Pat Rabbitte (Dublin South West, Labour)

Having regard to the high risk of unsuccessful exploration, it is difficult to make the case that the Irish taxpayer should invest billions of euro in an intensive exploration effort at this time. Instead, this should be left to the industry, which can include exploration in the Irish offshore as part of a balanced international exploration portfolio.

The rationale underpinning Ireland's tax policy approach in the area of oil and gas production is simple. The oil industry is a global industry and Ireland competes not only with other European countries but with other regions of the world to attract exploration investment to Ireland. As a result, Ireland cannot set its tax terms in isolation or we would risk discouraging all potential investment.

Industry decisions on where to invest in exploration are principally driven by two key factors - geology and economics. Where the industry views an area as being highly prospective, it will be prepared to invest in exploration even if the tax terms are relatively tough. Of course, the opposite is also true. While the Irish offshore has recognised petroleum potential, it is rather under-explored when compared with other offshore areas such as Norway or the UK. The high level of successful exploration in the UK and Norwegian offshore areas has resulted in exploration companies being prepared to invest heavily in exploration in those countries, despite the fact that these states' tax take, as previously stated, is much higher than in Ireland. For example, in excess of 1,200 exploration and appraisal wells have been drilled to date in Norway and in excess of 4,000 in the UK. This compares with a total of 156 in Ireland. When Deputy Adams states that the multinationals have not walked away, he is correct. When the prospects are high, they have not walked away. However, they have long since drastically limited their involvement in our waters, which can be rather turbulent, as no one knows better than Deputy Ferris.

The statistics are more dramatic when it comes to producing fields. The UK has in excess of 300 producing fields and Ireland has only three with a fourth in development. The number of wells drilled or the number of producing fields do not tell the full story since the size of producing fields can vary significantly. For example, the giant Troll field offshore Norway is in the region of 50 times the size of the Corrib gas field. The bottom line is that if Ireland's petroleum tax terms were fixed at the same level as those of the UK or Norway, then we could expect no exploration investment would locate in Ireland. That would mean no new exploration wells and no new oil or gas discoveries. Those who maintain our tax terms are too low might be satisfied but I remind them that 60% of zero is still zero.

If a reasonable person were looking for countries with which to compare Ireland's petroleum tax terms, he or she would look to countries such as Portugal, Spain and France with more similar success records to Ireland. Under the 2007 terms, the tax rate in Ireland varies from 25% to 40% depending on the profitability of the oil or gas field. This compares well with a tax rate of 27.5% in Portugal, 30% in Spain and 34.4% in France.

Deputy Ferris reminded me of my ambition for this industry in the 1970s. The Deputy was 30 years behind me then and he is 30 years behind me now. It is true that when Ireland's first licensing terms were introduced in 1975, they provided for the then prevailing rate of corporation tax, which was 50%, along with royalties. At that time, there was a perception that the Irish offshore would be the next North Sea and the licensing terms were written to reflect this. With only four commercial discoveries of gas since then and no commercial discoveries of oil, it is clear that the optimism of the 1970s was unfounded. The revisions to the licensing terms since 1975 addressed the emerging reality that Ireland was not the new North Sea and that there was a need to take measures to incentivise mobile international exploration investment to choose Ireland over other areas that had been more successful to date.

The abolition of royalties in 1987 was one such measure. Ireland followed the lead of Norway and the UK which had moved from a royalty based regime to a tax based regime. Royalties are a relatively blunt instrument, in that the charge is not related to profit. A tax on profits is a more predictable charge for both industry and Government. I recognise that setting the tax rate for a sector such as the petroleum exploration and production sector is not an exact science. The experience of the past 25 years since royalties were abolished in Ireland and the almost 20 years since a 25% basic tax rate was introduced provides ample evidence that Ireland had not set its terms too low. There was no stampede of exploration investment after a petroleum tax rate of 25% was introduced in 1992, at a time when the general rate of corporation tax was 40%. In the following decade an average of three wells a year were drilled in the Irish offshore. This compares with an average of almost 80 wells a year in Britain in the same period.

In 2007 the tax terms were again reviewed. The review undertaken by independent economic consultants considered the appropriateness of Ireland's licensing terms in comparison with other European countries with which Ireland competed. It concluded that there might be potential to capture a higher share for the State on more profitable finds but that the potential for this should not be overestimated. Accordingly, it recommended the introduction of a supplementary tax in the case of more profitable fields. The 2007 terms apply to all exploration licences granted since January 2007. Under the 2007 terms, the State's tax take on very profitable fields will be up to 40%.

I would now like to turn to the matter of the Corrib gas field and the manner in which the State stands to benefit. While construction of the facilities to date has generated significant employment opportunities, the principal financial benefit to the State will be in the form of the 25% tax rate that applies to profits from the field under the 1992 licensing terms. In the normal way, the tax provisions applying are set down in the Finance Acts, not in a contract with the developer. The 2007 tax terms do not apply to the Corrib gas field, as they do not apply to exploration licences granted prior to 2007. To do so would have been to introduce what would, in effect, have been a retrospective form of taxation and such an action would not have been in Ireland's interest.

The second way in which the Corrib gas field will benefit the people is that it will significantly strengthen Ireland's security of energy supply. Corrib gas will meet approximately 60% of Ireland's gas demand in the first four to five years of production. That will represent a significant strengthening of Ireland's natural gas security of supply as Ireland currently imports approximately 95% of its natural gas needs.

I reject the call made to revoke existing exploration and production consents. Ireland needs more exploration for oil and gas, not less. It needs more discoveries such as the Corrib gas field. While it might suit conspiracy theorists to suggest otherwise, the reality is that the number of commercial discoveries made in the Irish offshore is very low. Exploration levels have also remained stubbornly low, despite a range of initiatives directed at attracting an increased level of investment. This represents a real challenge for Ireland. Without an increase in the level of exploration activity Ireland will not benefit from its indigenous natural resources. It is something of a catch 22; more exploration effort, in particular exploration drilling, is needed if the petroleum potential of the Irish offshore is to be proven, but until more commercial discoveries are made, it will continue to prove difficult to attract a significant level of new exploration investment to Ireland.

In an effort to attract exploration investment to Ireland the Department actively promotes the opportunities for investment in the Irish offshore. It also supports research initiatives directed at developing knowledge of Ireland's petroleum potential. At the end of next month the 2011 Atlantic margin licensing round will close. This licensing round is structured differently from previous rounds and aimed at stimulating a new momentum in exploration activity. In particular, it has the objective of attracting some new exploration companies to the Irish offshore. I look forward to its conclusion in six weeks time. I am hopeful it will bring a new momentum to the level of exploration activity in the Irish offshore. This, in turn, would increase the chances of much needed new commercial discoveries being made.

I do not have to remind the Deputies in whose names the Private Members' motion was submitted that the 1919 democratic programme also provided that, "It shall be our duty to promote the development of the Nation's resources, in the interests and for the benefit of the Irish people". I trust that I have clarified for the House that the Government does have a clear, sensible and rationale approach in this area of public policy. It is a policy approach with a clear objective of ensuring the people do benefit to the maximum degree possible from our indigenous natural resources. It is a policy approach that recognises also that Ireland needs to attract a significant increase in the level of mobile international exploration investment. It is a policy approach that offers the best chance for the people to benefit from our indigenous oil and gas resources. Ireland's oil and gas tax regime is fit for purpose. The challenge for Ireland is to encourage a sufficient increase in exploration activity to bring about further commercial petroleum discoveries. It is only by doing this that the people will benefit fully from our indigenous oil and gas resources.

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