As get-rich-quick schemes go, searching for oil or gold could be the most foolish of them all.
"Investing in exploration is not for the faint-hearted. You must be prepared to risk losing everything," says veteran exploration entrepreneur John Teeling. "It certainly isn't something for widows and orphans."
He should know. As head of not one, but four Irish exploration firms working across oil, gas, diamonds, gold and zinc, Teeling has had more than his share of failures. But he has also experienced plenty of success over the years.
But finding success in recent years has proven difficult, not just for Teeling, but for anyone involved in exploration and production. To say it has been a turbulent time would be an understatement. With global commodity prices having slumped and financing no longer easy to obtain, many explorers have struggled to stay afloat.
“We’ve gone through a torrid few years and it isn’t over yet. Some companies have fallen by the wayside and others will still,” said Teeling.
Irish-based explorers, of which there are many, haven’t escaped the crisis, which saw oil prices plunge to below $30 earlier this year and the cost of other commodities, such as iron ore and zinc, also decline.
Some local players focused on oil and gas have had to put key projects on hold or go cap in hand to lenders to help them get by. Others – most famously Petroceltic – have become immersed in damaging disputes with dissident shareholders. One explorer – Fastnet – even chose to give up on the sector altogether in favour of investments in healthcare.
Irish explorers focused on other commodities have also suffered. Kenmare Resources, one of the world's largest producers of titanium minerals and zircon, recently unveiled a major debt restructuring plan. It had defaulted on its debts earlier this year after failing to reach agreement with lenders on a deleveraging plan.
Elsewhere, Ormonde Mining, which is engaged in tungsten mining, opted to split ownership of its flagship mine at Barruecopardo in Spain 70 per cent-30 per cent in return for €90 million in debt and equity from US fund Oaktree Capital last year.
“It really has been an awful time for everyone. The economic collapse of 2008 meant that speculative money wasn’t available and this was followed by the drop in commodity prices, which led to a situation where there was oversupply of oil, copper and so on,” said Teeling.
“It’s ironic to think that many of the most successful explorers, who actually got production started by borrowing money, have all been left hurting because of that. I think those of us who have been able to continue have been able to do so largely because we continued to put up our own money, rather than seek it from other sources,” he added.
Impact of fracking
Commodity price cycles are nothing new but the rise of fracking in particular, has really been a game changer in terms of the supply of oil. Just this week it was confirmed the United States now holds more oil reserves than Saudi Arabia and Russia, the first time it has surpassed those held by the world’s biggest exporting nations.
While all explorers have been badly hit, the consequences vary.
As one industry analyst told The Irish Times, “While oil and mining are both commodity-led industries, the actual exploration end of the business use very different models with the cycle for oil and gas being considerably shorter.
“Cash requirements on the oil and gas side are so enormous that it is a much quicker game. You can make or break a company within three years whereas you can run a mining firm on a geologist, some maps and a couple of ideas and it can take 10 years to finish a small mining stock,” the analyst added.
While things have been bad in recent years, industry players see some signs that suggest better times lay ahead.
"I'm an optimist and see some small shoots of revival in commodity prices," said Teeling. "Oil is back up to around $50 a barrel, while other commodities are also coming back. Zinc, for example, is now at about $2,000 per tonne. Irish zinc is profitable at that and, as I see it, what Botswana is for diamonds, Ireland is for zinc [Teeling has interests in both areas]. There's also a good future for gold in Ireland led by Dalradian in Co Tyrone."
Providence Resources late last month announced a near $74 million financing deal that has not only safeguarded the company’s future by allowing it to pay off debt, but also enables it to drill new wells and continue its search to find a partner for its most valuable asset, Barryroe. Its chief executive Tony O’Reilly is another optimist.
“It might not seem it but it is a good time to be in the oil business. The market has taken a severe beating both in terms of equity valuations of companies and for prices over the last few years but in recent months we’ve noticed a sea change,” he said.
“Oil prices have come off the bottom and the oil price rout has transformed the cost profile of the industry for the good. Costs are now up to 25 per cent lower than they were three or four years ago so margins have improved. It is a good time to be in a rising market with a low cost base,” O’Reilly added.
With most of the big oil and gas companies having either abandoned or delayed investment programmes for future field developments, O’Reilly expects there to be supply squeeze in the years ahead, which will likely push up oil prices higher.
