Providence Resources boss Tony O'Reilly Junior said: 'I think this discovery also creates a reappraisal in the minds of global oil corporations about coming back to Irish waters to drill for oil'

Oil has been struck off the County Cork coast in a potentially multibillion-pound discovery that could help to drag Ireland's recession-stricken economy out of the mire.

Dublin-based Providence Resources announced on Thursday that oil has successfully started to flow from its Barryroe well in the first big find in Irish territorial waters.

The oilfield, which is about 50 kilometres off the Cork coast, has a flow of more than 3,500 barrels a day, a number which exceeds the company's original projections of 1,800 barrels.

One recent audit of the area found that it might contain the potential to produce almost 1bn barrels of oil, making the field worth billions at today's crude prices of well over $100 a barrel.

The test area off the Cork coast covered 300 sq km, which according to Providence is equivalent to a medium-to-large North Sea oil field. The oil was discovered at a depth of about 100 metres in the sea bed.

Successful drilling at the Barryroe well will increase pressure on the Irish government to grant permission for oil exploration at five further sites in Irish waters. These include the most controversial site, at Dalkey Island in Dublin Bay, close to an exclusive stretch of the capital's coastline which is home to Irish rock stars such as Bono and Enya.

If an oil rig were constructed near the uninhabited island it would be in the line of sight of homes belonging to celebrities on Dublin's so-called "gold coast". An alliance of community groups in one of the richest parts of Ireland as well as conservation groups such as Birdwatch Ireland and An Taisce, the republic's National Trust, are understood to be planning a campaign against the drilling project. The island is home to a seal colony and the waters around it are used for fishing pollock and mackerel as well sea diving.

Providence Resources, whose chief executive is Tony O'Reilly Jr, the son of the former boss of Independent News and Media, said it was pleased the flow rates from Barryroe were higher than the pre-drilling target.

O'Reilly said the discovery was a "seminal day for Ireland, especially in the runup to St Patrick's Day". Of the higher than expected oil flows he said: "As the Americans say, 'We didn't hit a home run, we knocked the ball out of the park'. I think this discovery also creates a reappraisal in the minds of global oil corporations about coming back to Irish waters to drill for oil. Irish territorial waters are massively under-explored." The oil was of good quality, described as "light but waxy crude".

O'Reilly said the company was exploring for oil in Northern Ireland near Rathlin Island and he hoped the Barryroe find would lead to the creation of an onshore oil industry in Ireland.

"We've always said as an Irish company we want to use as much Irish infrastructure and resources as we can. We don't have an oil industry in Ireland at present but I hope something like Barryroe and the success we are getting in that will thrive more interest in creating more of an infrastructure in Ireland."

While the find is small by the standards of the Middle East or even the North Sea it could reduce the republic's national energy bill and have a significant spinoff for the entire economy.

Ireland is heavily dependent on imported oil and gas. The Irish Offshore Operators' Association points out that more than 90% of Irish gas is imported while oil accounts for nearly 60% of overall Irish energy consumption.

Fergus Cahill of the Irish Offshore Operators' Association said: "It's very encouraging and positive. First of all it's the first discovery in Irish waters that looks to be declared commercial. The flow rates are encouraging. Secondly, it will encourage other explorers because one of the problems that have dogged Ireland has been the explorations in the past. Almost all of these discoveries were of gas, not oil. If it gets developed, which we hope it will, it will reduce our dependency on imports, increase taxation revenue and create jobs."

The Irish exchequer will benefit from the potential oil boom as the republic's department of finance gains a 25% tax take from any oil or gas revenues.