Our policy objective is to maximise the benefits from exploration and production of indigenous oil and gas resources. The Department regulates and licenses all petroleum activity. It has a small team of professionals, including myself, whose job is to approve all offshore operations, and we strictly supervise those operations when they are ongoing. We require companies to give us all data and we receive all of it. I will come back to that later.
The list of definitions is long, so I will go through them quickly, but members are welcome to ask me about any of them afterwards. The words "petroleum" and "hydrocarbons" are interchangeable - the difference does not mean anything - but the term "petroleum" does include oil and gas. The meaning of "exploration" versus "appraisal" is pretty much self-evident. An "exploration play" is sometimes spoken about. This is a regional concept that a company may have which has a certain association of reservoirs, source rocks and so on. It is very broad. There may be some positive evidence that a play is an interesting one and should be explored. We then get on to seismic data, and there we can get some glimmer of a structure, which may be a lead. The lead would then have to be matured into a prospect and ultimately a drillable prospect. With regard to "dry hole" versus "show", dry hole is self evident, while one can have oil or gas shows in extremely small amounts. They can be in the source rocks, where they are not produced, or in a reservoir, where they may be of no significance or they may indicate a moveable hydrocarbon phase. In the latter case, one has made a discovery. We look at petrophysical data in the first instance to see if shows can warrant testing or qualify as a discovery.
With regard to in-place hydrocarbons and reserves, there are always more hydrocarbons in a reservoir than one can ever retrieve. The reserves are what one can get out of the ground and are thus by definition recoverable, so we do not need to say "recoverable reserves". If the word "reserves" is there, that is what it means. With regard to "potential" versus "proven", this is self evident. It is self-evident that potential is potential. The colourful map now before members shows Ireland in the context of the Atlantic Ocean and the other main exploration areas. The designated area around Ireland currently comprises approximately 720,000 sq. km. The rather thick red line on the following image reveals the round we carried out this year on an area comprising approximately 250 sq. km. The warmer colours represent shallow waters and the contour then dives into deep water blues and greens. The Porcupine Seabight is located at the southern end of the licensing round area and the Rockall Trough shoots through to the west.
The geological imagery reveals these basins, as well as others in the Celtic Sea and off the north-west coast which are not mirrored at the seabed. I am adding complexity to show the soft unconsolidated sediments of the seabed at a depth of between 2,000 m and 4,000 m of water. Our interest starts at that point and it continues down for several kilometres.
The following black and white map shows the locations of the basins. The Slyne Basin, the Erris Basin and the Porcupine Basin are lined up in a row to the west of Ireland. Further west is the Rockall Basin and the North Celtic Sea Basin lies to the south.
In order to have a petroleum accumulation, a number of conditions need to be met. The parameters include reservoir, source, seal, trap and timing. The reservoir rock needs to be porous enough to retain hydrocarbons. The source rocks need to be initially composed of organic fine-grained sediments. If they are buried for long enough at a sufficiently large temperature, they will start to cook and thereby generate oil and gas. If the source rock is present in the correct concentration, it will expel hydrocarbons and these will migrate in search of a structure or a trap. Something is needed to seal or cap the hydrocarbon accumulation. Common types of rock which meet this purpose include shales and vaporites, such as common salt. Traps are large blocks segmented by faults. Prospectivity is generally constrained to these basins, which are formed when the earth's crust is pulled apart and subsides. As it subsides, sediments begin to fill it and, in time, will convert to rocks. We must always bear in mind, however, that an evaluation is only as good as the data it uses. Talent and software can, of course, improve the modelling but the calculations must always go back to the existing data.
In regard to exploration wells, there is a small cluster in the northern part of the Porcupine Basin and several more in smaller basins on the western margin. However, gigantic areas have no well controls and, as a result, we do not know what is there. All we have to go on are the seismic lines, which themselves are widely spaced. The lack of data in deeper water areas is a significant issue for us. Even where the blue and red lines on the map appear close together, there are large spaces between them when viewed at a proper scale. Solid blue filled areas which are 3-D represent higher density data but longer lines rather than 3-D are needed when investigating a region for exploration opportunities. Issues also arise in regard to data quality. A line might not record at a depth that is sufficiently deep or it may be poor quality due to geological issues such as volcanics and chalks.
