OilVoice

You will find that the State is the kind of organization which, though it does big things badly, does small things badly, too.
John Kenneth Galbraith
US (Canadian-born) administrator & economist (1908 - 2006)

The Era of 'New Eyes'

There is a shortage of prime exploration acreage around the world and companies of all sizes are willing to take another look at basins that they'd 'walked on by' in the past and to wonder whether new technologies might help increase exploration success rates, bring down development costs and so on.

In reality, a shortage of sub-surface resources is the least threatening dynamic facing the E&P industry: explorers may be struggling to 'find the next Angola' but there is huge potential still in the Middle East, Russia and the Arctic. Much larger risks lie in finding technical solutions for difficult reserves, accessing staff with 'Know How', and solving geopolitical problems. We are at a turning point and I've previously summarised my definition of the next era of the global oil & gas industry as something like this:

1. 'Reality bites': as IOCs accept that the era of 'New Geography' is over, competition for the 'scraps' remains fierce and costs rise, there will be a slow-down in the rush for global exploration assets.
This will in turn trigger:
• Further Consolidation amongst the Majors and bigger Independents, continuing the renewed process started and exemplified by Chevron/Unocal, ConocoPhillips/Burlington, Tullow Oil/Hardman, Statoil/Hydro and so on.
• Atrophy of the small explorers.

2. The consolidated survivors with enhanced resources - financial 'muscle' and 'Know How' and, above all, the best people – will look for new ways of engaging 'host' NOCs and Governments. They will seek relationships of 'mutual advantage' – beyond the Production Sharing Agreements and Contracts that have been demonstrated to have key weaknesses as oil & gas prices and costs rise – for example weaknesses for IOCs in the volatility of reserve bookings and for 'host' governments in delays in receiving the returns they expect.

That said, and anticipating that the real action will take place elsewhere, what new exploration provinces might these 'survivors' consider? In this review, I look at Atlantic Ireland.

Atlantic Ireland

There seems to be a bit of a 'buzz' about exploration offshore Ireland nowadays, not seen since the 1980's, with not only a few discoveries being announced, for example, Providence Resources' potentially significant oil discovery at Hook Head in the Celtic Sea but more excitement concerning recent and upcoming licence rounds.

One has to give plenty of credit to the Irish Petroleum Affairs Division (PAD) for an innovative approach to telling the geological 'story' of the Irish Offshore, especially the Atlantic Margin.

'The Story'

Talk to any number of exploration managers and you will hear the same monologue:
'We need more frontier exploration acreage in our portfolio and we'd like to take a look at Country X but I neither have enough staff nor enough time to really scrub the acreage for the plays and the Yet-to-Find. And yet we can't rely on what we see from the usual contractors – it's not great quality and all our competitors have access to the same thing!'

One or two NOCs and government ministries have heard this 'crie de coeur' from the oil companies and have responded with really innovative content-led approaches to marketing. Others march on towards their next licence round with the same thin pack of geological information, hoping for a feeding frenzy. They just might get that if the region is blessed with world-class source rocks, surrounded by billion-barrel discoveries and has been inaccessible for the last few decades. But how many nations fall into that category?

Back at the Paris AAPG in 2006, there was one presenter that stood out for many people, and that was the Irish PAD. It seems that the Irish had listened to the industry and executed precisely what was required to make the evaluation attractive to exploration managers:
# There was a coherent and revealing geological 'story' for the Atlantic margin which enabled new entrants quickly to introduce themselves to the acreage and its potential
# The main risks to successful exploration were tackled 'head-on' and the opportunities to mitigate them through the application of technology were explained.

And all this was achieved in six months, with the Paris AAPG as a key milestone in a carefully managed programme. The PAD had a commercial product version of their story available for sale and followed-up on the interest shown with vigour, and a seismic data pack, and a commercial handbook.

What were the elements of this 'story'?
[I'm grateful to my colleagues Hamish Wilson and Matt Luheshi for this summary]

The Atlantic Basins of Ireland are an under-explored frontier petroleum province with proven working hydrocarbon systems. An innovative new evaluation of the area – see Exhibit 1 – focussed on a major revision of the tectonic and deposition systems evolution.

