Boy from the black stuff

FRIDAY INTERVIEW:Brian O'Cathain, Petroceltic

PETROCELTIC’S OFFICES in Dublin are impressive. At the top of a modern block on Stephen’s Green, they are bright and spacious, with art on the walls.

But chief executive Brian O’Cathain says the company is there by happy accident. The previous occupant was a property development company that left all its trappings behind. It was a case of good timing, something that’s often critical in business.

While nobody realised it then, the June 2008 investment of $55 million in the Irish oil and gas explorer by Spanish utility Iberdrola was just such a critical event, paving the way for a programme that will hopefully lead to the exploitation of a natural gas find in Algeria.

At the time, Bear Stearns was collapsing and Lehmann Brothers was not far off. “We were very lucky to get it closed. If that deal hadn’t closed then, if we had gone on another month, we would never have closed it,” O’Cathain says.

Petroceltic’s licence area is close to established fields in a country that supplies 10 per cent of Europe’s natural gas needs. The firm has 75 per cent of the licence and Algeria’s national petroleum company, Sonatrach, the remainder.

It could contain two to three trillion cubic feet of gas, about three times the size of the Corrib field, enough natural gas to keep Ireland going for 30 years.

When O’Cathain took over in April 2007, the company was planning an extensive seismic survey of the field. That was going to eat up 90 per cent of the company’s capital. So his first problem was to get enough money to pay for it.

“The plan I came up with basically was [to find] a strategic investor: a gas utility that would be willing to invest in the company in exchange for an agreement to off-take the gas if it panned out,” he says. Enter Iberdrola.

Five months of talks led to agreement just in time to avoid the market meltdown in the second half of 2008. While exploration is a business where you can never say anything is definite until it delivers, the signs so far are good.

Petroceltic’s approach makes it a little different from many other small cap explorers. While they sub-contract out most of the work, the Irish company has its own geologists and engineers. It has 30 full-time staff and 50 or so on long-term contracts.

Its chief executive concedes this is a big overhead, but argues it is necessary.

“Oil companies raise money and they pour it into wells,” he points out. “If you subcontract that to somebody else, it ends up costing you more than you expect and you don’t really have control over the quality. In order to do our appraisal in Algeria properly, we needed to have our own staff.”

The north African state is in the same region as Libya, currently centre of an uprising, and Tunisia, a state from which Petroceltic has just pulled out, and which has recently seen another regime toppled.

O’Cathain says the retreat from Tunisia was for technical reasons. With its Chinese partner PetroAsian, it had drilled two wells in its permit area and come up with nothing. Petroceltic decided not to go any further for the time being, but says it is interested in returning in the near future.

Of Algeria, O’Cathain says there is little in the way of trouble there. The Algerians fought a bitter civil war in the 90s, during which virtually everyone lost someone. “Nobody wants to go back to that level of instability,” O’Cathain says.

Oil and gas have a habit of turning up in volatile or remote regions. “Provided you’re not taking risks with people’s health and safety, you can operate in difficult environments and still be okay,” O’Cathain says.

However, he is not blasé about conflict. He grew up in Belfast during the Troubles and witnessed a share of it himself.

Despite the financial crisis and the antics of its prime minister, Italy, Petroceltic’s other big territory, is politically stable. The country is not readily associated with oil and gas, but it’s one of Europe’s biggest producers. Local operator, ENI, has a field that would not be out of place in Saudi Arabia, and it is within 30 miles of a key Petroceltic property, Rovasenda in the Po Valley.

Off Italy’s southeast coast, Petroceltic controls the Elsa field, which has a proven well and estimated reserves of 100-200 million barrels.

While Petroceltic is focused on the Mediterranean region, it is willing to look further afield. O’Cathain himself has worked in some diverse locations.

He began his career with Shell in 1984, pretty much by accident. With a degree in geology, he was preparing to work on a PhD when his tutor suggested he take part in the usual round of graduate interviews for practice. The only one left was Shell, which offered him £8,000 sterling a year – more money than he thought he could spend. He took the job.

At the time, the multinational was looking for geologists it could retrain as engineers. So he spent a year studying this discipline. He worked on rigs in New Zealand, the North Sea and the Netherlands, finishing up as a petroleum engineer.

After seven years he joined Enterprise Oil, where he worked in exploration economics, and on evaluating and buying and selling oil companies. One of the first that he analysed was Tullow, in which Enterprise then had a 5 per cent stake. Shell ultimately bought Enterprise in 2002. O’Cathain joined Tullow, where he was responsible for international exploration.

A chance meeting in Cape Town led to the firm bidding for Energy Africa, an acquisition that transformed the company now worth $20 billion. O’Cathain found the deal and played a role in raising the finance for it.

In 2005, feeling he was not spending enough time with his family, he left and began working on a start-up that became Afren, an independent explorer focused on Africa that is now worth about £3 billion.

In 2007, splitting his time between Dublin, London and Nigeria – and realising he was still not seeing his family – he quit and took his current job two months later.

Petroceltic has a royalty interest in the Kinsale gas field but has no acreage in Ireland. Its chief executive is familiar with the potential offshore exploration offers here; Enterprise discovered the Corrib field during his time there. The gas from that has yet to flow, although the operator, Shell, has overcome many of the planning hurdles.

O’Cathain has strong views about what’s happened in Mayo, but does not want to discuss them, as he feels the controversy will colour what he has to say about Petroceltic.

He believes there is potentially more to be discovered, but not until investors decide to take the risk on finding it and bringing it ashore. Whether anyone is prepared to take that risk is another story.

Name: Brian O'Cathain

Post: Chief executive, Petroceltic

Background: A geologist, he began his career with Shell before moving on to senior roles with Enterprise Oil (now part of Shell), Tullow and Afren before joining Petroceltic in 2007.

Family: Married with two children.

Interests: Irish history and culture and he does a little clay pigeon shooting.

Something that won't surprise: He knows a lot about geology.

Something that will surprise: He spent his 20th birthday in a Tibetan monastery in the Himalayas.