Speech by Noel Dempsey TD Exploring Atlantic Ireland 2006

Dublin, 8 November 2006

Good morning ladies and gentlemen. I am delighted to be here with you this morning on the first day of this two-day conference addressing the exploration potential of offshore Ireland. I am pleased to see so many people from the exploration industry here today. I understand that this conference is being well attended by both contractor companies along with the research community.

I think this says a lot for the mood of the industry. With oil prices as they are, it is not surprising that there is a keen demand for high quality exploration opportunities and certainly Ireland has these to offer.

I want to talk to you this morning about the exploration opportunities that exist offshore Ireland. I also want to update you in relation to the ongoing development of Ireland’s regulatory framework for offshore exploration and production.

One of the key drivers of the demand for high-quality exploration opportunities is the strength of the Irish economy and the increasing demand for energy. Energy demand is forecast to rise by 2-3% per annum until 2020. In recent years Ireland has become increasingly dependent on imported natural gas.

I recently published an Energy Green Paper, which sets out the options for securing Ireland’s energy needs over the next ten years.
The Green Paper stresses the importance of a fuel mix. It recognises the scope for increased utilisation of renewable sources of energy.

It also recognises the objective of maximising the value of our own indigenous hydrocarbon resources and the important contribution these resources can make to our economy. A public consultation on the Green Paper is underway and I would very much welcome the input of your industry to that consultation process.

The Government is clear that Ireland’s energy policy should address the twin objectives of encouraging investment by the industry in exploration for and production of oil and gas, while at the same time ensuring that the Irish public gets a good return on the utilisation of its natural resources. The review of the licensing terms for exploration and production is being conducted with this in mind. I will return to that review in a moment.

Turning to the level of exploration investment in Ireland it is true that the industry has invested considerable sums of money in exploration over the past three decades.

While there have been discoveries such as the Kinsale/Ballycotton discoveries in the Celtic Sea during the 70’s and 80s and more recently the discovery of Corrib in 1996, I acknowledge that, with a few exceptions, the results have been somewhat disappointing.

On a positive note, drilling activity has increased this year and I congratulate Island Oil & Gas on its results in the Celtic Sea – firstly with its appraisal well at the western end of the Seven Heads field and secondly, its exploration well on the Old Head prospect east of Kinsale – both wells demonstrating the presence of gas.

The Lundin group’s decision to plug and abandon their Donegal exploration well was disappointing and reminds us that in this industry there is no guaranteed return on investment.

In recent years my Department has continued its work to communicate a better understanding of the prospectivity of Ireland’s offshore. Conferences such as this conference along with the exploration conference held in Dublin two years ago, can offer the industry a great opportunity to develop its understanding of the potential of Ireland’s offshore.

My Department recognised that two of the most important issues requiring attention were:

• the preparation of comprehensive technical data and reports for the Irish offshore in a form readily usable by the industry, and
• the assessment of the hydrocarbon resources of the individual basins.

I am pleased that Ireland has made significant advances in both areas. These initiatives have included:

• the fact that released seismic data is now available in digital form for a large number of surveys
• a major collaborative database project for prospects and leads has been initiated
• two regional petroleum systems studies have demonstrated the quantity and distribution of sizeable yet-to-find resources in our Atlantic basins.

In fact the magnitude of the oil and gas resource potential indicated is comparable to that of other neighbouring Atlantic frontier areas. This is encouraging news for the industry. It is particularly encouraging when it comes at a time when oil prices are high and yet there are less new opportunities in more mature provinces.

This is all happening at a time when research has resulted in new and more detailed information being available to demonstrate the true potential of Ireland’s offshore.

I believe that the opportunities that exist will be recognised by the industry and will result in increasing investment in exploration in the Irish offshore in the next few years.

In August of this year I announced the results of the successful Slyne/Erris/Donegal licensing round and the fact that four new licences would be awarded.

At that time I also indicated that the next licensing round would be in the Porcupine Basin in 2007. For those companies interested in the Porcupine I would draw their attention to the recently published Petroleum Systems Analysis of the Rockall and Porcupine Basins Offshore Ireland-Digital Atlas. This high quality publication provides very detailed information in relation to the prospectivity of both the Rockall and Porcupine Basins.