The global population is continuing to grow and oil and gas will continue to be the main energy sources in the years ahead. We’ve witnessed the biggest disinvestment ever seen in the industry in recent years and even with concerns about growth slowing due to the fallout from Brexit, it will outstrip supply,” he said.
Offshore Ireland
This is obviously welcome news for Irish explorers such as Tullow, which have oil licenses outside of Ireland, but the decline in exploration costs could also benefit companies like Providence, who have a local focus.
"The cost of drilling has come down dramatically with costs for deepwater drilling in Mexico having halved last year. At the same time, drilling technologies have improved dramatically. This is all good news for Ireland as it is an expensive and hostile environment for exploration," said Prof Pat Shannon, chairman of the Irish Offshore Operators' Association, a representative organisation for companies working off the Irish coast.
Shannon, an emeritus professor of geology at UCD, said there is renewed interest in exploring offshore Ireland as witnessed in the recent Atlantic margin licensing round, which attracted 43 applications, the largest number ever recorded for licenses to explore offshore Ireland. Among those who received licenses were local exploration firms such as Petrel and Providence, and big players like ExxonMobil, Eni and Statoil.
“The Atlantic round has been very positive in terms of calibre of the companies that applied and the acreage that has been awarded,” he said. “There is a caveat in that this is all very early stage exploration with no commitment to drill, but it is has been successful in that it has encouraged companies in to take a look at a time when many aren’t necessarily willing to incur the costs of drilling.”
Prof Shannon said many of the big players’ interest in offshore Ireland is linked to recent discoveries made in the Flemish Pass Basin off Newfoundland.
"If you rollback through geological time to when the Atlantic didn't exist, the Porcupine Basin lay very close to the Flemish Pass Basin. Companies like Nexum and Statoil have made discoveries off Newfoundland so it isn't too surprising that they and other explorers would be interested in looking to find something similar offshore Ireland," he said.
Job Langbroek, a resource analyst at Davy Stockbrokers, believes Irish offshore can prosper in an environment of lower oil prices.
In a recent note to investors, he suggested the Atlantic margin region has the capacity to deliver large discoveries. However, he warned that a breakthrough discovery or development is needed to maintain momentum.
“Notwithstanding the presence of four discovered gas fields, the single biggest factor offshore Ireland is that no oil field has produced, or is producing, oil,” he said. “This has denied the sector a catalyst to attract industry attention.”
Langbroek went on to suggest that the next five years will be a make or break period for Ireland’s offshore exploration sector.
“The farm-out and development of [the Providence-owned assets] Spanish Point and Barryroe will be the biggest actors in the short term to ensure success. In the longer term, the Atlantic Margin has one more substantial pulse of drilling activity, probably towards the end of the decade. From where we stand now, these events will determine how the history of the Irish offshore is ultimately written,” he said.
Prof Shannon believes shareholders in offshore Ireland may eventually see a return on their investment.
“Anyone who is investing for a number of years just needs to hang on in there because there are good exploration possibilities,” he said.
Overhyped, under explored
John Teeling is somewhat sceptical. His company Petrel Resources recently received two awards under the recent Atlantic licensing round and, while he certainly believes there are prospects there, he suggests the region is one that has been overhyped but generally under explored.
“Irish offshore exploration is a failure so far. More money has been lost than made,” he told shareholders recently, noting how in recent years, few if any holes have been drilled.
Expanding on those comments, Teeling told The Irish Times: “success is finding something commercial and there’s been little of that. The last success was the Corrib and as we all know that was very much a Pyrrhic victory.”
He says the 15 year debacle over Corrib led to a tripling in capital cost, reputational damage to participants and raised concerns among international explorers/producers. Promised wells did not get drilled and only a limited amount of 3D seismic was gathered.
“What’s stopping Irish offshore is that it hasn’t been drilled enough plain and simple. Even if drilling starts now, you’re not looking at anything in the near future with there being probably a 10-year horizon on production getting underway,” he added.
And the costs are substantial. As Teeling noted to shareholders, carrying out a seismic survey can cost up to $5,000 per square kilometre, and thousands of square-kilometres may be needed to define a prospect, while drilling one well can cost in excess of $100 million, and may take more than 100 days
To make matters worse, from the industry’s point of view, the Government reformed the tax code governing exploration.
