Getting the most out of our resources
By Richard Boyd Barrett TD
THE recent announcement by Providence Resources that it has discovered up to
1.6bn barrels of oil at Barryroe, off the west coast of Cork, along with the granting of
a foreshore licence to Providence to drill for gas and oil 6km from the coast in Dublin
Bay, has again highlighted the need to radically alter the regime for managing
Ireland’s natural resources.
A new pamphlet by the Dublin Shell-to-Sea campaign details the enormous likely
reserves of gas and oil in Irish waters and how the people of Ireland will see little or
no benefit from these resources.
A 2006 study claimed that in the Atlantic margin alone, off the West coast, there are
potential reserves of 10bn barrels of oil/gas equivalent. At Jun 2012 prices this would
have been worth €750bn. Estimates by the oil companies, suggest there are a total
of 20bn barrels of oil/gas equivalent in Irish territorial waters — valued at €1.5tn.
However, under the current tax and licensing regime, the benefits of this massive
wealth of natural resources will be enjoyed not by the people of Ireland but by
multinational oil companies.
Ireland has an unprecedented system when it comes to taxation and revenue from
oil and gas — a system put in place by Ray Burke and Bertie Ahern. In 1987 when
Burke was minister for energy he changed the law, reducing the State’s share in
offshore oil and gas from 50% to 0% and abolishing royalties. Later in 1992, Bertie
Ahern, as finance minister, reduced the tax rate for the profits made from the sale of
these valuable resources from 50% to 25%. This tax take on profits from oil or gas is
by far the lowest of any country in the world. In Britain, for example, the state takes
more than 50%, in Norway 78%, and in Venezuela and Iran more than 90%.
However, the story gets worse. Under the current regime, private oil companies can
also write off all costs and losses going back 25 years before they pay a cent in tax.
In reality, it will be years before companies such as Providence pay any tax, and the
total tax take over the life of a field will be a fraction of 25%. Some estimates suggest
the real figure will be closer to 7%.
Another shocking feature of Ireland’s licensing regime is that once a private oil
company is ready to extract oil or gas, it is granted a lease that fully transfers
ownership and control of the licensed area to that company. In other words, the
State gives away the gas and oil.
In international terms Ireland has one of the worst deals in the world. In Iran, for
example, they manage their natural resources with a "service agreement" pact
where the state retains companies to carry out work at their own costs. The company
can then off-set the costs later on as they get a share of the oil produced but they
never get ownership.
Most countries operate production sharing contracts where the state works with
companies but without handing over ownership. Norway is one of the best examples
of this model with a 78% tax rate, 67% state ownership of Statoil, in addition to
having a state-owned company participating in production with the oil companies.
Energy Minister Pat Rabbitte defends our licensing terms by arguing that Ireland
cannot afford the cost of exploration and drilling, therefore we have no option but to
leave it to the oil companies. This argument is ludicrous in the extreme; there are
many options. Licences in future could stipulate that once a discovery is made, the
state could step in and become a joint operator and take a share, on a sliding scale,
depending on the size of the field.
The other defence used by the Government is that, at least Ireland will have a
security of gas or oil supply and there will be employment benefits. Again, this is a
false and dishonest claim. Under the current regime, oil companies are under no
obligation whatsoever to supply the Irish market. The oil companies will have
complete control over what they produce and to whom they sell it.
Hopes for jobs are likely to be equally illusory. Providence Resources indicated in a
presentation to Dún Laoghaire-Rathdown Co Council, in relation to its plans for
Dublin Bay, that employees would be flown in from abroad and brought to the rig.
In addition to giving away huge revenue to the oil companies, the State has allowed
the companies to bulldoze over environmental concerns, democratic consultation,
and communities such as Rossport in Mayo at a huge environmental and social
cost.
Additional notes
The estimates – from the Petroleum Affairs Division (PAD) of the Dept:


10 billion barrels of oil equivalent in the Atlantic Margin (doesn’t take onshore
figures into consideration)
Take the 10 billion and multiply by the current market price ($90) – 900 billion- could
be over-estimated or under-estimated when gas estimate taken into account
Ireland- has lowest returns. Minister cites 2007 terms of tax returns of 40% but this
will not happen when tax paid and costs off-set are taken into consideration
And even if we did get the whole 40% it’s still one of the lowest in the world and we
have still handed over ownership AND Irish citizens will still have to pay exorbitant
prices for oil and gas
Ireland - licencing system, where the state transfers ownership of the oil and gas
after production
If we re-negotiated our contract with Shell we could see huge revenue and jobs
being generated and never before have these issues been so urgent
Iran - manage their natural resources with a ‘service agreement’ pact whereby the
state retains companies to carry out work at their own costs. The company can offset the costs later on as they get a share of the oil produced but they never get
ownership.
Most countries however operate production sharing contracts where the state works
with companies but again without handing over ownership.
Norway is the best example of this with a 78% tax rate, 67% state ownership of
Statoil and in addition to having a state owned company participating in production
with oil companies.
Point is that in the other agreements the other states do not transfer
ownership
Dublin Bay victory, oil rig stopped:
Dalkey- Providence Resources (30% owned by O’Reilly)- last summer announced
870 million barrels of oil valued at $53 billion