"The Government have clearly sent the message to Shell, ‘you can do whatever you want’. Fortunately due to protest, the refinery remains unconnected to the gas field. If, as Shell planned, gas had been flowing by now, we would potentially all be dealing with a gas leak and explosion.”
[Shell to Sea] Below is SIPTU's submission to the Dáil Committee into Offshore Exploration Licences. It is worth noting that in RTE's coverage of the day's proceeding, they highlighted the submission of the Oil & Gas industry lobby group IOOA and never mentioned the submission (or presence) of SIPTU (http://www.rte.ie/news/2011/1122/oil.html or http://www.rte.ie/player/#!v=1123422). Why does the views of the Oil & Gas lobby hold such sway in the State broadcaster ???
Chairman: I welcome the members of the SIPTU’s Oil and Gas Review Group: Mr. Jack O’Connor, general president; Mr. Frank Connolly, head of communications; Ms Amanda Slevin, UCD PhD candidate; and Mr. Colm Rapple, financial journalist.
Before we commence, I am duty bound to inform the delegation that witnesses are protected by absolute privilege in respect of the evidence they give this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against any person or persons or entity by name or in such a way as to make him, her or it identifiable.
I invite Mr. O’Connor to make his opening statement. I thank him for his forbearance with the time taken on the contribution of the previous witnesses.
Mr. Jack O’Connor: I thank the Chairman and members for inviting us to make our presentation. The Department of Communications, Energy and Natural Resources, DCENR, estimates a total reserve potential in the order of 10 billion barrels of oil equivalent beneath the seabed off the west coast of Ireland.
On the basis of geological studies, seismic surveys and drilling results, these estimated reserves divide approximately into 6.5 billion barrels of oil and 20 trillion cu. ft of gas. This quantity of estimated reserves, if found and exploited, would be sufficient to meet Ireland’s demand for hydrocarbons for over 100 years, based on current usage.
SIPTU is not presenting this oil and gas potential as a panacea for the country’s economic difficulties. We are not advancing the proposition that there is a vast pot of gold out there in the deep which can solve our problems overnight. However, we do suggest that the estimates provided by the Department require us to consider carefully how to best optimise these potential oil and gas reserves. It also assesses the potential employment benefits from oil and gas exploration and production, and related services, and reviews the experience of the industry in this country over recent decades.
Over the years significant changes have been made to the licensing terms introduced by former Labour Party Minister, Justin Keating, in 1975, which allowed for a 50% State holding, royalties and a 50% tax on profits accruing from an oil or gas find and development. In 1987, royalties and State participation were abolished and in 1992 the corporate tax rate was reduced from 50% to 25%. The tax rate of 25% applies on profits from oil and gas production although since the introduction of the profit resource rent tax, PRRT, in 2007 this can rise to 40% on very large fields. In Ireland tax can be written off against the costs of exploration, development and close-down of any field.
As a consequence, the State’s current approach to the management of its resources means that Ireland has one of the lowest returns from its oil and gas resources anywhere in the world as acknowledged by the Government’s own commissioned reports. According to an Indecon report commissioned by the then named Department of Communications, Marine and Natural Resources in 2007 the “current fiscal system ... yields among the lowest government take in the world”. This remains the case even with the introduction of the profit resource rent tax in that year.
We also examined a 2007 report by the US Government Accountability Office which studied 142 fiscal systems and confirmed that Ireland had the second lowest rate of government take of all the countries studied. Of these 142 fiscal systems, only 34 resulted in a government take of less than 50%. In 60 of these fiscal systems rates of government take are over 70%.
According to another report by the Independent Petroleum Association of America, in 2008 more than half of the governments with hydrocarbon production worldwide use production sharing contracts unlike the licensing system in Ireland which is a concessionary system. This study served to emphasise how countries with higher rates of government take utilised production sharing contracts or service agreements, ensuring that alongside higher returns, the Government retained control and ownership of its hydrocarbons with additional benefits through local employment, service provision and supply of goods.
We recommended in June that it would have been preferable to delay the issuing of the 13 exploration licensing options awarded in the Atlantic margin licensing round in mid-October or any other exploration licences until this committee had completed its review of the licensing and fiscal arrangements. However, the Department decided to press ahead.
As new technologies allowing for the exploitation of previously inaccessible reserves emerge, and the rising cost of oil and gas makes investment in exploration and production more economically viable, we still believe that this review of the Irish licensing terms is timely.
