Tuesday, 5 April 2011
Department of Communications, Energy and Natural Resources
Question 44: To ask the Minister for Communications, Energy and Natural Resources his plans to review the system of licensing for oil and gas exploration, development and production on Irish territory and waters, with a view to ensuring greater benefits for the State from the development of these natural resources; and if he will make a statement on the matter. [6458/11]
As I outlined in my reply to Priority Questions number 24 and 25 today, while Ireland has recognised potential as a petroleum producing area, the Irish offshore is relatively underexplored. As a result Ireland's petroleum potential is largely unproven. This is likely to continue to be the case, until there is an increase in the level of exploration activity offshore Ireland and there is an increase in the level of exploration drilling in particular.
Ireland competes with other countries, both in Europe and much further afield, to attract mobile international exploration investment to Ireland. To that end, it is important that Ireland maintains a licensing regime that appropriately reflects both the risks and rewards of investing in petroleum exploration in the Irish offshore, relative to investing in exploration in other jurisdictions.
In relation to periodic publicity about Ireland's oil and gas resources, recent assessments of yet-to-find potential, based on petroleum systems studies, indicate a total reserve potential in the order of 10 billion barrels of oil equivalent (oil and/or gas) for the offshore frontier basins west of Ireland. This divides roughly into 6.5 billion barrels of oil and 20 trillion cubic feet of gas. It should be understood that these figures only represent 'potential' reserves, or the reserves that might be present based on geological criteria and regional comparisons, and that they have not been discovered. Actual reserve figures are likely to vary widely from these estimates and will not be known without a dramatic increase in the level of exploration activity.
A comprehensive review of Ireland fiscal terms was carried out in 2007. This review, which was underpinned by independent economic analysis, considered the appropriateness of Ireland's licensing terms in comparison to other European countries that Ireland competes with for exploration investment. The review 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 over estimated. The outcome of that review was the introduction of a supplementary tax, known as a profit resource rent tax, of between 5% and 15% that will apply in the case of more profitable fields. The supplementary tax would be payable in addition to the standard petroleum corporate tax of 25% which is of course double the standard corporation tax rate of 12.5%. Since that review concluded in 2007 there has been no significant change in terms of the level of exploration activity and no new commercial discoveries have been made.
As I have already identified, the level of exploration activity will continue to be the critical factor in Ireland obtaining a benefit from our indigenous oil and gas resources. We need to get drilling levels above the recent levels of one or two wells per year, if more commercial discoveries are to be made. As part of an ongoing strategy to attract new companies and new investment, my Department is currently running a licensing round that is deliberately structured to attract new exploration companies to Ireland. This licensing round, which closes at the end of May, also aims to encourage companies to look at areas of the Irish offshore where little data currently exists and as a consequence, little is known of the potential prospectivity of these areas.
While I will keep the licensing terms, both fiscal and non-fiscal, under review in light of relevant future developments, at this juncture I believe that the focus should be on attracting a larger share of mobile international exploration investment to Ireland, to increase the chances of new commercial discoveries being made