National Resources
Ownership and Control:
Fiscal and Licensing Terms Governing Oil and Gas Exploration and Production in Ireland
“The Irish terms are the best in the world.” Mike Cunningham former director of Statoil E&P Ireland
Fiscal and licensing terms relating to Corrib Gas and all other gas and oil off the Irish coast are heavily stacked in favor of the oil companies. The Corrib Gas Field, for example, is wholly owned by the Corrib consortium who will pay no royalties and can write off all tax on profits against costs. The consortium has effectively been given the gas field by the Irish State in exchange for little or nothing. Between the mid eighties and the mid nineties earlier fiscal and licensing terms were pared away to allow for the alienation of large tracts of Ireland's offshore territory to the oil companies for long durations of time with minimum taxation on profits. The Irish terms dubbed “the best in the world” by ex-Irish Statoil director Mike Cunningham must be viewed in relation to the robust lobbying of politicians by oil industry bosses that has taken place since Irish Gas was first hit off the south coast in the seventies but more recently in relation to the Corrib Project and the opening of the Atlantic margin as a viable area for oil and gas exploitation.
Hydrocarbons in Ireland:
Hydrocarbons were first found off the Irish shore at Kinsale off the coast of Cork in the early seventies. The Kinsale field was discovered by Marathon Oil, an American company which signed a once off agreement with Bord Gáis to supply 125 tcf (trillion cubic feet) of gas per day for 20 years. In the wake of the once off deal with Marathon Oil, which had been criticized as too generous, there was an attempt by certain government ministers to formulate terms governing oil and gas exploration and production that would ensure more benefits to the Irish State.
Keating’s Terms:
In 1975 Justin Keating , the then Labour Minister for Industry, introduced the Ireland Executive Offshore Licensing Terms for Oil and Gas Exploration. The 1975 terms included:
- 50% maximum state participation in any commercial find
- Production royalties of between 8% and 16%
- Production bonuses on significant finds
- 50% corporation tax
The terms also sought to commit companies to a program of drilling wells at as early a date as possible and obliged the licensee to drill at least one exploratory well within three years. The company would then surrender 50% of the original licensed area after four years. Licensees failing to carry out the required exploration program were liable for costs.
Changing the Terms in Favor of Big Oil:
The first move to erode the terms came in 1985 when Dick Spring as Minister for Energy, introduced changes for marginally profitable fields of less than 75 million barrels. Spring announced a sliding scale of State participation and reduced State royalties for these marginal fields and in 1986 further announced the abolition of participation rights. Keating’s fiscal and licensing regime came under more serious threat with the appointment of Ray Burke - a man who has since been prosecuted for corruption - as Minister for Energy.
In 1987 Burke announced new fiscal terms. He removed royalties and introduced a 100% tax write-off against profits on capital expenditure for exploration, development and production extending back 25 years. In April 1992, Bertie Ahern as Minister for Finance introduced the 1992 Finance Act incorporating and extending Mr. Burke's 1987 fiscal terms. Ahern slashed the corporation tax to 25%. In addition to Burke’s fiscal terms new licensing terms were also introduced by the then Minister for Energy, Bobby Molloy. The new licensing terms provided for the alienation of large tracts of prospective territory to the oil companies for lengthy periods of time. Under the 1992 terms there are three types of licences: standard, deepwater and frontier. Standard licences are granted for six years, deepwater for twelve and frontier are granted for not less than fifteen years. Under a frontier licence a company can hold onto a large tract of its licence territory for more than fifteen years in return for drilling one well. If a company makes a discovery and seeks a petroleum lease the terms do not require production to begin until eight years following notification or six years after expiration of the exploration license. The 1975 terms gave the Minister control, during emergencies, of supplies of petroleum; the regulation of production during emergencies, and the curtailing of excessive production that is not in the national interest. These powers were revoked in the 1992 terms. The 1992 terms state that oil or gas can be delivered at “market prices” unlike the previous agreement with Marathon where Bord Gáis could buy gas at bulk discount.
The Corrib Gas Field is only one of a number of fields along the west coast to which the favourable terms apply. Ireland’s Atlantic margin is marketed as “an exciting petroleum province” by the Department of Marine and Natural Resources to oil companies. The brochure for their “Exploring Atlantic Ireland” conference, held in November 2006, boasts studies indicating “yet to find resource potential …in excess of 10 billion barrels of oil.” The Dunquin Prospect off the coast of Cork is a particularly rich area. Pre-drill estimates have suggested Dunquin North and South together could contain 25 trillion cubic feet of gas and 4 billion barrels of oil. If proven, that would put it among the 20 biggest fields in the world. In the words of Tony O'Reilly Jnr. Providence boss, "Even if we're half-right, the numbers are mind-blowing... This is opening up a new hydrocarbon frontier,"
In 2007 newly appointed Minister for Natural Resources, Eamon Ryan, Green Party announced a rise in corporation tax from 25% to 40%. However he has so far refused to renegotiate the Corrib deal. Shell are also due to start drilling off the coast of Donegal and the community are organising to resist. To find out more about the campaign against Shell in Donegal email: donegal.maor@gmail.com.