Consideration should be given to a change in the licensing terms which might include the imposition of royalties, State equity stakes and increased taxes. We believe we should examine alternative models for the development of oil and gas resources and the growing global trend towards increasing direct State involvement in the exploitation and production of hydrocarbons. We should examine the potential for economic development, job creation, skills enhancement and training in an advanced oil and gas industry and seek information and advice from countries that have successfully managed and grown their hydrocarbon production. We should also investigate the impact of oil and gas production on climate change. Any new terms must reconsider the licensing terms offer of a first refusal to companies with exploration licenses for petroleum leases to develop potentially productive oil and gas fields as this would appear to bind the Irish State into fixed contract terms without it having prior knowledge of the value of the reserves in the relevant field. It is important that any significant finds that are developed to production are landed in Ireland and contribute to the revival of the onshore servicing and supply industry as well as other potential educational, skills development, including at third level and professional level, and job creation initiatives, particularly in coastal towns with harbour facilities.
In regard to onshore exploration, the review must examine the real concerns over the potential damage to human health and the environment arising from the use of hydraulic fracturing, or fracking, in the extraction of natural gas from shale and seek to ensure that a safe, alternative process for the development of these known resources is deployed. In this regard, we welcome the recent decision by the Government to review the safety of the extraction process proposed by those seeking to develop these onshore resources before any such work commences. In the light of the 2010 oil spill disaster at a BP facility in the Gulf of Mexico it is also essential that a review takes place of the regulatory and supervisory powers of the State in regard to oil exploration and production, particularly in the more hostile offshore territories of the Atlantic margin.
The Oireachtas review should consider the establishment of a body which would involve industry stakeholders, including the oil and gas companies, trade unions, Government nominees, environmental and community representatives in order to improve communications between the various interests and ensure that the maximum potential for Ireland is derived from all aspects of hydrocarbon development. I have exhausted my ten minutes but I do not know if the Chairman wishes to invite other members of the delegation to comment.
Chairman: Other members are welcome to comment.
Mr. Jack O’Connor: I invite Mr. Colm Rapple to make a few comments.
Mr. Colm Rapple: The SIPTU report is a discussion document. Its aim was to open up discussion prior to the granting of options for new licences. It struck me that one of the questions asked by the Irish Offshore Operators Association but not answered by the Department was whether fiscal terms can legally be changed after the event. I do not think anybody has answered that important question.
I wish to comment on a number of issues. I have before me an equity report on Providence Resources by Davy research issued in June 2011. It should be available. I am sure Providence Resources plc would have a copy as I am sure it would have a copy of the McKinsey report or the Oireachtas Library may be able to get a copy if the Department has not got it.
The Davy report refers to Barryroe where the oil field is currently being drilled off the south coast and sees it as a possible gain changer. With the success of Barryroe there will be a gradual realisation that other parts of the portfolio, that is the Providence portfolio offshore island, can also deliver. This is especially true of the Spanish Point gas condensate discovery where a well is to be drilled next year. It also refers to the fact that would change the perception of Ireland in the minds of the international oil industry.
The report also refers to Spanish Point and answers the question as to why Spanish Point was relinquished in the past and is now of interest again to Providence Resources plc. The report states that previously this discovery did not attract investment due to its location, lack of infrastructure and perceived lack of a viable Irish gas market. This has now changed with gas pricing similar to the UK; pipleline infrastructure onshore and technology offering development solutions that were not available heretofore. It is in the context of those changes that the existing 14 finds, which are under assessment, including two oil and four gas finds in the past ten years, need to be looked at. The environment has changed and technology has changed.
On the existing terms, a comment was made in respect of the amount of tax revenue - a very large figure - which could accrue from one oil find. As Mr. Cahill is well aware, that figure is meaningless. This is because oil companies work in net present values. In other words, they operate on the basis of the current value of future flows of income or future costs. Tax collected 20 years hence will not be worth the same as that which is collected now. Discount factors are used. Irish oil terms seem to give too little much too late. It has been estimated that it could be between five to ten years before €1 of tax revenue emanates from the Corrib find because all the costs must be written off in advance.
