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historical but interesting ... in particular the multi-well drilling campaign

Island Buys Into Seven Heads With An Eye On Satellite Tie-Ins In The Celtic Sea
Island Oil and Gas, which listed on London’s Alternative Investment Market in December 2004, has bulked up its holdings offshore Ireland and, importantly, secured access to key infrastructure in the Celtic Sea. The company bought the package of assets from Lundin Petroleum and in return issued 4 million shares, valued at £2.2 million, to Lundin. The Stockholm Exchange-listed company is now an 8.45 per cent shareholder in Island Oil and Gas.

The deal buys Island a 12.5 per cent stake in the Seven Heads gas field and related infrastructure, 12.5 per cent of the Seven Heads Oil Licence Option and 22 per cent of the licensing option 03/6, which covers the Roscarberry area in the North Celtic Sea. The deal also includes an option, which Island intends to exercise, to acquire a five per cent stake in Frontier Exploration Licence 1/05 in the Donegal Basin, taking Island’s total holdings in the licence (still operated by Lundin) to 31 per cent.

Island is particularly excited by its debt-free access to the Seven Heads infrastructure - which links up to the Marathon-operated Kinsale platform - around which the company has a number of satellite discoveries and prospects.

“This means we can tie-in any new gas at a relatively low price and make money from it because we won’t be servicing any debt,” explained Island’s chief executive Paul Griffiths, adding that any such move would require commercial negotiation with the other Seven Heads partners and Marathon.

The main candidates for tie-backs are the Old Head of Kinsale prospect, which lies within 25 km of the Kinsale platform, and a further three possible targets, including the Schull prospect, which lie about 35 km from Seven Heads.

The company also sees additional potential in the Seven Heads gas field itself, which, as has been well reported, failed to deliver the expected volumes of gas and proved the financial undoing of operator Ramco. The field is still producing at a restricted rate and is expected to continue to do so until additional drilling finds new reserves or the compression facilities on the Kinsale platform become available, due in 2007 or 2008.

“There’s upside [in Seven Heads] to be tapped,” Griffiths told oilbarrel.com. “There are some areas of the field, particularly a few kilometres to the south west, that haven’t seen any drilling and have some potential to contribute to Seven Heads.”

The first step would be to acquire additional seismic over the southwest portion of the field before committing to a new well. If there’s a rig in the area, then a well could be drilled next year. “The strong gas price means it’s a driving incentive for us to try and produce more gas,” said Griffiths.
In the meantime, Island will draw a 12.5 per cent share of the revenues from the restricted gas stream. The Lundin deal has been backdated to October 1st 2004 and Island will receive €470,000 in cash for its 12.5 per cent of the net revenues generated since then.

In the meantime, the company is busy sourcing hardware for next year’s 2006 multi-well drilling campaign. It plans to drill - and operate - up to three wells on its Celtic Sea properties in 2006. Two of these will test gas prospects, with one targeting Old Head of Kinsale and the other probing either the Schull prospect or the southwest portion of Seven Heads. The third operated well will be drilled horizontally into the oil reservoir that underlies the Seven Heads gas field, with plans for an extended well test of 30 days to test flow rates and reservoir performance. The company will also participate in a fourth well, with Lundin Petroleum, on its Donegal Basin properties off the west coast of Ireland.

The recent Lundin deal has strengthened Island’s hand in this region, an area that has sporadic drilling over the years with mixed results. Island believes that its Frontier Exploration Licence 1/05 in the Donegal Basin could hold a look-alike of one of the more successful exploration stories here, the Corrib gas field, currently under development by Shell. Griffiths reckons the Inishbeg prospect, a large Triassic Sherwood Sandstone structure, could hold between 1 and 2 tcf of gas in place.

The company is currently reprocessing the 3D data it holds on the Connemara oilfield, which lies 150 km off the west coast of Ireland. The field was discovered by BP in the 1970s and later operated by Statoil, which invested large sums in appraising Connemara during the 1990s but found its complex geology unworkable at the time. Island believes new approaches - and a high oil price - mean Connemara, thought to hold 220 million barrels of oil in place, can be made to work. Seismic provider Veritas has already reprocessed the 2D data (which covers the surrounding acreage and some of the field itself) and Island has been very impressed by the improvements made in data quality. While there’s still a lot more work to be done before drilling gets underway, Griffiths believes the Connemara area is looking promising and warrants more attention.

The company’s Atlantic Margin holdings may be given a boost in the coming weeks as it awaits news of its application for a deepwater licence in the North East Rockall licensing round. In the longer term, the company is eying opportunities in France, Libya and elsewhere in North Africa.