The following slide represents my attempt to show reservoir prediction at a particular geological horizon. Well control is so bad that we are investigating whether we can learn something from the Canadian margin. This exercise is indicating some exciting prospects for the future. One must be very precise at the local scale because a couple of kilometres can mean one is inside or outside a reservoir. In relying on key maps to evaluate the broad region, the only way we can fill the gaps between the widely spaced seismic lines is by applying other geophysical methods, including magnetics and, especially, gravity. That is not a very precise approach, however, and while a map may appear reasonable at the broader scale, it is not well constrained over large parts of the region.
Similar problems arise in regard to source rocks, which are essential. We have some control in this regard and we look to the data produced by Canada and the UK to postulate where they might exist. After one predicts that they may exist, one must run models to show how much oil or gas they may expel and when this may occur. When the oil or gas is expelled, it will follow certain migration routes and the structures may be in a very unfortunate location. The structures are frequently missed or in shadow.
The next slide outlines the factors that are necessary for an area to have petroleum potential, as defined by certain parameters and geological time from 300 million years ago to the present. In regard to trap formation, blebs of black form at the 150 million year point. The blebs at the very right hand side are coming from the green source rock depositions one line up. We think these source rocks were relatively recent in expelling their hydrocarbons. Significantly, we believe this happened subsequent to trap formation, which is a positive sign. If oil moves before traps form, all is lost.
The indicative estimates for the as yet unfound reserve potential in the area to the west and in the Jeanne D'Arc Basin in the eastern Canada area appear great. However, while we appear to have a good number, the estimates are based on existing data. While I do not fault the work in any way, it is all one can do. We have to look at prospects and leads and ask whether we have the same density in an area for which we do not have any seismic. Maybe we do or maybe we do not. We work our way through and come out with a figure. That figure is pitched at the oil industry. If there are any oil industry colleagues listening, we are not trying to pull one over on them. We cannot do that. We are looking to the oil industry's technical people, who will understand the basis for the figures. The objective of this number is to tell them that maybe it is time they looked at Ireland.
This particular graph in the presentation shows all the wells that were drilled since 1970. There is nothing down yet for 2011, but we hope to have a well from Providence Resources in the Celtic Sea in the next couple of months. We are typically doing one well per year and that is extremely low. We need tens if not hundreds of wells to have any crack. I would be happy if we had about five wells per year. We would then have a reasonable chance of making some discoveries or improving on potential. The slide shows the kind of risk factors and probability factors involved. I will not belabour them, but would point out that our technical success rate is about one in nine. That is not particularly great, but I would not downgrade it completely. The cost of a well is also included, at €30 million to €120 million. It is over €100 million if we go into the deeper water basins to the west.
The next page deals with seismic issues. We have line kilometres on the left and square kilometres on the right. The grey lollipop sticks represent three dimensional seismic works, which are more modern and valuable, but tend to be over small areas. We have seen four small surveys this year, which is encouraging.
If a discovery is made, we have to go through several steps to see how much there may be in it. It invariably means that we start drilling appraisal wells and develop model engineering studies and so on. The final issue is to decide if the project is commercial. Can it be brought to the market? Starting from today, we are talking years before we can get a discovery to market.
The next slide contains a map of fields and key discoveries. I can show other wells that have had little blips of oil or gas, but these wells have had a reservoir in them that could technically be produced if they were big enough. The white and red marks indicate the actual commercial fields, while the other marks only represent discoveries at this stage. Nearly all of them are being examined by companies, although not the companies that found them unfortunately. They have moved on as they did not find the opportunity, which only came after a few generations.
The next page shows some basic statistics for the six significant discoveries west of Ireland. The second line down shows the Corrib discovery, at 64 million cubic feet of gas per day. The Connemara and Porcupine discoveries represent 5,589 barrels of oil per day. The Corrib rate is a good rate. In the case of an oil well, we would typically be looking for anything from 3,000 to 6,000 barrels, so this is a good figure. We then get down to very small numbers for Spanish Point and Burren, but these will be examined again. If further drilling could be justified, perhaps it would give better results.