The answer in respect of this matter is royalties. It is interesting - this has not been commented on much, if at all - that the brief given to Indecon was to examine an internal departmental report which had been compiled a year previously. I am not referring to the original report compiled by David Fox, which was merely a desktop report put together over a few days. The Department considered the oil terms and Indecon was then asked to examine its report. It is interesting that the Department had arrived at a proposal for a royalty. The latter was not to be based on production, rather it would be calculated using an extremely complicated process which would take costs and revenues relating to fields and finds into account. The great thing about a simple royalty on production is that it kicks in once anything is produced and there is no need to wait for taxable profits to be declared. Such a royalty could make a big difference to the country at present.
The departmental report also recommended that there be a process of taking the State’s rights to revenue in kind. In other words, they would be taken in the form of actual oil or gas. I do not know whether that was left out of the Indecon report or whether it was just omitted from the subsequent legislation. However, as a result of what has been done, we are left with a situation where oil and gas do not have to be brought ashore in Ireland. If oil is not brought ashore here and if we are obliged to wait five or ten years to obtain even 1 cent in tax from it, we must ask whether it is doing us any good at all. I have been ridiculed for arguing in the past that it would be better if the oil were left under the seabed or in the ground. We obtain very little from the production process - just a few jobs here and there, although I accept that these are important to the communities in which they are created.
The Davy report contains a table which values the interests which Providence Resources holds in a large number of fields and finds. It is estimated that there is a 12% chance of the Dunquin field coming into production. The Davy report indicates that the net present value relating to the field is $13 billion. The Dalkey Island prospect is estimated to have a net present value of $513 million. These are all just estimates and it must be noted that Davy acts as stockbrokers to Providence Resources. In such circumstances, Davy might be erring on the side of optimism. However, it is a reputable stockbroking firm and its report is interesting.
Deputy Éamon Ó Cuív: I compliment SIPTU for publishing its report during the summer which I have read from cover to cover. One of the major issues that arises in respect of offshore exploration can be summed up by the adage that 100% of nothing is nothing. The Minister for Communications, Energy and Natural Resources - who is a former member of and who worked in an official capacity for the union our guests represent - has undergone a Damascene conversion since entering his Department and continually repeats that adage to us. On the other hand, there are three major variables at play in respect of this matter. These are changing the cost base by using technology to exploit the resource one finds; possible increases in the future in light of the certainty that oil will be found without the need to use hugely invasive drilling methods and by instead using much better technological ways of identifying the likely location of oil; and finding a first well which might be the key to unlocking a very large field.
I agree with the Minister that 100% of nothing is nothing. I do not agree with the idea that we should leave the oil alone for 1,000 years. If we did that, I would hope that 1,000 years from now people will not be using oil or gas at all and that they will be using totally renewable sources of energy. If the latter were the case, the oil would be left where it is and would not serve any purpose for the Irish people. On the other hand, we do not want to give the resource away too cheaply. The major question that arises from a policy point of view relates to how we might make it sufficiently attractive for people to drill wells. If an exploration company makes a very good find in an area where we did not suspect oil or gas to be, how can we ensure that we have not given too much away and that we will obtain a good deal in the context of whatever terms we might then consider would be appropriate?
One of the difficulties with trying to maximise our take is that the debate on this matter has been very emotive in nature. On the one hand, half the population appear to believe that we gave away too much when all that was really involved was a need to lay a few pipes and bring the resource ashore. On the other hand, the industry and the Department have been very defensive.
Logic indicates that SIPTU’s approach is not too far off the mark on a number of counts. We must accept that the rate of return is low. This means that on each occasion we go into the market and seek companies to drill wells, the number prepared to do so is not huge. If there are no takers, nothing will be found. On the other hand, if companies do get involved and if oil is found, we must ensure that we obtain a return. As already stated, the Minister seems satisfied with the current regime. On each occasion we question him about it, he defends it. That might not have been the case 12 months ago when he was on this side of the table. I presume he has been persuaded by his officials that there is no pot of gold to be found. I am glad I was part of a Government which increased the level of return and which introduced the profit resource tax.
Did our guests have direct contact with the Minister in respect of the issuing of licences? Even in the context of trying to build confidence, it is regrettable that the Minister did not delay matters until the committee concluded its deliberations. We purposely tried to move the process along. Did our guests engage in direct contact with the Minister on this matter and, if so, what was his response?
