Paul Murphy (Dublin South West, Socialist Party)
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249. To ask the Minister for Communications, Energy and Natural Resources the anticipated additional revenue that his Department estimates will arise from the introduction of the petroleum production tax, as outlined in the Finance Bill 2015; and if he will make a statement on the matter. [38878/15]

Joe McHugh (Donegal North East, Fine Gael)
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Following on the Dáil Éireann debate on 9 July 2013 on the May 2012 Report of the Joint Oireachtas Committee on Communications, Natural Resources and Agriculture on Offshore Oil and Gas Exploration, international sectoral experts Wood Mackenzie, were engaged to advise on the appropriateness of Ireland's oil and gas fiscal terms. In undertaking their review Wood Mackenzie sought to take account of the need to strike the necessary balance between attracting the high-risk exploration investment needed to prove the potential of the Irish Offshore and maximising the return to the State from Ireland’s natural resources. Wood Mackenzie furnished their Final Report at end May 2014.

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.

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 and implemented by way of the Finance Bill 2015.

The Bill introduces a new tax called the Petroleum Production Tax (PPT) which will apply in the case of petroleum authorisations first awarded after 18 June 2014 and replaces the Profit Resource Rent Tax introduced in the Finance Act 2008 in respect of such authorisations.

The PPT will apply on a field by field basis, calculated on a field’s net income at a rate that is determined by reference to the profit ratio of the oil or gas field having regard to cumulative gross field revenues and field costs.

The legislation provides that:

- The PPT will be payable in addition to the existing 25% rate of corporation tax that applies to the profits from oil and gas production;

- The PPT payments will be deductible for the purposes of calculating the amount of corporation tax due;

- The operation of the PPT regime will result in a maximum marginal tax take on a producing field (combining the corporation tax and petroleum production tax) of 55%;

- Once a field starts producing oil or gas, a minimum PPT payment of 5% will be payable in each year of production on the gross revenue (net of transportation costs) of a field;

- The ultimate PPT amount due on each field will be determined on a sliding scale depending on the profitability of the field.

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.

Whilst we hope for more commercial discoveries, there is little point in speculating about potential revenues from commercial oil or gas fields that have yet to be discovered.