“An effective 5 per cent royalty was introduced – a tax hated by every producer as it does not allow for profitability – you pay even if you are losing money,” says Teeling.
“Under pressure from radicals the State began an examination of Irish oil licence terms in 2013 when oil prices were over $100 a barrel, but only introduced new higher taxes in 2015 when prices were circa $50 per barrel. To compound this error of judgement, the oil taxation code is now complex and difficult to understand thus breaking one of the canons of taxation.”
All told, while many people see taking a punt on exploration as akin to betting on a horse, it’s unsurprising that there are those who believe the analogy is incorrect.
“It’s more like buying a horse because there’s the potential to run it in multiple races but you have to make sure you buy the right one to succeed,” is how one industry insider put it.
Return on investment
Whether backing offshore Ireland or exploration overseas, and whether it is hydrocarbons or metals, there’s always the hope that money can be made.
“In terms of commodities, there’s been a big improvement since the start of the year. If you’d have invested in any of my exploration companies you’d have made a fortune. That Tony O’Reilly was able to raise financing at Providence and that Kenmare got money, even if it had to wipe out existing shareholders to do so, shows that market support is there,” said Teeling.
“I haven’t the slightest doubt that some Irish explorers will do well over the coming years. You only need to have one winner in your portfolio to bring success,” he added.
Irish explorers and where they operate
Aminex
CEO: Jay Bhattacherjee
Commodity: Oil and gas
Geographical focus: Tanzania
Listed: Dublin/London
Current state of play: Aminex last week secured an 18-month extension to the repayment date of its corporate loan facility
Botswana Diamonds
Chairman: John Teeling
Commodity: Diamonds
Geographical focus: Botswana
Listed: London
Current state of play: Botswana, which raised £500,000 (€583,870) via a share placing in May began an exploration programme at Orapa with its partner Alrosa earlier this year.
Circle Oil
CEO: Mitch Flegg
Commodity: Oil and gas
Geographical focus: Morocco and Egypt
Listed: London
Current state of play: Shares in the Cork-based explorer were suspended last month as it seeks to be discharged from its financial obligations
Clontarf Energy
Chairman: John Teeling
Commodity: Oil and gas
Geographical focus: Peru, Bolivia and Ghana
Listed: London
Current state of play: Clontarf reported a 16 per cent drop in operating losses, to £204,559 (€238,871), in 2015.
Connemara Mining
Chairman: John Teeling
Commodity: Gold and Zinc
Geographical focus: Ireland
Listed: London
Current state of play: Connemara recently confirmed it had found gold at one of its licences in Co Donegal
Conroy Gold and Natural Resources
Chairman: Prof Richard Conroy
Commodity: Gold
Geographical focus: Ireland
Listed: London/Dublin
Current state of play: Conroy recently raised £1.01 million (€1.17m) in a placing to fund the advancement of its Clay Lake and Clontibret targets
Falcon Oil & Gas
Chairman: John Craven
Commodity: Oil and gas
Geographical focus: Australia, South Africa and Hungary
Listed: Dublin, London and Toronto
Current state of play: Falcon recently said it was debt free with cash of $11.9 million as of the end of March.
Great Western Mining
Chairman: Brian Hall
Commodity: Copper, gold and silver
Geographical focus: Nevada, US
Listed: London and Dublin
Current state of play: Great Western reported a €340,707 loss for 2015
IMC Exploration Group
Chairman: Liam McGrattan
Commodity: Gold
Geographical focus: Ireland
Listed: London
Current state of play: IMC said late last year it had struck a deal with Koza Gold to farm out five of its licences in Wicklow and Wexford
Karelian Diamonds
Chairman: Prof Richard Conway
Commodity: Diamonds
Geographical focus: Finland
Listed: London and Dublin
Current state of play: Company raised £250,000 (€291,000) in a share placing in May to fund the advancement of its recently acquired Lahtojoki project
Kinsale Energy
Chief executive: Fergal Murphy
Commodity: Gas
Geographical focus: Ireland
Current state of play: Kinsale, formerly Marathon Oil, operates the Kinsale Head, Ballycotton and Seven Heads gas fields in the Celtic Sea.
