Pat Rabbitte (Dublin South West, Labour) | Oireachtas source

I am pleased to open this debate on the report of the former Joint Committee on Communications, Natural Resources and Agriculture on the subject of offshore oil and gas exploration. I am grateful to the Government Chief Whip for acceding to my request to make time available for the debate.

Although issues relevant to the subject matter of the report have been discussed in this House from time to time under a range of business, today's debate provides an opportunity for a more detailed discussion. I look forward to the contributions of Deputies on the report and its recommendations and, more generally, in respect of Ireland's approach to this policy area. My colleague, the Minister of State, Deputy Fergus O'Dowd, will close the debate on behalf of the Government.

This is both an interesting and a topical area of public policy. The report discussed a range of diverse subjects and issues and the joint committee invested considerable time in its preparation. Detailed evidence was taken from a range of parties and considerable time was spent in considering that information. Accordingly, the report represents a valuable contribution to the debate on how we should manage our indigenous oil and gas resources to ensure the best result for the people of Ireland. The 11 recommendations reflect the broad nature of the report and address a number of themes. The report recognises the importance of our legislative and strategic policy approach being fit for purpose and brings a focus to specific aspects of the non-fiscal regulatory regime. It considers interactions involving the public in general, as well as those relating to communities living in areas where development activity is planned.

The theme, however, that has generated the greatest level of comment relates to the tax terms that should apply in the case of future commercial discoveries. There have been occasions when debate on this subject has been premised on myth rather than fact and it is a positive aspect of the report that it captures so much detail in a single document. Understanding Ireland's petroleum exploration experience over four decades is important to any balanced consideration of the nature of fiscal terms that should apply to this industry.

Understanding our experience relative to that of neighbouring jurisdictions is also critical, as well as understanding that the hopes and aspirations that many of us held out for the industry in the 1970s have not been realised and tilting at romantic windmills amidst the dreamy spires of Princeton will not change that. It is helpful, therefore, that the report contains considerable detail of Ireland's exploration history, together with some detail on neighbouring jurisdictions, particularly Norway. An examination of Norway's experience as a major oil and gas producer demonstrates a stark contrast between that country's fortunes and ours over the past half-century. Today there is a significant difference in our respective fiscal regimes, which reflects very different levels of exploration success. In the 1970s our fiscal terms were similar but in the subsequent decades the optimism that existed in the 1970s about the potential of the Irish offshore diminished as significant and repeated commercial discoveries in the North Sea were not, unfortunately, replicated here.

There are times, however, when some contributors to the debate on fiscal terms advocate policies that clearly ignore the stark contrast between our exploration experience and that of Norway and the UK. Although they contribute nothing constructive to an important public policy consideration, such interventions can give rise to confusion, deflect focus from the real questions to be addressed and do little to engender confidence among those considering the relative merits of investing in the Irish offshore, as opposed to elsewhere in Europe or even further afield.

In general terms, some of the report's recommendations appear both sensible and desirable. Others are already provided for in the existing licensing and regulatory regime. There are a number of recommendations that could usefully be explored further, including several which have wider public policy implications. Finally, there are a number of recommendations in respect of which I have strong reservations and remain to be convinced that their adoption represents the best way for us to proceed. As examples of recommendations I would endorse, the report proposes that there be a clear and transparent fiscal and licensing regime which provides certainty for the State and industry alike. It stresses the need for a clear strategy governing Ireland's approach to petroleum exploration and goes on to recommend that the 1960 Petroleum and Other Minerals Development Act be reviewed. The 1960 Act is important in setting out the high-level exploration licensing regime and the rights conferred by the various authorisations. Since it was enacted, a broad body of legislation at national and European Union level that is directly relevant to petroleum exploration and production activities, including planning, safety and environmental legislation, has been passed. Against that background, my Department is currently engaged in a review of the 1960 Act.

Our overarching strategy in this area is to seek to maximise the benefits to the people from Ireland's indigenous natural resources. The most significant way in which Ireland stands to benefit from successful exploration is through tax revenue.

We have continually reviewed, adapted and developed our regulatory and fiscal terms to ensure they remain fit for purpose, and that process will continue.

Apart from tax revenue, additional benefits would accrue from the economic activity generated by development and production. For example, more than 1,000 people were employed at the height of the construction phase of the Corrib gas terminal. A more active exploration and production industry would also encourage the development of a range of support services, particularly around key port facilities. Further commercial discoveries would also strengthen Ireland's security of energy supply.