I am of the view that the position vis-à-vis safety has improved as a result of the implementation of the recommendations of the Commission on Energy Regulation. Licences are now being granted on the basis of safety conditions, etc., being met. That is a good development. We must examine the issue of alternative models which our guests have raised. I do not believe that we are locked into a fixed regime because the terms which are appropriate now might not be appropriate next year. This is a very complex matter and there is no possibility of adopting a one-size-fits-all approach to it.
I was interested in what they stated about the idea of a national forum on hydrocarbons to try to get all the players around the table from the communities and the different interests to see how together we might maximise the approach and at least try to instill confidence in the people for whatever approach Governments follow. All Governments have basically followed the same approach, be they Fine Gael and Labour or whatever. Peculiarly, there have been many Labour Ministers in this Department and they all have followed essentially the same approach, perhaps with the exception of the late Justin Keating. Since then, the former Minister, Dick Spring, and others followed the same approach as Deputy Rabbitte. The idea of a forum is a good idea. It might start a dialogue that looks at alternatives as to how we might do this in the future. The other issue that warrants exploration is this idea of alternative models and looking at all of the different models by which the State takes its return.
As of now, I am opposed to fracking. It is regrettable that the desktop licences were issued because once a person gets in, he or she has an expectation that on finishing that process, he or she can get into the next process and then into the following one. Before we start at that, this country needs a policy on fracking. The jury is very much out on it. There might be exaggerations on both sides, but I would have to say, following anything I have seen or heard about fracking in areas that are ecologically sensitive, that there are more unanswered questions. Until there is a national policy on fracking, there should be no fracking. There should be no more licences. We should try to persuade our Northern Ireland colleagues to follow the same policy and that we need an all-island policy on fracking that would ensure that there would be a total moratorium on any progress here until we know exactly what our policy is. It would take much to persuade me that the pain would be worth the gain in the case of fracking, particularly in the areas in which it seems to be favourable.
On the terms issue, the Minister, Deputy Rabbitte did say that the Minister for Finance could change the tax terms and the tax rates. Of course, he also indicated that he was not going to advise the Minister - that was my understanding or, at least, he was coy on the point - because in theory tax rates can be changed but in reality, if one had variable tax rates, nobody would explore because one would create such an uncertainty. If I know anything about the public service, the advice given would be not to do that because if one creates uncertainty, one will get no takers. I would be interested in the delegation’s views, particularly as to whether one should leave that door open as it is open technically or whether those who are there would merely pull out and not avail of the licences offered if they thought that the tax take on what they have been offered could vary. I would have an open mind on it.
In summary, I would believe that the idea, once the committee has finished with its work, of having an ongoing forum of all of the parties is a really constructive idea. It would bring round a table all of the players who might have a reasonable reason to have an input into it to develop an agreed national approach to this and get public confidence, and it has much merit. I regret very much that the Minister has suspended the north-west forum which was set up for exactly that purpose so that people at least were aware of the facts and difficulties and heard the arguments, and also could raise issues of concern on the particular development.
Deputy Martin Ferris: I thank the group for its presentation. The Department of Communications, Energy and Natural Resources estimated total reserve potential of an order of 10 billion barrels of oil. That potential is quite considerable for a country of this size. Exploitation of those resources, if ever realised, could be enormously beneficial to our current situation. I am fully conscious of the fact that while the potential is there, the necessity through exploration of trying to realise it is something that must be encouraged at all times, but not at any price. Would they comment on that potential? Is it realistic? Would they suggest how best that potential could be exploited? Should it involve the Government taking a stake in the industry, in particular, in the exploration of those resources? It would be my view that it would be essential that the Government take a stake in the exploration.
Getting back to the creation of jobs, can they suggest why Irish rig workers had to go and join a rig outside of the country in order to come in here and get employment? Even doing so did not guarantee them a job on the rigs. Could they also estimate the knock-on effects to local communities and the local economy of Irish workers being employed on the rigs and being supplied from an Irish port such as Killybegs, Fenit, Cork or Rossaveal?
Would I be correct in stating - I ask this of the trade union representatives, in particular - that curtailing Irish workers on the rigs was determined by the company in a veiled way, that it would not accept the wage structure or the trade union representation of rig workers on board Irish rigs? When I worked on rigs, I was a member of the then Irish Transport and General Workers Union in which there was an offshore committee set up. Two members of that offshore committee are here today. We met a then Minister who made it quite clear that it was the insistence of the company that was preventing people from the community nearest to where the rigs were working from getting employment, and qualified rig workers with considerable experience could not get jobs because they were not prepared to go out of the country and come in on the rig.
