclusive rights to them for sixteen years. To gain a licence they have to commit to an exploration programme but that may be satisfied by relatively cheap seismic studies and need not necessarily include a commitment to drill even a single well.
The licences will be subject to the slightly improved terms under which tax at up to 40% can be levied on very profitable fields. That’s a little better than a flat 25% but compares rather poorly with 50% in Britain, 78% in Norway and over 80% in some other areas.
Andrew Vinall, technical director at the British consultancy Hannon Westwood, recently described the new terms as in keeping with a regime that has always been “benign at least”. Even with the new terms, he added “if you do find oil and/or gas it is not going to be heavily taxed.”
We gave the Corrib gas away and now Éamon Ryan is intent on giving away the remaining choice areas of our offshore acreage at less than bargain basement prices. He risks giving away too much, too soon and too cheaply. Some of the areas on offer are very close to existing finds. If even one of those is declared commercial the terms for future licences could be greatly hardened.
Government studies suggest that there is oil and gas equivalent to 10 billion barrels of oil under the Irish Atlantic shelf. We’ve already given away our right to a significant proportion of it. Let’s not compound the error by issuing more licenses for next to nothing.