It is a core element of the State's strategy for this sector that private industry, rather than the Exchequer, should carry the financial risk associated with exploration. Given that a single exploration well in the Atlantic can cost more than €100 million, this is a policy I strongly endorse. It is important that the State provide suitable opportunities for international investors and the right environment to encourage private industry to take the risk associated with investing in exploration. We do this in a number of ways, including offering attractive and innovative licensing opportunities, such as the 2011 Atlantic margin licensing round; providing a fit-for-purpose, transparent and robust regulatory regime; deepening knowledge of our offshore petroleum potential, particularly through data acquisition and supporting key research projects; and actively promoting the opportunity to invest in exploration in the Irish offshore, particularly to companies not currently active here.

A fundamental matter recognised in the report is the need for our licensing regime to communicate both stability and certainty to industry. This is especially true when we are competing with other countries to attract investment and in view of the fact that the nature of the business requires taking a long-term view. For this reason, I welcome the recommendation that no retrospective changes should be made to licensing terms.

In regard to recommendations that I believe may already be provided for under our licensing regime, I want to comment briefly on the recommendations relating to the maximisation of production from commercial fields, the principle of unitisation and the issue of flaring gas. If I am clear in my understanding of what the committee had in mind on these recommendations, these issues are already addressed to a considerable degree by the existing licensing terms, together with the Department's own industry-specific rules and procedures. I am, of course, open to suggestions as to how existing provisions could be improved.

I have said that some of the recommendations could usefully be explored further. In that regard, it is important to address the recommendations relating to public consultation and community gain. I do not know whether the recommendation on consultation is a statement recognising the value of public consultation and advocating continuance of the status quoor a suggestion that adequate public consultation is not provided for. The reality is that all major infrastructure consent processes involve a public consultation phase, which generally includes an oral hearing. These requirements are not industry-specific and they flow from both national and European legislation. This means that any future oil or gas development project would be subject to a number of consent processes, each of which would have a detailed public consultation phase. It may be that the circumstances which gave rise to the committee's focus on public consultation predate the passing of the Planning and Development (Strategic Infrastructure) Act 2006, which provides for a more holistic, transparent and strengthened approach to the assessment of applications for major transport and energy projects.

In its earlier stages of development, the companies involved in the Corrib field took their eye off the ball, and there were genuine local community interests which should have been properly addressed. Since that time, however, the State has bent over backwards in every way it can. In so far as it is known to man to make safe the bringing ashore of gas, this has been done. Uniquely, we are engaged in constructing a tunnel under Sruwaddacon Bay, at a cost of €400 million. That €400 million will be written down against the costs of developing the field, which means the Exchequer must forgo €100 million in taxation.

The community gain concept discussed in the report is clearly not industry-specific. It is also complex, as communities are not homogenous, and what some may consider to be a gain, others may consider a loss. The 2006 Act enables An Bord Pleanála to attach specific community gain conditions to a planning consent. The Government fully supports a community gain approach in the delivery of energy projects. This is explicitly referenced in the Government's policy statement on the strategic importance of transmission and other energy infrastructure which we published last July and which now guides the planning authorities in their decision-making. That policy statement stresses the need for developers to examine appropriate means of building community gain considerations into project budgeting and planning.

I now turn to the recommendation that has generated the greatest interest, namely, the near-doubling of the existing tax rate applying to petroleum production. A comprehensive review of Ireland's licensing terms was carried out in 2007, following which both the fiscal and non-fiscal licensing terms were revised. The revised terms sought to strike a balance between attracting investment in high-risk exploration and ensuring the State receives a fair share of any profits. The terms provide for a profit resource rent tax of up to 15%, on top of a 25% corporate tax rate, ensuring that the return to the State will increase to a maximum of 40% in the case of the most profitable fields. The revised terms apply to all exploration licences issued since the beginning of 2007. The changes in that tax regime that are now proposed are not minor or modest in nature. What is proposed is a fundamental repositioning which would raise our tax to a similar level to that of the UK and, in the case of very profitable fields, would result in a higher tax here than applies in Norway. It may be the case that the committee was signalling where Ireland should seek to reposition the tax regime over time. However, I struggle to understand how anyone could expect Ireland to have Norwegian-style tax rates without first having Norwegian levels of commercial discoveries.