The next page contains a lot of text on the discoveries and I do not have time to go through it. The basic message is that many discoveries have been made, but very few of them have been found to be commercially interesting, let alone viable. The companies that have discovered them have left Ireland. Somebody else might decide that there is an opportunity if they shot some more seismic or had a new idea and decided to go back in. Even at that stage, they can fail as well. We have had Statoil in Connemara and Chevron in Spanish Point, who came in long after the original company had left, but they still did not succeed. I do not want to paint too negative a picture. I always try to promote the technical value of what we have got.
The next page shows production on a blue map. Members will be familiar with the location of the pipes. At the lower right part of the picture, there is a small map which shows our daily gas production in billions of cubic feet per annum. There is a gaping jaw between the black lines and the red demand curve, and that is what we want to fill. About 95% of our gas is being pulled in through the interconnectors from the UK. It would be nice if we could find a bit more here.
In regard to data and information, we require everything and we get everything. It might not be generally well known, but we maintain a national data archive which is a treasure. It is an absolutely fantastic asset, not only for the Government or from a research point of view, but for the explorers themselves. The content of that database is far bigger than any oil company would have, including the major companies. From time to time, major oil companies and seismic contractors come in looking for old data of theirs that they can no longer find. This database is second to none on an international basis. We guard it and maintain it very carefully.
We keep close contacts with the industry under our regulation duties and because we try to promote ideas. However, we also have a need for day-to-day communications on the drilling of wells and the like. We get all the data on the wells on a daily basis. We can have real-time access. If we have nothing better to do, we can watch the bit on the bottom drilling away. We cannot see the bit, but we can see the drill rates. When we get into a big and expensive exploration well off the west coast, we might tell the companies that we need to install a live link, and all of the data just streams in. During the logging and testing operations, all data will be transferred to us and we do our own independent petrophysical analysis and test evaluation. Inspections are frequent and basically we are on call all the time during the drilling season.
The next slide deals with licences and shows the current licences in blue, petroleum leases in red and options in yellow. There is then a histogram showing the licences and options, going way back to the 1970s. There is a kind of cyclical nature to this, although I try to think that we put something into it that bucks the trend. We are not doing too badly with licences at the moment, but they are beginning to fall away again. They go through a natural life span from one phase to the next. If the opportunity or the results are not there, then the group of companies will just walk away and relinquish the licences, as they are required to do if they are not doing work. We are a little bit on the downward trend at the moment.
The next slide shows white bars containing the total number of applications offered in licensing rounds as far back as 1994. These are all our frontier exploration rounds west of Ireland. The grey bars represent the number of authorisations awarded under each. The years 1994, 1995 and 1997 were particularly good rounds for us, but unfortunately what followed is a bit of a mixed bag. It is a bit on the low side.
We then have the current round, the Atlantic margin licensing round 2011, which closed on 31 May. We can see its outline in the basins on the map. We received applications for approximately 15,000 square kilometres, which constitutes 6% of the area on offer and 2% of the entire designated area I showed earlier. One can argue that not all of this area is prospective but I would not go further than doubling these figures. They are still relatively modest.
We have too few wells. The plate is not being tested. While I could argue it is not being tested fast enough, with only one well and in some cases no wells being tested each year, the available potential is not being explored. We still have large data gaps and this is one of the key issues we need to address. In terms of the latest round, I am a little disappointed at the lack of applications we have received for deeper water areas. This, I believe, can be purely ascribed to the lack of data and needs to be addressed.
Petroleum research is crucial in laying the technical platforms for planning and promoting the sector. I referred to Canada and we have active research ongoing with the Canadians to examine how we could correlate the geology across the Atlantic. This is exciting and keeps geologists such as me going. While there are encouraging signs, a considerable increase in drilling levels over many years will be required to establish whether any or all of Ireland's potential can be proven.
The final slide shows the number of exploration companies departing Ireland in any year. This group is depicted in yellow below the horizontal line, while companies entering the country are shown in blue above the line. We are just about managing to avoid a net loss. As the slide shows, the net gain was one new entrant in 2011. Exploration is hard work and the diagram reveals we have some way to go in attracting the industry to Ireland.