Mr. Rapple asked whether the fiscal terms could be changed. Deputy Ó Cuív mentioned that the Minister stated here that the Government could change it through taxation. Could Mr. Rapple elaborate on the possibility of that happening? Can the fiscal terms be changed and can it be done through taxation and directed exclusively toward the oil companies?
Another question I want to put relates to the technical advancements. I have heard from the Minister, today as well and from another presentation here, that the relaxed taxation or the more favourable tax regime toward the oil companies is the reason we are getting an interest in drilling at present. I do not believe that is the case. I would argue that if people are honest, while exploration was done in the 1970s, 1980s and into the 1990s, often in deep and hostile waters, the lack of technology to deal with those situations was the main reason preventing such exploration proceeding as we would have hoped at that time. The lack of technology to deal with it in those circumstances was the main reason preventing that exploration proceeding as we hoped at that time. With modern technology, however, rigs are far more capable of drilling in hostile waters and carrying out exploration work above and beyond what used to be the case. I would like to hear the representatives’ views on that.
The last paragraph of Mr. O’Connor’s presentation refers to a body which would involve the industry stakeholders, and he mentioned the various stakeholders. I stated earlier that I did not believe the oil companies, and I am not alone in that view. The track record of the oil companies around the world has been disgraceful to say the least. The representatives may have seen the DVD circulated regarding fracking and so forth. In that regard the French Government has banned fracking in its country. Oil companies are in this area for one reason, namely, to make maximum profit and they will do what they must do to maximise the profit for their shareholders. Their interest is driven by returns. The history of the oil companies in this area is deplorable. In Africa, people were hung for being environmentalists and opposing the oil companies. I am not saying the oil companies were responsible for that. The Governments were responsible because they could not silence those people.
Whether we like it or not a bad taste has been left in people’s mouths following what happened in Corrib and Westport in regard to people being imprisoned. One fisherman was imprisoned for seven months because he tried to defend his rights and that has left a very bad taste in people’s mouths. There is mistrust, and to get the best consensus and benefit for everybody we need something like a forum such as the body suggested in the last paragraph of Mr. O’Connor’s presentation.
The association representatives referred to mid-one, mid-two and mid-three. We should have that body in place where people can debate the issue and get facts, not spin, ask questions and get answers from all the stakeholders, not just one stakeholder. I would be very supportive of that good idea and I cannot see any reason the industry would be opposed to that.
Deputy Thomas Pringle: I will make some brief points. Mr. Rapple half answered my question earlier. Every time we discuss oil and gas exploration in Ireland and everything regarding it we always refer back to the number of wells drilled since 1975, the low success rate and so on. For the purposes of this committee and the report we will draw up, I wonder if we should focus on another date. It seems from reading the representatives’ documentation and the documentation from the Department that 2002 would be an appropriate period to examine because the world has changed hugely since 1975 and there have been major developments in technology in terms of being able to capitalise on the deep sea resources off our west coast. Should we examine another date, and technological advancement, along with the prospect of success rates? Should we have a more realistic look at the potential and use those figures in regard to that?
Also, in their report the representatives outlined three potential methods where the State can capitalise through licensing arrangements, production sharing contracts or a mixture of licensing and contracts. Which one would be the most desirable in the representatives’ view from an Irish point of view and the most workable?
Deputy John O’Mahony: First, I was interested in Mr. Rapple’s suggestion that the oil and gas should be left in the ground. Would he explain that? Second, I thank the representatives for the presentation. They suggest a change of terms. Do they believe a change of terms would lead to more exploration or less, as we have heard in presentations? I presume a change of terms would lead to a tightening of terms.
Mr. Jack O’Connor: Regarding Deputy Ó Cuív’s questions, I emphasise that our objective in producing the report originally and in circulating it was designed to try to provoke a conversation about what is potentially an enormously valuable asset and to try to emphasise the fact that we cannot have an assessment published by a Department of Government on the scale of the assessment made by the original Department regarding the resources available without engaging in a conversation which extends beyond a very narrow group of policy makers, given its implications one way or the other for our citizens, citizens still at school or and those not yet born. We were trying to avoid falling into the trap Deputy Ó Cuív alluded to around the tendency of people to take an absolutist position one way or the other which does not allow for much in terms of empirical analysis. We also tried to avoid - I do not think we succeeded - the issue becoming a political football because people then take positions and the objective of analysis is lost.
