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Irish Times: Putting energy firms over a barrel

Published: Aug 02, 2007

Eamon Ryan’s decision to impose a resource tax on offshore operators is sure to receive a cool response, writes Lorna Siggins , Marine Correspondent

“When are we going to get rid of this bloody chancellor? Does he want the oil and gas industry and the jobs it provides to disappear?” The offshore exploration industry does not take interference in its activities lightly, judging by this reaction from an Aberdeen chief executive almost two years ago when Gordon Brown, now Britain’s prime minister, introduced a windfall tax on North Sea companies.

The Government’s new Minister for Energy, Eamon Ryan, isn’t taking a similar bold step just yet, but his decision to impose a new “resource tax” on activity in Irish waters is expected to receive a cool response from the sector.

There are currently some 30 companies working on various aspects of mineral exploration/production in these waters, ranging from the Corrib gas developers to smaller companies involved in seismic surveys. The last licences issued were for the Slyne/Erris/Donegal areas in August 2006, and the new terms will only apply to licences awarded from January 1st this year.

The Irish Offshore Operators’ Association (IOOA) says it needs to analyse the changes in detail, but warned yesterday that “notwithstanding the advances in technology referred to by the Minister, exploration in offshore Ireland remains a high-risk, high-cost activity” and “estimates of reserves remain as estimates until wells are drilled and reserves are proven”.

Estimates from the Minister’s department’s own internal analysis last year suggest that the potential of the Atlantic margin has been somewhat played down.

It believes that there could be at least 10 billion barrels of “oil equivalent” resources – crude oil or gas – off the west coast, which would be worth $600 billion (455 billion) at a rate of $60 a barrel.

If this guess is even a conservative one, it should focus attention yet again on the decision by former minister for energy, Ray Burke, to abolish the State’s involvement in the oil and gas sector back in 1987. He exempted all oil and gas production from royalty payments, and introduced a 100 per cent tax write-off against profits on capital expenditure for exploration, development and production for up to 25 years.

This was copperfastened by former minister for finance, Taoiseach Bertie Ahern, in the 1992 Finance Act, which halved corporation tax on oil and gas companies from 50 to 25 per cent. There is no overall figure available for the net tax take from the sector in recent years, but the department says that the Kinsale gas field yielded 170 million in royalties.

Burke’s regime was far more favourable to the sector than that envisaged by Labour Party industry and commerce minister Justin Keating. His 1975 licensing terms included a provision for the State to acquire a 50 per cent maximum stake in any commercial find, production royalties of 8 – 16 per cent and production bonuses on significant finds.

A standard 50 per cent corporation tax was imposed, and companies had to drill at least one exploratory well within three years of licensing and to surrender 50 per cent of the original licensed area granted within four years. Mr Keating had also envisaged establishment of a State oil company similar to the Norwegian model, Statoil – currently a partner in the Corrib gas project.

“Ireland’s oil and gas is a resource of the people,” Mr Ryan said yesterday, and the Government “has a duty to ensure appropriate return and to ensure that they are adequately and properly explored”.

However, the IOOA warns that a lot of effort has produced little yield, with only two of nine exploration wells drilled over the past decade proving substantial – Corrib in 1996 and Dooish in the Rockall basin in 2002.

Former Mayo TD Dr Jerry Cowley (Ind), who moved the private members’ motion last year which led to yesterday’s changes, believes many public hospitals could be funded from a realistic tax on the profits of Ireland’s marine resources – ranging from oil and gas to fishing rights signed away on EU accession. As he has pointed out, Royal Dutch Shell’s 19.5 billion per annum profit worldwide is equivalent to 2.25 million an hour.

Micheal O Seighin of the Rossport Five group in north Mayo described the Government’s licensing changes last night as “more spin than win”.

Mr O Seighin, who spent 94 days in jail in 2005 over opposition to the Corrib gas pipeline, said that gains to the taxpayer were “decades away”.

The Minister’s refusal to apply the changes retrospectively to licences would allow a “two-tier situation” which could “be easily manipulated by the industry”, he said.

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