Pat Rabbitte (Dublin South West, Labour)

I thank Senators for giving me the opportunity to contribute to the debate on the report of the Joint Committee on Communications, Natural Resources and Agriculture on offshore oil and gas exploration. The report focuses on an interesting and topical area of public policy and a range of diverse subjects and issues. The joint committee invested considerable time in the preparation of the report. Detailed evidence was taken from a range of parties and considerable time was spent in considering the information gathered. The work of the joint committee culminated in the publication of a detailed report which makes a total of 11 recommendations.

I am sure the joint committee's report will make 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 included in the report reflect the broad nature of the report and address a number of themes, including the following: recognising the importance of Ireland's legislative and strategic policy approach being fit for purpose; bringing a focus to specific aspects of the non-fiscal regulatory regime; considering interactions involving the public in general, as well as those relating to the communities of areas where development activity is planned; and the tax terms that should apply in the case of future commercial discoveries.

This is the first opportunity for either House to debate the joint committee's report since it was published last month. I look forward to listening to the contributions of Senators on the report in general and the recommendations contained therein. I commend an important aspect of the report, namely, the inclusion therein of a detailed amount of factual material on Ireland's historical experience of offshore exploration. This information is presented in a well structured, helpful and accessible manner to the reader. There have been occasions when debate on this subject area has been premised on myth rather than facts 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 in the past four decades is important to a balanced consideration of what fiscal terms are appropriate for the country. Understanding our experience relative to that of neighbouring jurisdictions is, however, critical. It is helpful, therefore, that the reports contains considerable detail of Ireland's exploration history and some detail on neighbouring jurisdictions, in particular, Norway.

Before engaging in a discussion of the report and its recommendations, it would be useful to, first, consider the wider environment within which policy and the regulatory framework is set. While the report recognises that the principal national legislation governing exploration licensing is more than 50 years old, a broad range of more recent national and European legislation also applies to activities in the sector. Much of this legislation addresses health and safety and environmental issues and is not specific to the oil and gas exploration sector. This is of relevance to some of the recommendations and a point to which I will return.

At a general level, I can make the following observations about the report's recommendations. On initial consideration, there are recommendations that appear both sensible and desirable, while others are already covered by the existing licensing conditions and regulatory regime. Some recommendations need to be explored further, including several which have wider public policy implications, while there are others in respect of which I have strong reservations and remain to be convinced that they offer the right way to proceed.

I will address the recommendations in the context of the four general themes I have outlined. The report proposes that there be a clear and transparent fiscal and licensing regime which provides certainty for the State and the industry alike. It goes on to recommend that the 1960 Petroleum and Other Minerals Development Act be reviewed and that changes not be made retrospectively to the fiscal licensing terms. It also stresses the need for a clear strategy governing Ireland's approach to petroleum exploration, pointing to the merit in such a strategy having an input in other initiatives such as the public consultation on the "Our Ocean Wealth" document.

The 1960 Act is important in setting out the high level exploration licensing regime and the rights conferred by the various authorisations. In the period since it was enacted a broad body of legislation at national and European Union level has also been enacted which is of direct relevance to petroleum exploration and production activities. This includes planning, safety and environmental legislation and against that background, my Department commenced a review of the 1960 Act earlier this year, which is ongoing.

I agree with the joint committee that it is important to have a licensing regime that communicates both stability and certainty to industry. This is especially true in circumstances in which Ireland is competing with other countries to attract exploration investment in the case of an industry where the nature of the business requires the taking of a long-term view. For this reason, I welcome the recommendation of the committee that no retrospective change should be made to the licensing terms.

Ireland has a very clear strategy in this sector, key elements of which are to seek to maximise the benefits to the people of Ireland from its indigenous natural resources, to provide opportunities and encourage private industry to take the risk associated with investing in exploration, to take initiatives to deepen knowledge of the potential of its offshore, in particular through supporting key research projects and to seek to have a robust regulatory regime in place to ensure that activities are carried out in a safe manner that does not harm the environment. In the future, it will be necessary to keep our strategy under review to ensure it remains fit for purpose in what is a constantly changing environment. As today is the first debate on what is a substantial and detailed report, I do not propose to dwell in detail on each individual recommendation. I will, however, comment briefly on the recommendations relating to the maximisation of production from a commercial field, the principle of unitisation and the issue of flaring of gas. If I am clear in my understanding of what the committee had in mind with each of these recommendations, then these issues already are addressed to a considerable degree by the existing licensing terms, together with the Department's own industry-specific rules and procedures.

