Peadar Tóibín (Meath West, Sinn Fein)
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256. To ask the Minister for Communications, Energy and Natural Resources the revenue that would be raised for the Exchequer by extending the findings of the Wood Mackenzie report, which the Government plans to apply to new licences issued, for example, for exploration and resource drilling. [25262/15]

Alex White (Dublin South, Labour)
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In March 2014 international sectoral experts Wood Mackenzie were engaged to provide independent expert advice on the "fitness-for-purpose" of Ireland's fiscal terms, such advice to focus on what level of fiscal gain is achievable for the State and its citizens and, equally important, on the mechanisms best suited to produce such a gain. Having received and considered Wood Mackenzie’s comprehensive and detailed report the Government agreed that Ireland's oil and gas fiscal terms should be revised along the lines recommended. The principal recommendations made by Wood Mackenzie were as follows:

- For now Ireland should maintain a concession system, with industry rather than the State bearing the risk associated with investing in exploration;

- Going forward a form of production profit tax should continue to apply in Ireland, but for discoveries made under future licences the form of this tax should be revised;

- The tax should be charged on a field-by-field basis with the rate varying according to the profitability of the field and charged on each field’s net profits;

- That the revised tax should include a minimum payment at a rate of 5% which would function like a royalty and would result in the State receiving a share of revenue in every year that a field is selling production;

- That the revised tax rates should be higher than the Profit Resource Rent Tax currently in place, thereby ensuring a higher share for the State from the most profitable fields. This would result in a maximum rate of 55% applying in the case of new licences, compared with a maximum rate of 40% under the current fiscal regime;

- That the corporation tax rate applying to petroleum production should remain at 25%; and

- there should be no retroactive change to the fiscal terms applying to existing authorisations.

The recommendation that there should be no retroactive change in respect of existing licences is consistent with both Government policy and the view of the former Joint Oireachtas Committee on Communications, Natural Resources and Agriculture, as expressed in their May 2012 report on Offshore Oil and Gas Exploration.

For future prospective licence holders a clear regime is being set out and the rationale for that regime has been explained. This should further engender industry confidence in the stability and predictability of Ireland’s oil and gas fiscal terms and allow the industry to focus on effective and timely exploration effort.

There have been four commercial natural gas discoveries since exploration began offshore Ireland in the early 1970s, namely the Kinsale, Ballycotton and Seven Heads (Kinsale area) producing gas fields off the coast of Cork fields and the Corrib gas field off the coast of Mayo. There have been no commercial discoveries of oil to date.

In terms of the direct financial contribution to the State, profits from the three Kinsale area gas fields are taxed at a rate of 25%. In addition royalties from the Kinsale and Ballycotton gas fields are payable to the State at a rate of 12.5% of the fair market value of the gas at the well head. The combination of tax, royalties and rental fees currently provides for a State take of 40% of net income from these two fields. Royalties are not payable on production from the Seven Heads Gas field or from future production from the Corrib gas field as Ireland moved away from a royalty based payments system to a tax based system in 1987. Profits from the Corrib gas field will be taxed at 25% when the field goes into production, which is expected in 2015.

The rate of tax that will apply to profits arising from any future commercial discoveries made under an exploration licence granted to December 2006 will be 25%. The rate of tax that will apply to profits arising from any future commercial discoveries made under an exploration licence or licensing option granted from January 2007 to May 2014 will be between 25% and 40% depending on the profitability of the field.

The operation of the taxation system and the receipt of taxation are matters for the Revenue Commissioners. As a consequence I am not in a position to provide the Deputy with the current position as regards tax paid or due to the Exchequer in respect of the Kinsale, Ballycotton and Seven Heads (Kinsale area) fields, nor to provide estimates of how such a position might alter under hypothetical increased tax rates.

In the case of existing exploration licences where exploration is ongoing, while we hope for more commercial discoveries, there is little point in speculating about potential revenues from oil or gas fields that have yet to be discovered.