Comment: Ireland's exposure to energy supply problems is well documented, not least in the recently published Green Paper entitled Towards a Sustainable Energy Future for Ireland. Energy sustainability and energy security are, of course, closely related.
Without security of supply, we cannot have sustainability, and vice versa. The mix is complex. Diversity of energy sources, strategic stocks, storage, imports, renewables and energy efficiency all have their place.
However, oil and gas produced within a national jurisdiction provide a very high and immediate level of supply security. It is therefore surprising to find, in the Green Paper, that the development of Irish oil and gas occupies only around one-and-a- half pages out of 107.
Granted, the objective set out in these one-and-a-half pages is "encouraging investments in hydrocarbon resources by creating an attractive environment for exploration", and indeed, critics of the Irish licensing terms, particularly the fiscal terms, would argue that this is already in place.
Regrettably, the industry does not share this view. In spite of the frequently suggested generosity of the Irish fiscal terms for production, Ireland has not been seen by the industry as "an attractive environment for exploration".
It is important to make this distinction, because, unless exploration takes place, it doesn't really matter how generous the production terms are, nothing much will happen. This is exactly the position in which Ireland finds itself today.
As an example, the 2005 Rockall licensing round in Ireland resulted in the awarding of licences to two companies. In 2006, the Slyne/Erris/Donegal round did somewhat better, with five applications received.
In stark contrast, this year's 24th round in the UK saw the highest number of applications for 35 years, with 147 applications for 255 blocs. In 2005, the Norwegian APA (applications in predefined areas) saw 45 licences awarded to 26 companies.
Of the 11 licences awarded under the 1997 Irish round, 10 have now been handed back to the Government. All of the eight licences issued in the 1995 round have been surrendered.
Most telling of all, in 1998 the Irish Offshore Operators' Association had 16 member companies. Now we are down to seven. Clearly, Ireland is not prominent on most exploration managers' radar, despite the efforts of our members which are actively promoting their Irish licences.
To understand why this is so, we must return to the distinction between attraction in terms of exploration and production.
In Norway for instance, the production regime is quite rigorous, with a total government take in the region of 78 per cent. Notwithstanding this, it is a very attractive area for exploration. The success rate of drilling is high - around one commercial discovery for every six wells drilled.
Crucially, in order to encourage continued exploration, the Norwegian government refunds around 78 per cent of the costs of unsuccessful exploration. Thus both the geological and financial risks are relatively low.
Offshore Ireland, the production terms are acknowledged to be favourable, and if you already have commercial production, unsuccessful exploration costs can offset against tax. However, only one company in the past 30 years has achieved commercial production, and the commercial success rate of drilling since the mid-1970s has been as low as one in 30. For the vast majority of explorers, in the event of unsuccessful drilling, all expenditure has to be written off.
Thus, for every $1 (€0.78) risked in drilling in Norway, a similar well in Ireland risks $5, while, based on the experience of the last 30 years, the chances of making a commercial find in Norway are around five times better than in Ireland.
Combining these risks as a crude measure, it can be argued that it is 25 times more attractive to explore offshore Norway than offshore Ireland! In other words, the low risk to the exploration dollar in Norway far outweighs the historically low possibility of high rewards in Ireland and the very expensive consequences of a dry well.
This is why Norway, in spite of a high state take on oil and gas production, continues to attract large numbers of applications for exploration licences, while the Irish offshore languishes.
Drilling a single deepwater well off the Irish west coast now costs upwards of $70 million. Clearly, exploring offshore Ireland requires a high degree of what one might call geological conviction, not to speak of a remarkable tolerance of financial risk.
It is against this background that the Irish Offshore Operators' Association reads with concern, in the Green Paper, that "the Government believes that there is a case for changing the current regime", eg the fiscal terms.
We recognise the necessity for reviews of legislation, but we would caution against radical changes at this time. No exploration wells were drilled offshore Ireland in 2005. The high oil prices of earlier this year are declining rapidly; the "yet to find resource potential west of Ireland", again to quote the White Paper, is exactly that, "yet to find", and it will remain so unless we can persuade companies to risk huge amounts of money drilling wells. The recent somewhat more optimistic view of the Irish offshore is a delicate flower and easily damaged.
Notwithstanding the above, the Green Paper identifies some welcome initiatives to encourage exploration offshore Ireland, and the offshore operators' lobby remains ready to co-operate with the relevant agencies in developing and implementing these initiatives.
However, if the Government is really serious about "creating an attractive environment for exploration", the operators' association believes that it should tread warily in the area of fiscal terms.
The Irish offshore has been and remains a high-risk, high-cost area for exploration, with no guarantees of success. The risk/reward balance should continue to recognise this.
Fergus Cahill is chairman of the Irish Offshore Operators' Association