Kenmare Resources
Managing director: Michael Carvill
Commodity: Titanium minerals and zircon
Geographical focus: Mozambique
Listed: London and Dublin
Current state of play: Kenmare last month agreed a balance sheet restructuring that will raise up to $345 million (€311m) in fresh equity and slash its debts to less than $100 million (€90m).
Lansdowne Oil and Gas
Chief executive: Steve Boldy
Commodity: Oil and gas
Geographical focus: Ireland
Listed: London
Current state of play: Earlier this year, Lansdowne sought approval from shareholders to issue up to 350 million more shares, more than double its ordinary issued share capital.
Minco
Chief executive: John F. Kearney
Commodity: Zinc and lead
Geographical focus: Ireland, UK, Canada and Mexico
Listed: London
Current state of play: Minco recently acquired three new prospecting licences near Moate in County Westmeath
Ormonde Mining
Chief executive: Steve Nicol
Commodity: Tungsten
Geographical focus: Spain
Listed: Dublin and London
Current state of play: Ormonde last month won a legal battle to access land it wants to compulsorily purchase to build a tungsten mine at Barruecopardo.
Ovoca Gold
Chief executive: Kirill Golovanov
Commodity: Gold and silver
Geographical focus:Russia
Listed: London and Dublin
Current state of play: Ovoca had net assets of $23.1 million (€17.8m), which includes cash and cash equivalents of $7.3 million (€5.6m) at the end of 2015.
Petrel Resources
Chairman: John Teeling
Commodity: Oil
Geographical focus: Ireland
Listed: London
Current state of play: Petrel recorded a pre-tax loss of €227,000 in 2015. It was recently awarded two new licences offshore Ireland
Petroceltic
Commodity: Oil and gas
Geographical focus: Algeria and Egypt
Listed: London and Dublin
Current state of play: Petroceltic’s board recently stepped down and the company’s share capital was suspended after dissident shareholder Worldview tool control of the explorer
Petroneft Resources
Chief executive: Dennis Francis
Commodity: Oil and gas
Geographical focus: Tomsk Oblast, Russia
Listed: London & Dublin
Current state of play: Petroneft last week said it achieved a record rate of production from a well programme in Russia, reaching 3,500 barrels of oil per day.
Providence Resources
Chief executive: Tony O’Reilly
Commodity: Oil and gas
Geographical focus: Ireland
Listed: London and Dublin
Current state of play: Providence recently agreed a near $74 million (€66.7m) financing deal that allows it to pay down debts, drill a new well at its Druid prospect and find a partner for its most valuable asset, Barryroe
Tullow Oil
Chief executive: Aidan Heavey
Commodity: Oil and gas
Geographical focus: West and East Africa
Listed: London and Dublin
Current state of play: Tullow this week announced a €300 million (€271m) bond auction to seek additional funding
Irish explorers and where they operate
Aminex
CEO: Jay Bhattacherjee
Commodity: Oil and gas
Geographical focus: Tanzania
Listed: Dublin/London
Current state of play: Aminex last week secured an 18-month extension to the repayment date of its corporate loan facility
Botswana Diamonds
Chairman: John Teeling
Commodity: Diamonds
Geographical focus: Botswana
Listed: London
Current state of play: Botswana, which raised £500,000 (€583,870) via a share placing in May began an exploration programme at Orapa with its partner Alrosa earlier this year.
Circle Oil
CEO: Mitch Flegg
Commodity: Oil and gas
Geographical focus: Morocco and Egypt
Listed: London
Current state of play: Shares in the Cork-based explorer were suspended last month as it seeks to be discharged from its financial obligations
Clontarf Energy
Chairman: John Teeling
Commodity: Oil and gas
Geographical focus: Peru, Bolivia and Ghana
Listed: London
Current state of play: Clontarf reported a 16 per cent drop in operating losses, to £204,559 (€238,871), in 2015.