Atlantic reconstruction shows the juxtaposition of the Porcupine and Rockall basins with the Orphan Basin of Eastern Canada. This reconstruction shed new light on the depositional environments and sediment transport directions, highlighting the possibility of regional world class Upper and Lower Jurassic source rocks and with potential reservoir distribution at four stratigraphic levels controlling the following play systems:

1) Permo-Triassic (proven by the Corrib and Dooish discoveries)
2) Middle Jurassic shelf sands (proven in the Connemara discovery)
3) Lower Cretaceous syn-rift shelf and basinal sands shed from Southern Ireland and Flemish Cap
4) Tertiary shelf and slope sands.

Source rock modelling, lead evaluation and analogue basin review show a multi-billion barrel Yet-to-Find potential, with the structural style allowing for the presence of giant un-drilled structures.

Tectonic Evolution
The tectonic evolution of the area is complex, showing four rifting events. These superimposed events control source and reservoir deposition resulting in the potential for stacked play systems. A simplified stratigraphic column is shown as Exhibit 2.

Atlantic Reconstruction
Gravity and magnetic data – Exhibit 3 - based on the Srivastava Atlantic Reconstruction models (1996) demonstrate the probable positioning of the Atlantic Ireland Basins against the Orphan and Labrador basins of Eastern Canada. The reconstructed basin and structural lineaments model is shown as Exhibit 4, illustrating the basin configuration immediately prior to the onset of Atlantic Rifting in the Mid Cretaceous.

Depositional Environments
On the basis of these reconstructions, Lower Jurassic pre-rift, Middle Jurassic syn-rift and Lower Cretaceous syn-rift depositional systems can be postulated – Exhibit 5.

Source Rock Modelling
Well data combined with gross depositional environment models indicates a possible Lower Jurassic regional world class source rock. Volumetric assessment and expulsion modelling from the Lower Jurassic alone, as illustrated in Exhibit 6, shows generated volumes that could be over 100 billion barrels oil equivalent. The source rocks are generating today.

Structural Style
Rifting followed by basin margin inversion has resulted in a structural style characterised by simple tilted fault blocks as illustrated on seismic data in Exhibit 7. These structures - along with large inversion features - invoke the possibility of giant un-drilled prospects.

Seismic Technology
In addition, a review of seismic technology demonstrated that in the areas to the northwest of Ireland, where relatively shallow basaltic sheets represent a severe challenge to conventional seismic imaging, 21st C progress – especially in super-long-offset acquisition – offered the possibility of being able to image structures beneath basalts for more or less the first time.

All good, and certainly capable of creating a bit of a 'buzz' in the exploration departments of companies large and small.

Unfortunately, what's happened recently is not quite so good!

'Spin'!

The most recent licence round to be opened (8th October 2007) was for the Porcupine Basin – see Exhibit 1.
The announcement was accompanied by this statement:

'Ireland: 160 prospects to drill, according to Hannon Westwood

Up to 160 undrilled prospects are contained within the acreage now on offer in Ireland's latest Porcupine Licensing round according to a study on the prospectivity of the region.

Developed in advance of the round using data from Ireland's Petroleum Affairs Division (PAD), the GM Matrix Ireland database is claimed to the be the first of its kind.

It contains technical descriptions of prospects, resource information and figures on each prospect both in the Porcupine Basin and other Atlantic Margin areas offshore Ireland.

'Since 2004, PAD has been raising the awareness of the petroleum prospectivity of Ireland's continental shelf,' said Andrew Vinall, technical director of consultancy Hannon Westwood, which has produced the prospect report.

'We have designed GMatrix Ireland to demonstrate the undrilled potential of this area,' Vinall said. 'We believe that by incorporating over 30 years of exploration prospect information, we have produced one of the most comprehensive views of potential prospectivity available to the oil and gas industry in any sedimentary basin to date.''

Now the question here is who is this study intended for, bearing in mind that it predicts that the Porcupine alone contains more prospects than the whole of the Angolan Deep Water province where not too many more than 50 have been drilled in Blocks 14-18 and 31-34 in the ten years since the first well was spudded in Block 17? Any company with a significant exploration team, so anybody from a medium-sized Independent to a Super-Major, will likely regard this assertion as simply amusing. Surely, the intention cannot be to attract small companies who are so thinly staffed that they know no better!

