asked the Minister for Energy the level of drilling of exploration wells in Irish waters in 1987 to 1989, inclusive, which he regards as representing a satisfactory level in the wake of his recently announced offshore terms.
18.
Ceisteanna—Questions. Oral Answers. - Oil and Gas Exploration.
13.
asked the Minister for Energy the reason further major concessions have been granted to companies involved in oil and gas exploration in Irish waters; the reason he has decided to abolish the requirement for royalty payments; his views on whether royalty payments are necessary to ensure an adequate return for the Irish people; and if he will make a statement on the matter.
27.
asked the Minister for Energy the estimated financial yield to the State from a commercial discovery of 50 million barrels of oil in the Irish offshore, as a result of the terms anounced by him on 30 September last; and if he will make a statement on the matter.
44.
asked the Minister for Energy if, in addition to the oil and gas licensing terms announced on 30 September 1987, the proposals, if any, he has specifically to encourage gas exploration; and if he will make a statement on the matter.
46.
asked the Minister for Energy if he will confirm that any person, company or enterprise outside his Department did not have advance notification of the terms of his announcement of 30 September last; that any person, company or enterprise was not consulted by him, or by his officials acting on his authority, as to the terms of that announcement; that he did not enter into negotiations with any person, company or enterprise over the terms of that announcement, or authorise any of his officials to do so; and if he will make a statement on the matter.
I propose to take Questions Nos. 13, 18, 27, 44 and 46 together.
The reason for revising our offshore licensing terms was that I was gravely concerned about exploration prospects. Given the continuing low price of crude oil, recent disappointing drilling results and the small number of commitment wells in the next few years, radical action was called for. Our existing licensing terms were unattractive to the exploration industry and there was the distinct possibility that our drilling programme would dwindle away to nothing over the next few years, unless we made the changes which I have announced.
I decided to abolish royalties because such a measure was essential in order to make our terms competitive with the best currently available in Europe — that is, in the UK and Spain both of which have abolished royalties in recent years. Even the Norwegians, who traditionally apply the severest terms of all have also abolished royalties. That left us with no option but to follow suit if we were to remain competitive. One must bear in mind that these other countries, unlike Ireland, are oil producers so that expenditure on exploration can be set off against tax liabilities.
While as a method of taxing developments, royalties may be attractive to the State, I am convinced that if royalties were not abolished, drilling would quickly come to an end with little hope of a discovery being made, and the collection of royalty and any other form of income from a development would become academic. I believe that the Irish people would prefer to have the prospect of an income from developments through the corporation tax system than to have no developments at all.
The yield from any particular commercial field that may be discovered will, as under any fiscal regime, vary considerably depending on the circumstances of that field. Before announcing the new terms, I had my Department carry out an analysis involving a wide range of scenarios to measure the effect on different fields at different price levels. Without going into these in detail, the results were that in broad terms the State take, for most sample fields, would be about 50 per cent before taking into account the allowances which individual companies can claim for exploration expenditures. The actual amount realised by the State in an individual case will depend heavily on such factors as world oil prices, the capital cost of developing the field, and the tax allowances available to the companies, both in terms of development costs and previous exploration costs.
While certain oil companies were informed of the new oil concessions shortly before the announcement on 30 September, I want to make it clear that there was no negotiation as to the content of these terms or as to what the companies would wish to see embodied in the terms by myself or by my officials acting on my behalf. This was in contrast with the procedure adopted in connection with the adjustments to licensing terms published in 1986 and the clarification announcement in 1985. In 1985 detailed discussions were held with a particular company before the clarification formula was finalised and the final form of the clarification took account of suggestions made by that company. In 1986 detailed discussions with certain companies took place in London regarding the contents of the proposed measures, and their reactions were taken into account in finalising these proposals.
