Belfast Telegraph

Problems with Irish oil firms demonstrating wider sector issues

Opinion

'Regardless of what governments and their electorates might wish for, getting rid of oil and gas completely will prove easier said than done' (stock photo)
'Regardless of what governments and their electorates might wish for, getting rid of oil and gas completely will prove easier said than done' (stock photo)

By Dan White

On December 6, Providence Resources announced the resignation of long-standing chief executive Tony O'Reilly Jnr. Then, on Monday last week, Tullow Oil announced that its chief executive Paul McDade was also leaving "with immediate effect".

While the announcement from Providence was not entirely unexpected, the news from Tullow came like a bolt out of the blue, with the share price tumbling 70%.

Providence has, in one guise or another, been drilling for oil and gas in offshore Irish waters for almost 40 years. In 2008, it seemed as if these efforts would finally be rewarded when oil was discovered in its Barryroe field off the coast of Co Cork. These hopes were strengthened four years later when, after further drilling, Providence said Barryroe could contain up to 1.8 billion barrels of oil.

After more than three decades of trying, it appeared the search for oil in Irish waters was finally about to be crowned with success. What could possibly go wrong? Quite a lot actually. Despite it apparently containing as much oil as a significant North Sea field, Providence has so far found it impossible to secure a partner to help it develop Barryroe.

The latest attempt collapsed ignominiously in October, when Providence scrapped a deal with Chinese firm APEC.

The Providence share price, which peaked at £6.65 in September 2012, was trading at just 3.3p last week, while its market value has shrunk to just £22m from £425m.

Tullow's fall from grace has been even more spectacular. Under former CEO Aidan Heavey, it grew to be one of the largest independent oil companies in Europe, with operations in Ghana and Uganda. Unlike most Irish oil companies, it successfully made the transition from exploration to production, with daily production levels hitting almost 90,000 barrels a day.

Its share price peaked at over £13 in February 2012, valuing the whole of Tullow at almost £12bn. Since then, it's been downhill. Even before last week's news, the Tullow share price had fallen by almost 90pc to £1.40. It now stands at just 60p, valuing the entire company at a mere £640m.

Tullow's latest difficulties stem from problems from its Jubilee field in Ghana, which will result in production falling to between 70,000 and 80,000 barrels a day next year, and to 70,000 barrels from 2021 onwards.

However, as the fall in the share price since 2012 demonstrates, Tullow's problems go much deeper than those revealed in last week's announcement.

Are the problems at Providence and Tullow company-specific events, or are we witnessing something more significant, as investors become more wary of oil and gas companies amid increased concerns about climate change?

There are certainly straws in the wind, if one will pardon the pun. In the third quarter of this year, renewable energy, mainly wind, contributed a record 40% of UK electricity. Globally, the tide has already turned against coal.

Wind power is now cheaper than coal-fired power in many markets, including the US, where an estimated 74% of coal-fired plants are more expensive than wind or solar.

But regardless of what governments and their electorates might wish for, getting rid of oil and gas completely will prove easier said than done.

Belfast Telegraph

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