It also appears to me that the recommendation does not logically flow from the committee's own report. The report sets out four main reasons for proposing these tax changes: high oil prices; the impact of advances in technology on exploration success rates; the fact that not all regions with petroleum potential are politically stable locations for investment; and recent positive indications from exploration off Ireland's south coast. The first two of these factors, high oil prices and new technologies, do not give Ireland any comparative advantage. They do not make investing in Irish offshore exploration more attractive than investing in the North Sea or elsewhere. Advances in technology in the exploration sector, like most other sectors, tend to be of an incremental nature. It is still a fact that without exploration drilling, no new discovery will be made. This is a critical factor for Ireland because drilling levels in the Irish offshore remain very low. Incremental technology advances may help, but more drilling is essential.

Political stability as a location for investment is an advantage that Ireland has over certain other regions. However, this is by no means a new or exclusive advantage and it is an advantage that is also enjoyed by Norway and the United Kingdom. The final factor that seems to underpin the report's tax recommendation is the positive news from the Barryroe well. While the drilling results there are encouraging, further work is required to establish whether this discovery can be declared to be commercial. If it is declared commercial, then it should attract more exploration investment to the region.

However, the potential impact should not be overestimated and needs to be put in context. It would be a positive development, both as a new commercial discovery and as Ireland's first ever commercial discovery of oil. However, it would also be Ireland's first commercial discovery since the Corrib gas field was discovered in 1996, nearly two decades ago. While it would be positive news, it would not by itself make Irish waters the new North Sea.

I do not wish to be negative or to undersell Ireland as a location for exploration investment - quite the contrary - but we must deal in realities. The reality is that the Irish offshore is under-explored and its petroleum potential is largely unproven, particularly when compared with other petroleum regions such as Norway and the United Kingdom. The statistics speak for themselves. A total of 156 exploration and appraisal wells have been drilled to date in Ireland's offshore compared with more than 1,200 wells in Norway and 4,000 wells in the United Kingdom. The UK has more than 300 producing fields, while Ireland has only three, with a fourth in development. Norway is the second largest gas exporter and the seventh largest oil exporter in the world. Ireland, on the other hand, imports more than 95% of its gas and 100% of its oil.

Ireland's focus should be on how to encourage an increase in the level of exploration investment and drilling. This is what we need if we are to establish the true petroleum potential of the Irish offshore. The principal factor driving exploration investment decisions is the likelihood of making a new discovery. The challenge is how to improve the industry's perception of Ireland's prospectivity relative to that of other countries. Exploration drilling and new seismic acquisition are both key. In 2011 and 2012 we had just one exploration well and this year it seems that Dunquin will be the only well drilled offshore. That is the backdrop against which we are having this debate. We must recognise that Ireland is competing with countries such as Norway and the United Kingdom to attract mobile international investment and we cannot set our tax terms in isolation.

We find ourselves in a complex and challenging position. There is a clearly recognised potential and there have been positive recent signs in the number and quality of exploration companies becoming involved in the Irish offshore. The exploration cycle is a very long cycle, however, and many current authorisations are at the stage at which exploration drilling has yet to be undertaken or even committed to.

The joint committee signalled clearly in its recommendations that it considered a review of the fiscal terms would be appropriate. It was also clear that an adjustment to the fiscal terms should not be retrospective. I am completely in agreement with this latter point.

While I have clearly indicated my reservations about Norwegian-style tax terms, I am conscious that long-term investment decisions on exploration expenditure would benefit from the maximum degree of certainty on the stability of the fiscal regime. With this in mind and having regard to the fact that the most recent review of the fiscal terms took place in 2007, I intend, following the conclusion of this debate, to seek further independent expert advice on the fitness for purpose of Ireland's fiscal terms. Such expert advice would focus on what level of fiscal gain is achievable for the State and its citizens and, equally important, the mechanisms best suited to produce such a gain.

Certainty as to fiscal terms is a prerequisite for attracting oil and gas exploration investment. In that regard, particularly in the context of planning for the next licensing round, it is my intention to bring my consideration of this matter to a conclusion before the end of the year. This would ensure that the next licensing round could be launched against a backdrop of regulatory certainty and encourage much-needed new investment in exploration in our offshore. I thank the former joint committee for its detailed report and look forward to hearing the views of Members in this debate.

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