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Irish Times: Government seeks advice on drilling licence terms

EXTRACTS: …a licence was awarded to Statoil and its partner Shell, despite the opposition to Shell’s Corrib gas onshore pipeline in Mayo.

“We call for a full investigation into these licences and the tax deals that have been given to oil companies over the years.”

THE ARTICLE

By: Gabrielle Monaghan, Irish Times
Published: Aug 24, 2006

The Government is seeking expert independent advice as it undertakes a review of the way in which exploration licences are currently issued.

The move follows last week’s granting of four licences to companies, including Statoil, to explore for oil and gas off the Donegal coast. That announcement led to calls for a parliamentary investigation into how the State allocates licences and the benefits that accrue to large oil companies.

The Department of Communicaitons, Marine and Natural Resources says the review will take into account recent hikes in energy prices and other factors, “particularly the improved understanding of Ireland’s prospectivity”.

Minister Noel Dempsey expects the experts to report to him by the end of next month and said any changes to the current licensing terms will apply to the next round of licence allocation, which is for the Porcupine Basin.

In the latest licensing round for the Slyne, Erris and Donegal basins, a licence was awarded to Statoil and its partner Shell, despite the opposition to Shell’s Corrib gas onshore pipeline in Mayo.

Grianan Energy, a consortium of Donegal businessmen that had pledged to use the licence to create local jobs and reinvest part of the profits into the Donegal area, was the only applicant to be turned down. The allocations were published on the department’s website last Saturday.

“These licences basically hand over the deeds of Irish reserves to the major oil companies,” said Padraig Campbell, Siptu’s offshore oil and gas spokesman and a representative of oil rig workers.

“We call for a full investigation into these licences and the tax deals that have been given to oil companies over the years. The way the legislation is now, it would be better to leave any oil and gas in the ground.”

According to the department, the Republic imports about 85 per cent of its gas requirements, a major turnaround from 10 years ago, when 95 per cent of our gas requirements came from indigenous supplies through the Kinsale gas field.

The vulnerability of the Republic and the rest of Europe to any change in Russia’s gas export policy came under the spotlight earlier this year, when Gazprom turned off the taps to Europe in a pricing dispute with Ukraine.

Before 1987, the State would receive a 50 per cent share of any discovery and royalties of 6- 7 per cent. The system was changed, first by Ray Burke, and later by Bertie Ahern in 1992, in an effort to entice multinationals to the Republic. Oil companies now pay 25 per cent tax, though can write off their exploration and development costs against that tax. The State does not receive a stake or royalties from major oil companies.

In the Donegal round, apart from the Statoil/Shell partnership, Serica Energy (UK) was awarded one licence and Island Oil & Gas won two licences, one to be shared with Lundin Petroleum. The other gives Island and Lundin a 40 per cent interest each and Endeavour Energy (UK) a stake of 20 per cent.

A spokesman for the department said exploration drilling in the Republic had a one in 20 success rate in 2003, compared to one in eight for the UK and one in 10 for Norway. The Republic still had to work to encourage oil producers to Irish waters. Of the 26 frontier exploration licences awarded between 1994 and 1999, each to run for at least 15 or 16 years, 21 have been relinquished.

“We had five applications in the latest round – that is a level of interest, but people are not exactly knocking down our doors,” a spokesman for the Minister said.

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