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Thursday, May 24th 2012

Resource Exploration Options and the Irish Business Model

Author: Conor McCabe of Dublin Opinion

Published: February 5th, 2012

Section: Articles, Economy

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In October 2011 Pat Rabbtte gave out thirteen licenses to twelve companies (press release here). The amount of blocks left around Ireland can be seen in this PDF map here, and the way it is done in the UK and other countries is explained in this SIPTU document from last year, available here (see pages 13 and 14).

When I talk about how this is geared towards speculation, I’m not talking about speculation on Ireland resources, but speculation on the licenses to explore the Irish block.

The Irish model is geared towards speculation on the paper asset - the license - rather than the actual assets - the natural resource.

The licenses which Pat Rabbitte gave out in October were not frontier licenses, they were two-year licensing options.

Frontier licenses ‘typically require a substantial upfront investment by companies’.(’Ireland awards offshore exploration licenses‘, Financial Times, 17 October 2011)

The companies which won in the October round of licenses DO NOT HAVE TO EXPLORE ANYTHING. They just have to come up with a detailed plan in order to apply for one of the 15-yr licenses in two years’ time.

Nobody else can apply during this period. The companies that won the licenses in October 2011 get first option, and nobody has to put up any money for exploration.

Which is how a company with no assets, no capital, and absolutely no experience in gas and oil exploration ended up with a license last year, i.e. Bluestack Energy.

Thankfully, Pat Rabbitte explained the business model to the Financial Times last year.

Pat Rabbitte, Minister for Energy, told the Financial Times it was possible some major oil groups could join with license winners at a later stage.” (’Ireland awards offshore exploration licenses‘, Financial Times, 17 October 2011)

In other words, you get the license and then wait for somebody to buy you out.

One of the other companies, Chrysaor, is backed by the hedge fund management company, Barclays Capital.

Again, it is the paper asset - the license - which is the speculative asset, and not the actual oil and gas fields.

That’s the way the system evolved in Ireland over the years. The speculation on the license rather than the resource is what drives that particular business model.

This has been going on since Sean Lemass sold the lease for the right to explore the entire Irish jurisdiction, and sold it for £500 - with a one-third section of the lease changing hands three years later for £230,000.

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Sins of the Father:

Tracing the Decisions

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