‘I feel sorry for you’ – that was the message that one young Norwegian had for the Irish people when he was told that our government had ‘given away’ our oil and gas to corporations such as Shell and Statoil. For Norway – a country where the state is guaranteed 50% state participation in each oil production licence and where petroleum activities have helped finance the welfare state for 40 years – this scenario is unthinkable. In Ireland some say that this ‘give away’ is a reality and it has been going on under our noses since the late 1980s. However change may soon be afoot – a Wood Mackenzie report released at the end of June which recommends the revision of Ireland’s oil and gas fiscal terms is now being backed by the Government. The report recommended a change to all licences issued from 2015 that would see the state increase its maximum take from 40 per cent to 55 per cent through a combination of corporation tax and petroleum profits tax.
The report, endorsed by Pat Rabbitte, Irish Minister for Communications, Energy and Natural Resources, does not propose any changes for existing licences but it recommends that our production tax in its current form is revised for future discoveries. The report insists, however, that Ireland should maintain a concession system, with the oil and gas industry, rather than the state, bearing the risk associated with investing in exploration.
According to the report, the revised production tax should now be charged on a field-by-field basis and include a minimum payment at a rate of 5%. An advance payment of the new Petroleum Production Tax (PPT) will also be introduced. The revised tax rates should be higher than the current rate, resulting in a maximum rate of 55% applying in the case of new licences, compared with a maximum rate of 40% under the current fiscal regime. The report recommendations flow from a comparative analysis, carried out by international experts, between Ireland and nine other comparable hydrocarbon producing nations such as Newfoundland and Labrador, New Zealand, Spain and South Africa amongst others.
According to some commentators, the most significant element of the report is the proposal to examine moving towards Production Sharing Contracts (PSCs) and the establishment of a National Oil Company, (NOC). This is the type of move that our Nordic cousins would endorse, and that the Irish campaign “Own Our Oil” has been advocating for some time now. According to Eddie Hobbs, writing in the Sunday Independent, production-sharing would largely eliminate the risk of retroactive tax changes that can destabilise private risk-taking and would position the Irish people to immediately benefit at a significant level as soon as oil and gas is beached. Hobbs noted, “A national oil exploration company, mimicking what the Norwegians did with Statoil, affords the opportunity for public private partnerships that includes expertise and know-how transfers over time; industry comes with the private capital, the State with the undersea resources.”
The Government argument against adjusting the previous conditions for oil explorers has been that it does not want to adversely affect exploration activity in the Irish offshore, given the high risks and costs involved. And the Government is keen to emphasise that the report recommendations will be of a benefit rather than a hindrance to industry. Speaking about the report findings at the ‘Our Ocean Wealth Conference’ on 18 June, Minister Rabbitte noted, “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 Our Own Oil campaign agreed that the report is a positive move but criticised its scope and level of ambition. “It is a positive development, but really only a step in the right direction for Ireland. The consultants themselves admitted to us that the remit of the review was so narrow that it did not give scope for the sort of change needed to really address the issue of Irish oil and gas licensing. Ownership of Irish resources is still granted to the licence holders, even though the consultants’ report recommends … that Production Sharing be considered as part of a proper and full review of Ireland’s licensing regime.” Ultimately, this is not enough say Our Own Oil which will “continue to work towards getting the best possible deal for Ireland from Irish natural resources.”
Aoife O’Grady is an Irish, Brussels-based journalist focusing on environmental issues who writes regularly for irish environment.
“My Oil and gas – Ireland and Norway” www.youtube.com/watch?v=76VOnzXQMsU
“New Irish Oil & Gas Licensing Terms Announced,” Own Our Oil www.ownouroil.ie/
Wood Mackenzie, Review of Ireland’s Oil & Gas Fiscal System (May 2014) for The Department of Communications, Energy and Natural Resources (DCENR).
Eddie Hobbs, “Finally, a first tiny step on the way to owning our oil,” Irish Independent (22 June 2014). www.independent.ie/opinion/comment/finally-a-first-tiny-step-on-the-way-to-owning-our-oil-30374063.html