We have a concern which we allude to in the last page of our report in which we quote a statement by the late Justin Keating who was, in that statement, alerting us to the danger of making policy today on the basis of today’s values and technologies in regard to issues which will impact on our society one way or another a very long time in the future.
To refer to Deputy O’Mahony briefly and the reference to Colm Rapple’s remarks about leaving the oil and gas in the ground, it is not SIPTU policy that it should be left in the ground but there is a good point around that, namely, the value of the return we are currently getting in the context of what is potentially there. We are anxious to try to emphasise the danger of making policy based on assumptions of a given without the most rigorous analysis. We were about trying to persuade policy makers and others to consider democratically in this forum the question of how rigorous our analysis is, how well it measures up to best practice globally and how it can be improved without assuming that people other than ourselves know best. It is about analysing other options and the potential for collaborative arrangements with other states, for example. That was our objective.
We welcome the remarks made by Deputy Éamon Ó Cuív and Deputy Martin Ferris in regard to the forum and that they support it. On the issue of direct contact with the Minister, we had direct contact with him to the degree that we furnished him with a copy of the report and it is a matter of record that we do not agree on that particular matter. We intend to return to the issue with the Minister but we would like to think, though it might be arrogant of us, we contributed in some small way to the discussion that is taking place today. I do not know if we can add very much, but I will invite Mr. Colm Rapple to contribute in a moment, around the question of the degree to which the terms can be changed, even the tax terms but I imagine this committee would have access to the resources that might provide answers to those questions.
In regard to the points raised by Deputy Ferris around the potential, we do not have any better information than that put on the record by the Department but we would favour a Government stake, if that could be brought about, for a whole variety of reasons. As to the reason Irish workers are unable to obtain employment on those rigs, we are conscious of the Chairman’s rejoinder to us at the outset in respect of evidence, as distinct from otherwise. I can say that it is the firmly held belief in the union, based on the experience of several people in the industry, including my predecessor in the office I hold in the union, that it is within the power of the players to decide whether workers from Ireland work on those rigs. It is the firmly held belief that for some reason they are not exercising the discretion in favour of workers from Ireland being employed on them. There is a firmly held view that is not unrelated to the fact that they would be most likely members of the union. That is the belief. That is not just something that is conjured up, it is based on various engagements over the years. I acknowledge it may be wrong. This industry would not be unique in that respect. We are in a remarkable position in this country in that a great majority of us are for Europe but we are not for the parts that allow workers the right to engage in collective bargaining which applies in virtually every other EU country. For some reason we do not seem to be able to get our heads around that, although I acknowledge it is on the programme for Government and I hope it becomes a reality. That is a slight distraction from the main issue.
On the question of the various alternative models that might be employed which were the subject of questions by Deputies Ferris and O’Mahony, I invite Ms Amanda Slevin, who had done much work in this area, to comment.
Ms Amanda Slevin: As Members will see from the report we have made reference to several fiscal regimes across the world. Generally there are four main types: concession agreements, licensing systems such as we have in Ireland, production sharing contracts and service agreements.
A fiscal regime is premised upon how a state uses its resources and whether a state will allow private ownership of its gas and oil. Under a concession agreement and under a licensing system, the State will allow private ownership and will transfer control and ownership of its resources upon production. Under production sharing contracts and service agreements that does not happen. With production sharing contracts, the State is involved in production either through a national oil company or a hold and interest in production, so they will have control, to a certain extent, over activities and will receive a higher rate of return. Under a service contract the State retains ownership of its resources at all times and the oil companies will produce the resources as a service to the State.
There are many options for Ireland. Ireland is unique in that we have a licensing system. Research by petroleum consultants and academics suggests that production sharing contracts and service agreements are the most common types of agreements in existence globally. A report by the middle management service in the US suggests that production sharing contracts are the most preferred contracts.
It is important to look at the ownership issues and that there are options for Ireland that can involve State participation either through a carried interest which can be introduced through the licensing terms or else we can look at developing a hybrid system where there are production sharing contracts alongside the existing licensing system. In our report we outlined three systems. We examined the licensing system and suggested that if Ireland continued to use the present system that the State would look at increasing rates of taxation, possibly introducing tiered bonuses and royalties. We have named a couple of steps.