Taxing Terms

And the Irish Government has clearly decided that the oil actually exists, the following also appearing as the Porcupine round was opened:

'Announcing the offer, Energy Minister Eamon Ryan - whose Green Party entered a coalition government earlier this year - said he was determined Ireland's waters would be fully explored and that the exchequer benefit fully from successful finds.
"The change in the tax regime I announced in August will apply to Porcupine basin finds," he said in a statement.
"Therefore, profitable fields will pay up to 40% in taxation to the Exchequer. That's a top rate increase of 15% for the oil and gas companies involved''
Now it may be true that companies are very keen to find new, preferably, oily hydrocarbon provinces…….but not so keen that they are going to accept poor terms before the new ideas, new concepts and new plays have been tested out with the drill-bit. A good example might be the Trinidad ultra-deep-water round earlier this year which attracted just one bid. Now Trinidad is a major, producing, hydrocarbon centre with the potential for a world-class source rock, equivalent to the La Luna of Venezuela, to be present in deep water……the reason for the dismal participation in the bid round was attributed to the new terms and conditions of the PSCs, with the Government having increased its take of the revenues and the level of taxes.
One lesson from Trinidad is this……….don't start counting the barrels until they've been discovered!

Development Challenges

Many, many years ago (OK - it was the late 1960's and early 1970's!), I was involved in geophysical surveying of the Celtic Sea and Porcupine Basin aboard the UK's RRS John Murray, a converted stern-end trawler that didn't take kindly to much of what the North Atlantic had to throw at it. I thought this the worst piece of ocean in the world – until I encountered the Pentland Firth a few years later! I have vivid memories of both and doubt that much has changed in the 35 years or so since I had the fortune to be out there.

My point is this – development engineering in such hostile, relatively deep, waters will be a challenge. Can we hope for benign reservoirs to help us out? The most useful analogue is not that encouraging.
In the 1980's, BP had made a significant discovery (supposedly with circa 220 million barrels of oil-in-place) offshore SW Ireland which produced major excitement but was relinquished because of very difficult reservoir conditions. This discovery was subsequently acquired by Aran Energy and named Connemara; next, Statoil gained a position in Ireland in 1995 through the acquisition of Aran Energy. Statoil quickly announced an FPSO-based development of Connemara, and invested significant capital into appraisal only to find that nothing had changed with the reservoir. Connemara is now operated by Island Oil &Gas (see http://www.islandoilandgas.com/default.asp?docId=12436 for a summary).

Of course, better reservoirs may be found elsewhere in the Basin but overall I suspect we are close to the edge of the envelope of what can be developed today.

Summary

The Porcupine Basin is a good example of the challenges facing explorers today. The geologists have 'been there before' but with some imaginative thinking can invent a persuasive, new 'story' about the regional geology. However, at a development level, the reservoirs may be complex and the deep water and hostile environment presents very significant engineering challenges.

It's precisely the sort of area where the concept of 'mutual advantage' is important to persuade companies to commit both the financial and intellectual resources (their 'Know How') to explore. However, exaggerated prospectivity estimates and 'dodgy' terms speak more to the era that has gone than to the next one.

Here is a simple fact. All the countries bordering the Atlantic – whether Ireland, Trinidad & Tobago, in North-West or West Africa, the Falkland Isles – face competition from the country and the Basin with the most opportunities, the most experience in offering leases, the best terms – the 'benchmark' - namely the USA and the Gulf of Mexico. To quote from an Oct 3rd 2007 US MMS press release:
'A Federal sale of offshore oil and natural gas leases in the Central Gulf of Mexico attracted $2,904,321,011 in high bids today, the second highest total of high bids in U.S. leasing history. The sale underscores the Gulf's continuing importance as a vital source of domestic energy production for the Nation.
The U.S. Department of the Interior's Minerals Management Service, which conducted Oil and Gas Lease Sale 205, received a total of 1,428 bids on 723 tracts. The sum of all bids received – losing as well as winning bids - was $5,245,583,944. There were 84 companies participating in this sale.'

Yes, that's $2.9bn and 84 companies and the best Sale since the 1980's!

I'm not a betting man….but if I was, I'd bet that the Majors – with the possible exception of ExxonMobil who already own acreage in the area - will 'walk on by' the Porcupine Basin once again.

Author: David Bamford

Thursday, December 13, 2007 16:37