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Will Ireland’s ‘billion barrel’ oil potential be left untapped as Varadkar promises to ‘phase out’ exploration?

Nobody exactly knows what Leo Varadkar meant when he said Ireland would stop offshore exploration, but, evidently, it is not good news for those who have invested in the country's would-be oil frontier.

Europa Oil & Gas Holdings PLC - Will Ireland’s ‘billion barrel’ oil potential be left untapped as Varadkar promises to ‘phase out’ exploration?
The Taoiseach said: "exploration for oil should end, as it is incompatible with a low carbon future." [image credit: credit Alexandros Michailidis / Shutterstock]

Ireland’s nascent offshore oil and gas industry is facing an uncertain future in the wake of comments from Leo Varadkar to the United Nations Climate Action Summit on Monday.

Taoiseach Varadkar told the UN of Ireland’s intention to phase out oil exploration licences in the future.

Precisely what that means in a practical sense has yet to be confirmed, nonetheless, it is naturally seen as a blow to companies that have backed ventures off Ireland’s coast.

Varadkar’s own government earlier this year acknowledged that a ban on Irish exploration wouldn’t reduce the country’s carbon emissions and would lock it into dependence on imports - until it eventually becomes a ‘low carbon’ economy.

READ: Providence believes existing Irish exploration will be ‘allowed to progress’

Industry group the Irish Offshore Operators’ Association (IOOA), highlighted that energy security for Ireland is an important part of the transition to ‘low carbon’ and that it will seek meetings with the government in the coming weeks.

“IOOA look forward to seeing the full detail of the proposals to be outlined in the Taoiseach’s speech at the Climate Action Summit this evening,” the industry group added.

“In particular we look forward to receiving the exact detail of the proposed implementation of today’s announcement regarding future exploration in Ireland.”

Europa and Providence believe existing exploration assets will be allowed

Irish exploration stocks Europa Oil & Gas Plc (LON:EOG) and Providence Resources PLC (LON:PVR) were both on the back-foot in Tuesday morning’s deals, losing 11% and 6% respectively.

Earlier today, in a stock market statement, Europa said: “The company understands that the phasing out of oil exploration only relates to future oil licences and not future gas licences. 

“Furthermore, it is the company’s initial understanding that all of the options, licences and leases already in place will be allowed to progress for their full duration.”

Providence similarly echoed such expectations as both companies await clarifications via the IOOA.

Gas appears clear

For Europa, a silver lining of sorts comes in the form of Varadkar’s comment that gas resources would be needed as a ‘transition fuel’ for “decades to come”.

The AIM-quoted company has more than 6bn barrels worth of exploration targets and fairly recently put its Inishkea gas portfolio at the top of its priorities list.

Inishkea is in the neighbourhood of the large Corrib gas field and the portfolio comprises some 1.5 trillion cubic feet of gas potential across three licence areas.

Europa’s investors will perhaps also find some distraction in the company’s recent news announcement, last week, that it had landed the Inezgane project offshore Morocco.

The explorer revealed that it has been awarded an eight-year licence for the Inezgane area, which spans some 11,228 square kilometres and has prospects that are believed to have potential for upwards of 250mln barrels of crude.

Irish U-turn on exploration follows unprecedented industry interest

The apparent curtailing of new exploration represents something of a U-turn four years after a landmark 2015 offshore licensing round that saw an unprecedented level of interest.

Several industry heavyweights took positions in prospective territories.

China’s national oil company, Exxon and BP were among the more recognisable names.

Whilst still unproven, desk-top work in subsequent years led to estimates that there’s potentially billions of barrels of crude to be discovered in Ireland’s Atlantic margin.

AIM’s Europa for example has so far identified some 6.4bn barrels of potential resources in exploration targets across its six Atlantic acreage, which spans some 4,985 square kilometres.

Such untapped resources continue to be de-risked in a broader global context, as projects in other similar Atlantic settings (Canadian, South American and African waters) deliver world-class scale discoveries.

The rate of progress has been slower in Ireland, partially because of ‘political and regulatory’ headwinds and uncertainty, as highlighted earlier this year by Providence Resources.

One exploration well was drilled this year as CNOOC (China National Offshore Oil Company) owned-Nexen drilled the Iolar target to no avail. It was deemed a ‘dry’ hole.

The CNOOC programme, and similarly Providence’s Chinese investor-backed programme in the Celtic Sea, endured regulatory delay as additional environmental surveying was demanded.

Ireland presently has one meaningful but undeveloped oil field - Providence’s Barryroe, off the Cork coast – and it has the material but maturing Corrib gas field off the west coast.

The country is reliant on hydrocarbon imports, indeed, beyond the petrol and diesel guzzling motorists significant proportions of the population outside of Dublin rely on Kerosene oil for their home heating systems, as Ireland’s mains gas system doesn’t cover most rural communities.

Ireland’s insecure position as a net importer was underlined earlier this year as the government evidently backed off a previously proposed bill to ban exploration.

In July, Varadkar’s government argued that the particular bill would not reduce Ireland’s carbon emissions but rather ensure that almost all its fossil fuels would be imported until it moved to a low-carbon economy.

This predicament remains. Nevertheless, in his speech on Monday, Varadkar said: “In the last week, on foot of a request from me, our independent Climate Change Advisory Council recommended that exploration for oil should end, as it is incompatible with a low carbon future.

“They recommended that exploration for natural gas should continue for now, as a transition fuel that we will need for decades to come while alternatives are developed and fully deployed.”

With the Taoiseach now out of the global spotlight, oil explorers that have invested in Irish projects for a number of years will want more detailed guidance of what the government’s position will be.

Whatever the extent or stipulation of the government’s position, Varadkar’s speech has likely dented investor sentiments significantly.

It could be a hammer blow to projects which largely remain contingent upon continuing financing as well as the appetite among potential new entrants for project partnerships.

Frankly, more accessible and more attractive opportunities will likely be found elsewhere in the world.

Ireland’s potentially vast oil resources will, in the meantime, remain locked beneath the sea whilst foreign tankers continue to sail above, en route to Irish ports.

Quick facts: Europa Oil & Gas Holdings PLC

Price: 2.05 GBX

AIM:EOG
Market: AIM
Market Cap: £9.12 m
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