Exxon to fund Providence oil prospect off Ireland

Shares in the AIM-listed Providence Resources shot up 27 per cent yesterday on news that ExxonMobil had agreed to finance development of its Dunquin prospect off the west coast of Ireland.

Tony O'Reilly junior, the chief executive of Providence, said the potential size of the prospect, in the Porcupine Basin, could "transform the energy requirements of Western Europe".

The deep water Dunquin prospect has potential recoverable volume of some 25 trillion square cubic feet of gas and about 4 billion barrels of oil. If proven, that would put it among the 20 biggest fields in the world.

"Even if we're half-right, the numbers are mind-blowing... Europe has an over-reliance to the east at the moment. This is opening up a new hydrocarbon frontier," Mr O'Reilly said.

Exxon, the world's biggest energy company, has initially committed itself under a "farm-out agreement" with Providence to fund a 2D survey programme. If the results are promising, Exxon would then finance the drilling of up to two exploratory wells.

Analysts said it could cost about $50m (£29m) to drill each well. The Dunquin prospect lies in 5,000ft of water and covers 700 sq km.

Under the deal, Providence will see its 80 per cent interest in Dunquin come down to 16 per cent, while its partner Sosina Exploration will come down from 20 per cent to 4 per cent. That will give Exxon an 80 per cent interest in the prospect. Mr O'Reilly said Exxon's involvement was a vindication of Providence's faith in Dunquin, which it acquired in November 2004. Since then, Providence has been reworking the data on the prospect. Although the existence of large hydrocarbon prospects off the coast of Ireland have been known about for decades, further exploration has been made viable because of the recent high price of oil and gas, and advances in technology.

Alan Murray, the senior petroleum economist at the consultants Wood Mackenzie, said the world's most exciting prospects lay in ultra-deep waters or the Arctic. He said that other promising regions were largely closed off to international energy companies.

Separately, in a speech yesterday, Jeroen van der Veer, the chief executive of Royal Dutch Shell, said: "Spirit will be needed more than ever if we are to meet the challenges ahead of growing demand. The International Energy Agency estimates that about half of the undiscovered conventional oil resources outside the Middle East are to be found in deep water or in the Arctic region. Those figures underline the fact that meeting future energy demand means we will need to explore in more remote regions; develop in ever deeper water; and overcome more difficult geology."

The predecessor company to Providence Resources, Atlantic Resources, was founded by Sir Anthony O'Reilly, the father of Tony O'Reilly junior and the chief executive of Independent News & Media, publisher of The Independent.

The search for new deposits

* ARCTIC

Likely to contain significant deposits but at what cost? Likely to be first explored offshore Alaska and the Barents Sea. An associated, controversial area is the Arctic National Wildlife Refuge, which contains endangered wildlife.

* WEST AFRICA

There is already development offshore Angola and Nigeria but this will go into ever deeper water. Other west African countries also attracting interest.

* IRAQ

Has proven reserves of 115 billion barrels of oil but it has the potential for another 215 billion. The industry was starved of investment under Saddam. Western companies may now be allowed in.

* SAKHALIN ISLAND

Off the eastern coast of Russia. Shell already has the world's biggest private sector project under way here but it is reckoned to cover only 10 per cent of the resource, which could be as big as the entire North Sea.

* BRAZIL Deep water off the south coast in the Compos Basin. Starting to open up to international oil companies, with some discoveries now starting to be made.

* MEXICO

The Mexican side of the Gulf of Mexico is largely under-developed. Likely to remain in the hands of the national oil company.