Shares in Barryroe Offshore Energy plummeted on the Irish and London markets this morning after the company revealed that it had been refused permission by the Government to continue work on its main prospect off the south coast of Ireland.

Late on Friday evening the company said it had received a letter from the Department of the Environment, regarding its lease undertaking application for the Barryroe Field, which is located in shallow water off west Cork.

The correspondence stated that the Minister, Eamon Ryan, had refused the undertaking which would have given the company a right to a petroleum lease over the area concerned.

The department had concluded that from a technical perspective the application was satisfactory and that Barryroe Offshore Energy has the required technical capabilities.

But the application did not meet the investment cover criterion required, the department said, and the application was therefore refused.

This was despite one of the country's most successful businessmen, Larry Goodman, backing the company to the tune of €40m.

Vevan Limited, a company linked to Mr Goodman, owns almost 20% of Barryroe Offshore.

In its statement Barryroe Offshore said that it is considering its response to the contents of the letter.

This morning in London its shares dropped by more than 50% to 90p, while in Dublin they fell 27% to €0.014.

In 2013 an independent assessment found that the Barryroe Field held 346 million barrels of oil equivalent.

Davy analyst, Colin Grant, said the Financial Capability Assessment Guidance for the undertaking requires applicants to have a tangible net worth that is 3.5x the total financial commitments.

He said Barryroe previously indicated that the total amount committed would be up to €40m, which would cover 100% of the estimated cost of the work programme set out in the lease undertaking application.

"However, smaller equity funded companies only ever raise 1x the capital that is required for their financial commitments and do not raise 3.5x this amount," he said in a research note.

"Therefore, no small oil and gas or resources stock could ever meet this criterion no matter how valuable or strategically important its assets might be."

Mr Grant said it is possible that the company may now consider legal action.

"We consider the letter from DECC to be disappointing, but it is also not surprising given its stance on energy policy," Mr Grant said.

"Ireland may now not get the benefit of one of its largest prospective oil and gas resources and instead could continue to be reliant on energy imports from abroad."

"As we have outlined in the past, we consider this to be contrary to the national interest. Energy imports have a higher carbon intensity, provide no fiscal benefits to the economy and create national energy security risks."