I am confident that the development of knowledge, such as through publications of this nature, is contributing significantly to increasing the attractiveness of Ireland as a location for exploration investment.

I congratulate all those who contributed to the publication of this Digital Atlas, in particular Ternan Limited and staff in my own Department.

Promotional campaigns and the provision of information by my Department to the wider industry is not only about attracting new applicants for exploration licences. It also serves to attract interest from those who may be interested in investing in an opportunity offered by an existing licence.

This can result in benefits to both the existing licensees in terms of finding strong partners and is also of benefit to Ireland in further deepening the commitment to investment in exploration.

I mentioned earlier that I am currently engaged in a review of the licensing terms governing exploration and production. That review is considering both the fiscal and non-fiscal terms. The primary objective of the review is to examine whether the existing terms ensure a fair return to the Irish public in circumstances where energy prices have risen sharply.

The review is also concerned with examining Ireland’s non-fiscal terms to ensure that these terms facilitate and encourage effective exploration in a timely manner.

There has been some ill-informed media commentary in relation to the existing licensing terms for exploration and production. Some such reports would have the reader believe that the granting of an authorisation to conduct offshore exploration brings with it a guarantee of a windfall to the recipient.

This is clearly not the case! The reality of the situation is that exploration requires significant investment by the holders of authorisations. It is only in circumstances where a discovery of a commercial size is made that licence holders will get a return on their investment.

In terms of wells drilled versus commercial finds, there is no basis for media commentary suggesting the award of an exploration licence equals “giving away our natural resources”.

My Department has engaged the services of Indecon International Economic Consultants to assist it with the review. I expect to receive Indecon’s report later this month.

When I have had a chance to consider the report I will then bring my proposals to the Government for the future shape of the licensing regime.

I know that you would not expect me to tell you today what my intentions are in that regard. In truth I could not tell you, as I have an open mind and will await receipt of Indecon’s report. I can tell you two things though.

• I am a realist and I recognise that for every successful discovery there has also been very considerable investment in unsuccessful exploration projects; and
• The Government does not have a track record for introducing retrospective taxation measures.

I have already stated that whatever changes are made to either the fiscal or non-fiscal regime that these will apply to licences awarded in next year’s Porcupine Round. Accordingly, I do not intend inviting applications for that round until there is greater certainty regarding the terms that will apply.

I am also addressing another aspect of the regulatory regime – that of safety. I am working on developing a legislative proposal with the aim of giving the Commission for Energy Regulation responsibility for the regulation of safety of exploration along with the upstream element of production. The Commission will then have responsibility for safety for both upstream and downstream.

It is my intention to bring forward these legislative proposals at an early date. I am sure that the industry will welcome this initiative.

Returning to the topics to be covered here today and tomorrow, I am clear that given the nature and size of some of our basins, a considerable amount of technical work still needs to be done to tie down their potential.

The conference will help demonstrate the role for both the industry and the research community. To overcome geological uncertainty in some areas, there is a clear imperative for international co-operation.

This conference is all about profiling opportunities for the E&P sector in Ireland, and I include here geophysical and other contractors as well as the research community.

I am very glad to see that members of a delegation from the Government of Newfoundland/Labrador, currently on a visit to Ireland, have been able to take time out to attend.

Oddly enough, one of the key challenges going forward is not the identification of drillable prospects but the procurement of suitable drilling rigs to test the prospects.

With up to ten exploration wells planned over the next couple of years, it is important that rig constraints do not unduly affect Irish E&P programmes, and I would strongly recommend that the Irish Offshore Operators’ Association and explorations companies with the most influence, coordinate their efforts in this regard.

I understand that the conference will also look at the state of knowledge with regard to petroleum systems and the exploration opportunities that exist in Ireland. Commercial and environmental considerations for new entrants will also be examined.

In addition you will hear about the application of new technologies and the development of collaborative research programmes.

I would like to thank all of our speakers today and tomorrow and to also thank all those who planned and organised this conference.

I expect that I will see a good many of you later this evening at the Energy Institute’s dinner. Until then can I wish you well and I hope that I hope that you find the conference both worthwhile and rewarding.

ENDS