Ireland’s nascent offshore oil business is seen in certain quarters of the oil exploration business as a tremendous investment opportunity.
The more promotionally minded exponents and executives might even propose that it is a “once in a lifetime” opportunity.
Now, that might be a little much and a little hyperbolic, but, nonetheless, the frequently promised great oil potential in Ireland’s Atlantic waters is now arguably closer than ever.
For one, crude oil prices are considerably higher than they were in 2015 when the Irish government auctioned off exploration rights to some of the world’s largest oil companies.
Then, the Chinese were the largest of the new entrants offshore Ireland. Now, via state-owned entities, China is driving forward what could become a significant new oil sector.
In a new partnership with London-listed Providence Resources, the Chinese will drill new wells to put the Barryroe field, off the Cork coast, firmly on the path to production.
Barryroe will be Ireland’s first commercial oil operation and it will be the country first domestic source of petroleum. As such will be a watershed moment, not just for Ireland’s hydrocarbon industry but significantly for the country’s economy which presently is wholly reliant upon imports.
Whilst the Cork operation is Ireland’s ‘most advanced’ project, the possibilities off the west coast arguably presents the greatest opportunity.
Those ‘in the know’ see many billions of possible barrels of oil - based on technical work, academic study and geological extrapolation.
Finding a viable discovery has eluded the initial drilling ventures, and, as such the largely blue-sky estimates espoused to date still must be proven with actual well results.
New exploration drilling slated for 2019
China, via the Nexen business acquired by the state’s offshore oil company CNOOC, is expected to kick off its Atlantic exploration venture with gusto as wells are due during 2019.
As neither CNOOC nor Nexen is stock market listed entities detailed information about the China-held acreage and drill plans aren’t so easy to pin down. It is not, however, the only play in town.
Several publicly owned oilers are also committed to finding oil offshore Ireland - some very big and some comparatively small.
Small-cap explorers like Providence Resources and Europa Oil & Gas are more inclined to share insights about what the west coast frontier could become after all their market valuations and financing capabilities depend on investors understanding the proposition.
Irish success will, arguably, be most ‘transformational’ for explorers like Europa which essentially have their futures pinned to the ‘high impact potential’ in the Atlantic.
Small value, big potential
Europa, for instance, is presently valued in the stock market at around £11mln yet its exploration inventory includes identified prospects representing some 4.3bn barrels of potential resources.
On London’s AIM market the explorer’s share price stands presently at 3.55p, and, to highlight the possible upside, stockbroker finnCap this summer set a 55p price target along with a ‘buy’ recommendation.
Europa’s ambitions are on a two-track course
Earlier this year, the company revealed new plans to prioritise gas targets in its northernmost portion of exploration acreage.
Significantly, here, the targets are located in the vicinity of the Corrib field – Ireland’s primary source of domestic gas – which means there’s an opportunity to accelerate any would-be project towards commerciality (if exploration activities are first a success).
Proximity to existing infrastructure and a tangible proof of hydrocarbons next door, understandably, make the group of targets collectively referred to by Europa as the ‘Inishkea assets’ a natural starting point.
That the targets are also found in shallower and somewhat more hospitable waters means they should (in theory) be cheaper to test.
Europa reckons there could be some 2.54 trillion cubic feet of gas across six prospects in the Inishkea area.
Farm-outs and drilling
The plan is to drill an exploration well, in either 2019 or 2020, though to fund the programme Europa will need to bring in a partner via a ‘farm-out’ transaction (which would see project equity swapped for either funding commitments or hard cash).
Similarly, farm-outs are seen as Europa’s preferred route to fund exploration across the rest of its portfolio which spans a total of three key exploration areas, estimated to contain the potential for 4.3bn.
There’s no shortage of interest, at least not according to Europa chief executive Hugh Mackay, who in October said: “Our farmout process commenced in July 2018 and the target market of supermajors, majors and large independents are in the virtual and physical data rooms,” said Hugh Mackay, Europa Oil & Gas chief executive.
“We are looking to drill as early as 2019, subject to industry or financial partnering and we have been sufficiently encouraged by the positive results to commence both the well planning and site survey preparation necessary for a 2019 spud.
“With the Corrib gas field going into decline and Ireland’s demand for both gas and electricity forecast to increase in response to its vibrant economy we believe there is a window of opportunity for gas that we must seize at Inishkea.”
Of course, even with a ‘favourable’ and ‘de-risked’ opportunity like at Inishkea exploration is as ever a risky business.
Plainly, though there’s a lot to play for. In the meantime, for those comfortable with risky propositions, there are good reasons to pay close attention to Irish explorers like Europa Oil & Gas.
Europa chief executive Hugh Mackay is due to meet investors and deliver a presentation at the Proactive Investors One2One Investor Forum on November 22 at The Spencer Hotel, IFSC, Dublin.