New tax regime unveiled for offshore oil and gas exploration

Ireland’s tax regime for oil and gas exploration is to be reformed, with future discoveries taxed according to their scale and value.

Under the reform, a maximum rate of 55% will be charged on the most profitable fields discovered under new licences – up from a top level of 40% under a system set up in 1987.

A fitness-for-purpose report on offshore exploration and its value to the state - accepted by the Government – urged new levies on a field-by-field basis with the rate varying according to profitability.

It said the revised tax should kick in with a minimum 5% royalty style payment to ensure the state reaps benefits from every year a field is production.

Pat Rabbitte, Minister for Communications, Energy and Natural Resources, said the new rates would apply to all discoveries made under future exploration licences and options.

“By acting now and setting out Government policy on this issue, it is my intention to communicate a clear message in relation to the stability of Ireland’s fiscal regime for the oil and gas exploration sector,” he said.

“For existing licences no changes are proposed. For future prospective licence holders a clear regime is being set out and the rationale for that regime has been explained.

“This should further engender industry confidence in the stability and predictability of Ireland’s oil and gas fiscal terms and allow the industry to focus on effective and timely exploration effort.”

The report on Ireland’s exploration and licensing system, by international energy consultants Wood Mackenzie and published at the Our Ocean Wealth Conference in Dublin Castle, found that there should be no change to the tax terms on existing drilling operations.

It found that the old regime – put in place by former Fianna Fail minister Ray Burke who was jailed for tax fraud – should be changed to revise inconsistencies and provide an earlier share of revenue from finds.

Until now the tax rules allowed for a 25% rate on profits on offshore oil and gas discoveries and the cost of explorations to be written off – one of the lowest rates in the world.

The new system will include the 5% royalty rate, the maximum 55% rate on production from the most profitable fields and a 25% corporation tax rate for petroleum production.

The reforms were decided after the consultants compared the Irish system with nine other comparable states such as Newfoundland and Labrador, New Zealand, Spain and South Africa amongst others.

Waters off Ireland are proving lucrative with Shell’s Corrib gas field nearing production and Providence Resources revealing last year that its Barryroe field off Cork contains up to 1.6 billion barrels of oil and that it has plans to prospect off Dalkey.

A report released by the Shell to Sea campaign, which opposed the Corrib gas project off north Mayo, last year claimed there are 69 prospects and licensed areas off Ireland and that energy firms estimate the potential finds could hit 21 billion barrels of oil equivalent.