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Government approves scandalous give away of Ireland’s remaining offshore prospects

By: 
Colm Rapple - Irish Mail on Sunday

On a conservative estimate there could be 10 billion barrels of oil, or the equivalent in natural gas,  under the seabed off the west coast of Ireland. That’s about enough to supply all of our needs for a hundred years. But junior minister Conor Lenihan is intent on giving it away. Oil companies already have rights to some of the most promising areas off the west coast. Oil and gas have been found and not only in the Corrib field off Mayo.  Now Mr Lenihan has invited applications from the oil companies for valuable options which would allow them first refusal on exploration licences over the remaining 250,000 square kilometres of our Atlantic shelf. That’s an area three times as large as the Irish land mass.

The companies can cherry pick the best prospects, undertake to do, or buy, some seismic studies, pay a fee of only €1,520 and gain an option to get a full exploration licences at any time within the following two years. Such a licence would allow them to exploit any find at the current generous fiscal terms.

Even the Government, in an official document, describes those terms as “amongst the most attractive in the world”. For many finds the State take will be no more that a 25% corporation tax charged on profits after allowance has been made for all exploration and development costs.  For very large finds the take can go up to 40% but even that’s low by international standards.

In North America the minimum Government stake according to a report prepared within Mr Lenihan’s department is 42% and it can rise above 60%.  South American governments get between 25% and 90%. The take in sub Saharan Africa ranges from 44% to 85%.

Our very favourable licensing terms have been defended in the past on the basis that we still need to prove the potential of Irish waters to yield sizeable oil and gas finds.  Once we’ve made that big strike, it has been argued, we can then up the anti for new licences.  It might be a valid argument if we hadn’t already licensed many of the most promising areas, most of them at the previous give-away terms under which the State can get no more than a 25% profit tax irrespective of the size of the find.

There is no case at all to be made for now letting the oil companies lay claim to the most promising of the remaining area of the Atlantic margin at the current terms.  There’ll be nothing left on which we can demand the type of return due to the Irish people for the exploitation of their natural resources.

There has long been a suspicion that oil has already been found in commercial quantities off the west coast and that it suits the oil companies to underestimate the prospects while they hoover up rights to more of our hydrocarbon resources. Mr Lenihan says that his decision was reached after consultation with the industry and is designed to boost the level of exploration activity.

Applications don’t close until May next so maybe he is also hoping for some good pre-election publicity. The announcement of an oil find wouldn’t go amiss and there are a few oil finds out there that have yet to be declared commercial. They might be so declared after these proposed new licences have been issued.

There is the Dunquin find west of Kerry. The licence was issued to Tony O’Reilly’s Providence Resources but it brought in ExxonMobile in return for a free ride. The Italian ENI group also has an interest. Davys stockbrokers have conservatively estimated that it could contain  9 tillion cubic feet of gas equivalent to 1.5 billion barrels of oil. That’s about the same size as the Corrib find.

The Dooish prospect off the Donegal coast was drilled by Shell in 2008. It has been keeping quiet about the prospects but gas flowed from earlier drillings in 2001 and 2003 with a “substantial gas condensate column” confirmed.

A prospect west of Clare known as Spanish Point was first drilled in 1981 and has yielded both oil and gas flows.

Those are just some of the known prospects that have already yielded finds.  But the State take from any of them will be small and long delayed. The licences were issued when the maximum tax was 25% and it’s only charged after all of the exploration and development costs have been written off.  It will be many years after oil or gas has started flowing before a cent of tax is paid.

The terms are decidedly lax in one other important way. There is no requirement to land any find in Ireland. Departmental officials did recommend that the State should be able to demand payment in kind of the extra tax introduced to licences issued after 2007.  But that proposal was overruled by the Minister or the Government. It never found it’s way into law.

Gas found off the west coast would almost certainly be landed in Ireland but oil could go anywhere. It could be piped from sub-sea facilities into tankers for shipment to refineries anywhere in the world.

It’s time to rewrite those old licensing terms perhaps by, at least, imposing a royalty levy on all oil and gas production. Until that’s done, no new licences should be issued.