I wish to discuss the recommendations relating to public consultation and "community gain". The statutory obligations requiring public consultation in the case of petroleum-related projects are very detailed and extensive. I do not know whether the recommendation is a statement recognising the value of public consultation and advocating continuance of the status quo or a suggestion that adequate public consultation is not already provided for. While I appreciate the latter might be perceived as being the case by some who made submissions to the joint committee, the reality is that all major infrastructure consent processes involve a public consultation phase, generally including an oral hearing. These requirements are not industry-specific and the obligations result 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. The "community gain" concept is interesting. As a concept it is clearly not industry-specific. It also is complex, as communities are not homogenous and as a result what some may consider a gain, others may consider a loss. An Bord Pleanála, in granting planning consents under the Planning and Development (Strategic Infrastructure) Act, has included specific "community gain" conditions in some cases. The question of introducing such a provision on a statutory basis is a far broader question and would of course have implications well beyond the subject matter of this report.

I will turn to the recommendation in the report that has generated the greatest level of interest since its publication, that is, the recommendation for an almost doubling of the existing tax rate applying to petroleum production. As I already acknowledged, the report includes a good deal of useful historical information in respect of Ireland's experience of offshore exploration. While the report recognises that "Ireland's petroleum potential is largely unproven", it does not address how this situation should be remedied in the future. The changes in the tax regime proposed are not of a minor or modest nature. What is proposed is a fundamental re-positioning of Ireland's tax terms, bringing its tax on profits from petroleum production to a similar level as that of the United Kingdom and, in the case of very profitable fields, imposing a higher tax level in Ireland than that which applies in Norway. Norway, Members will recall, is the country to which some people advocate the Government should hand over the running of this industry. The proposal is that this new tax regime would apply in the case of discoveries made under exploration licences granted in the future.

The report sets out four main reasons for proposing these tax changes, namely, 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, namely, high oil prices and new technologies, do not give Ireland any comparative advantage. They do not make investing in exploration in the Irish offshore more attractive relative to investing in the North Sea or elsewhere. I should add that advances in technology in the exploration sector, like most other sectors, tends 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, as drilling levels in the Irish offshore remain very low. Incremental advances in technology 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 indeed an exclusive advantage. It is also an advantage that is enjoyed by our neighbours, Norway and the United Kingdom, which have better prospectivity that has been demonstrated through decades of successful exploration.

The final factor that would appear to underpin the report's tax recommendation is the positive news from recent drilling off the Cork coast. While the drilling results are encouraging, further work is required to establish whether this discovery can be declared to be commercial. If this discovery is declared to be commercial, that could be expected to have a positive impact in attracting more exploration investment to the region. However, the potential impact should not be overestimated and needs to be put in context. It would be positive as a new commercial discovery and Ireland's first commercial oil discovery. It would, however, also only be Ireland's first commercial discovery in well over a decade, with the last commercial discovery, the Corrib gas field, not yet in production. While it would be positive news, it would not by itself make Ireland 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 one must deal in realities. The reality is that the Irish offshore is underexplored and its petroleum potential is largely unproven, particularly when compared with other petroleum regions such as Norway and the United Kingdom. The statistics on exploration drilling and on producing fields 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 United Kingdom has in excess of 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 requirements.

In my view, Ireland's focus should be on how to encourage an increase in the level of exploration investment and exploration drilling in particular. This is what is needed if we are to establish the true petroleum potential of the Irish offshore.

It is important to recall that the principal factor driving exploration investment decisions by industry 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 is the key. Last year we had one exploration well and this year there may be none. That is the backdrop against which we are having this debate. We have to recognise that Ireland is competing with countries such as Norway and the United Kingdom to attract mobile international exploration investment and cannot set its tax terms in isolation or we risk discouraging potential investment.

I thank the joint committee for its detailed report and look forward to hearing the views of the Members of the Seanad.