Connemara Mining
Chairman: John Teeling
Commodity: Gold and Zinc
Geographical focus: Ireland
Listed: London
Current state of play: Connemara recently confirmed it had found gold at one of its licences in Co Donegal
Conroy Gold and Natural Resources
Chairman: Prof Richard Conroy
Commodity: Gold
Geographical focus: Ireland
Listed: London/Dublin
Current state of play: Conroy recently raised £1.01 million (€1.17m) in a placing to fund the advancement of its Clay Lake and Clontibret targets
Falcon Oil & Gas
Chairman: John Craven
Commodity: Oil and gas
Geographical focus: Australia, South Africa and Hungary
Listed: Dublin, London and Toronto
Current state of play: Falcon recently said it was debt free with cash of $11.9 million as of the end of March.
Great Western Mining
Chairman: Brian Hall
Commodity: Copper, gold and silver
Geographical focus: Nevada, US
Listed: London and Dublin
Current state of play: Great Western reported a €340,707 loss for 2015
IMC Exploration Group
Chairman: Liam McGrattan
Commodity: Gold
Geographical focus: Ireland
Listed: London
Current state of play: IMC said late last year it had struck a deal with Koza Gold to farm out five of its licences in Wicklow and Wexford
Karelian Diamonds
Chairman: Prof Richard Conway
Commodity: Diamonds
Geographical focus: Finland
Listed: London and Dublin
Current state of play: Company raised £250,000 (€291,000) in a share placing in May to fund the advancement of its recently acquired Lahtojoki project
Kinsale Energy
Chief executive: Fergal Murphy
Commodity: Gas
Geographical focus: Ireland
Current state of play: Kinsale, formerly Marathon Oil, operates the Kinsale Head, Ballycotton and Seven Heads gas fields in the Celtic Sea.
Kenmare Resources
Managing director: Michael Carvill
Commodity: Titanium minerals and zircon
Geographical focus: Mozambique
Listed: London and Dublin
Current state of play: Kenmare last month agreed a balance sheet restructuring that will raise up to $345 million (€311m) in fresh equity and slash its debts to less than $100 million (€90m).
Lansdowne Oil and Gas
Chief executive: Steve Boldy
Commodity: Oil and gas
Geographical focus: Ireland
Listed: London
Current state of play: Earlier this year, Lansdowne sought approval from shareholders to issue up to 350 million more shares, more than double its ordinary issued share capital.
Minco
Chief executive: John F. Kearney
Commodity: Zinc and lead
Geographical focus: Ireland, UK, Canada and Mexico
Listed: London
Current state of play: Minco recently acquired three new prospecting licences near Moate in County Westmeath
Ormonde Mining
Chief executive: Steve Nicol
Commodity: Tungsten
Geographical focus: Spain
Listed: Dublin and London
Current state of play: Ormonde last month won a legal battle to access land it wants to compulsorily purchase to build a tungsten mine at Barruecopardo.
Ovoca Gold
Chief executive: Kirill Golovanov
Commodity: Gold and silver
Geographical focus:Russia
Listed: London and Dublin
Current state of play: Ovoca had net assets of $23.1 million (€17.8m), which includes cash and cash equivalents of $7.3 million (€5.6m) at the end of 2015.
Petrel Resources
Chairman: John Teeling
Commodity: Oil
Geographical focus: Ireland
Listed: London
Current state of play: Petrel recorded a pre-tax loss of €227,000 in 2015. It was recently awarded two new licences offshore Ireland
Petroceltic
Commodity: Oil and gas
Geographical focus: Algeria and Egypt
Listed: London and Dublin
Current state of play: Petroceltic’s board recently stepped down and the company’s share capital was suspended after dissident shareholder Worldview tool control of the explorer
Petroneft Resources
Chief executive: Dennis Francis
Commodity: Oil and gas
Geographical focus: Tomsk Oblast, Russia
Listed: London & Dublin
Current state of play: Petroneft last week said it achieved a record rate of production from a well programme in Russia, reaching 3,500 barrels of oil per day.
Providence Resources
Chief executive: Tony O’Reilly
Commodity: Oil and gas
Geographical focus: Ireland
Listed: London and Dublin
Current state of play: Providence recently agreed a near $74 million (€66.7m) financing deal that allows it to pay down debts, drill a new well at its Druid prospect and find a partner for its most valuable asset, Barryroe
Tullow Oil
Chief executive: Aidan Heavey
Commodity: Oil and gas
Geographical focus: West and East Africa
Listed: London and Dublin
Current state of play: Tullow this week announced a €300 million (€271m) bond auction to seek additional funding