We also looked at a contractual system where the State could possibly develop production sharing contracts or service agreements which would mean the State has strong control over its resources rather than transferring control and ownership. There is another option and through that the State can receive benefits from participation and production but also through taxation and royalties.
A third option is the hybrid system. It is important that we have options and that we are not tied to the system we have in Ireland. It is important to explore in detail the different options and what will bring most benefits to the State. There is a contradiction between the interests of the State and the interests of the corporations. What is good for our country and the maximum return to the State is not same as the interests of oil corporations. We should look in detail at these systems and also subject these to public debate through the forum that we have suggested where there is input from the variety of stakeholders in this country about what is best for the State.
Mr. Jack O’Connor: I attributed that question to Deputy O’Mahony, it was Deputy Pringle who asked the question. We do not have a firm view on whether we should choose a date other than 1975, except that it is relevant to the question Deputy O’Mahony asked about our assessment of the potential effect of a change in terms and specifically whether it would result in less exploration. It is not the terms that will ultimately decide that, it is the outlook for the global economy and the trend in the development of technology because that varies on a sliding scale. What is unviable one day becomes viable the next.
I return to my remarks in response to the series of questions. It is really about being satisfied that their method of assessing the answers to these questions is as rigorous as it could possibly be and is in accordance with best practice globally and has been scrutinised to the degree that we have satisfied ourselves that it cannot be improved, this is preferable to allowing decisions on issues as fundamental as this to be made on the basis of a given and an assumption that other people know best. They may, but I am not sure we have done all the things that enable us to satisfy ourselves that they do. Mr. Rapple might like to refer to the questions asked by several committee members on the potential to change the fiscal terms.
Mr. Colm Rapple: Yes, I would like to respond to Deputy O’Mahony. I used the “leave it in the ground” phrase for the way the Kerry man hit the donkey between the eyes with the ash plant to get its attention, when writing an article on this a long time ago. It creates a headline and it creates a base so we can think about whether we are getting a return. The other extreme is that everything is given to the oil companies.
I do not know if we can change the fiscal terms. I take it that an Irish Government would not want to do so. It has long been Government policy not to appear to renege on contracts with international companies. That would have all sorts of detrimental effects. The question then is whether it can be done. Is there a legal impediment? I am not a lawyer, but is it possible that a genuine expectation could be argued in court as it is written into the licensing terms rather than just into tax law? I do not know the mechanics of that and I have not seen a definitive answer.
Let us take the example of the Dunquin find. Providence Resources got that licence and they added value to it by packaging it in Dublin. They packaged it in such a way that they were able to market it to Exxon Mobil, which agreed to take 80% of it but bear all the costs, leaving 20% free to Providence Resources and its partner. I would suggest that the Department could have packaged it, kept the 20% stake for us and then could have sold it to Exxon Mobil.
Mr. Jack O’Connor: There was an error in the earlier version of the Dunquin map, so we will have to check with the secretariat on that.
Chairman: A vote has been called on the Order of Business. Rather than call the witnesses back, I would like to thank them for coming. The purpose of the committee was to bring matters into an open discussion. That is why we have had representatives from the Department, SIPTU and the industry in here. Next week we will have some of the communities involved. It is a precursor to a public forum. Members were anxious to deal with this matter. Whether there are myths, misconceptions or polarised positions, most people agree that there is potential out there. We probably all agree that we have not found it. The exploration people have an opinion as to why that is happening. It is not so much the fiscal terms that are stopping people or making them come in.
The recommendation for a forum is very valid. The recommendation to set up a high-level unit could facilitate that forum on one level, while working across Departments and using the Oireachtas committee as well. There is a three-way connection that could help to keep this matter on the agenda. It can allow for an open discussion, rather than have a situation where people take very polarised positions while not in full knowledge of the facts. That is putting it kindly.
We will produce a report at the end of this exercise. Community representatives are next. We will have the Minister and departmental officials in to conclude and we will work with the Library to formulate a report which will be circulated. Once again, I thank the witnesses for their attendance.
We will circulate to committee members a copy of the matter we discussed in private session earlier. If anybody has any issues with it, can they get back to us straight away? Thank you.
The joint committee adjourned at 5.15 p.m. until 2 p.m. on Tuesday, 29 November 2011.