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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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The Last Great Frontier For Cheap Oil And Gas?

As oil prices continue their slow rebound on optimism around an eventual rebalancing of the market, there is a lot of talk among commentators about the lack of new development and the eventual resulting shortage of oil that will occur. Most regions of the world have seen E&P work fall off a cliff.

Part of this is driven by the oil slump, but part of it is also driven by the fact that there are no more untapped major production basins that can be produced with low cost and low risk. Or at least that’s what many investors assume. Related: Oil Prices Edge Lower As OPEC Nears Record Output

But Northern Ireland may be the exception. Despite the conflagration around Irish independence a few decades ago, Ireland today is largely a stable and prosperous country with little political risk. That applies doubly to Northern Ireland as part of the United Kingdom. Northern Ireland is not traditionally an area that energy companies have been eager to produce in, due to a combination of historical conflict and the fact that much of the area is covered by volcanic basalts which made seismic readings difficult. Today though, thanks to advances in technology and the improved political climate, Northern Ireland’s Larne Basin is becoming a hotbed of activity.

The Larne Basin, as a classic Carboniferous basin, is perhaps the last true frontier for cost-effective oil and natural gas production. The latter is particularly important and economically desirable given the local market for natural gas. Natural gas in Northern Ireland sells for $6 to $7 per thousand cubic feet, making the shallow reservoir targets in the Larne an attractive economic proposition even in today’s uncertain markets. Related: Why China Is Really Dictating the Oil Supply Glut

Drilling for oil in Northern Ireland has not always been a project that was assured of success, but new technology has changed that through the development of enhanced testing techniques. Until recently, the Larne Basin had only one oil and gas well, which was drilled in 1971 by Royal Dutch Shell, but today there are a rush of British and American companies focusing on the area including Horizon Energy Partners, Petro River Oil Corp, InfraStrata, Brigantes Energy, Terrain Enter, and more.

Data on the Larne recently suggested the region could hold 600 million bbl of oil and multiple tcf of gas. Norther Ireland primarily uses natural gas for power generation, home heating, and in peaker plants, so the new exploration could be a boon for both consumers and businesses in the local area. The Larne production output could be exported reasonably easily as well since there is an existing gas pipeline infrastructure within a couple miles of most of the identified prospects in the basin. Oil could be transported to Belfast for shipment. These low transportation costs are critical in the current market environment, and they are one of the key drawbacks that have hamstrung production in the Bakken for years. Related: The Merger That Could Create a New Oil Major

Thanks to local transportation, resource demand, political stability, and basin geology, the Larne Basin in Northern Ireland looks like an outstanding target for E&P firms. While there are no lack of good investments in the still depressed oil sector, investors and corporations alike should be following this emerging frontier closely as it develops over the next few years.

By Michael McDonald of Oilprice.com

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