With reference to the level of exploration which I would consider satisfactory, my intention in announcing the new terms was to encourage the drilling of sufficient wells in the Irish offshore to ensure that if there are commercial quantities of oil or gas out there, they are found as quickly as possible. However, one cannot command dramatic results instantly. Prior to the announcement, I was faced with a situation where deferment of the two obligation wells listed for 1987 was being sought on technical grounds and where there were only two firm drilling commitments for the next five years; one for 1988 and one for 1991.
There can be no guarantee that the revision will immediately produce a dramatic increase in drilling activity but, since the announcement of the new terms, in company with senior officials of my Department, I have been meeting on a systematic basis the companies with existing interests here and also, I am glad to be able to inform the House, that the terms have prompted interest on the part of potential new operators. I will be meeting these also. It is my intention as well to go to the UK and the US to promote as aggressively as I can the potential of the Irish offshore in the light of the new terms. Already, I have been able to announce a new well in the Porcupine area to be drilled in 1988 by BP and there is a strong possibility that a second well will also be drilled in that area. I am confident that the cummulative knock-on effect of these various initiatives will be very beneficial in terms of total exploration endeavours.
With regard to specific measures to encourage exploration for gas, negotiations are in progress with certain oil companies with a view to having identified gas prospects explored and in this context the potential market for additional supplies of gas in the future is being reviewed. No conclusions have yet been reached.
Will the Minister say why he did not enter into negotiations to get firm commitments from the oil companies to match these terms? Was the Minister suggesting in his reply that it would be wrong to seek in negotiations firm commitments to exploration? Does the Minister not accept that reducing our position to raising corporation tax without any firm commitments was an error?
I do not see anything wrong in that at all. I was answering the suggestion made in Question No. 46. I do not see anything wrong in the policy of negotiations with the companies that was followed by my predecessor. However, that was not the road I decided to take.
I should like to draw the Minister's attention to Question No. 27 and ask him to confirm, or deny, that the position given the abolition of royalties and taking into account the price of oil, the tax allowances which can be quite extensive under the taxation regime for exploration and the exploration costs which will have accumulated before an oil discovery of a commercial size, is that if a commercial discovery of 15 million barrels takes place the net effect will be that the State will get absolutely no return? Given those factors and the write-off that the oil companies are now entitled to claim will the Minister accept that the abolition of royalties which guaranteed a direct income to the State, and to the people who are entitled to a return from oil, has meant that that was a complete mistake?
The contrary is the position. I have outlined for the Deputy the scenario we face in regard to our competitors in Europe for scarce exploration funds. The Deputy makes the point that exploration write-offs are now allowable. They were allowable after 1986. The difference now is that development can be also included, but the question dealt with exploration. On the question of royalties, the royalty formula after 1985-86 was such that there were minimal royalties on small fields anyway at around 3 per cent. I am quite sure that the radical measures which I propose will have the desired effect of bringing forward an intensive exploration programme over the next few years. If the oil is there it is hoped that it will be discovered after 20 years of exploration.
I want to bring in Deputies Mac Giolla and Pat O'Malley who have questions tabled also on this subject.
Will the Minister not agree that he has been hopelessly outmanoeuvred by the oil companies? His announcement came after quite a long concerted campaign by the oil barons, some of whom have newspaper interests, to persuade him and the public to surrender to their demands. They were saying "The State wants money from us. We will do this work if the State takes nothing". The Minister has told them to do the job, that nothing is wanted. Those are the facts on the tax issue as well as the royalties issue. In the Porcupine Belt area very expensive exploration costs can be claimed over as many years as is wished because of the depth. In the Celtic Sea area because of the likelihood of there being quite a number of small wells rather than any one large well, a similar process can be implemented so that there will be no tax. The Minister has been out manoeuvred.
I totally reject the suggestion of being outmanoeuvred by the oil companies or by anybody else on this issue. The approach that the Government and I as Minister for Energy have taken is totally practicable in a situation which we have inherited of practically no drilling or exploration programme other than what I have outlined to the House. It is a nice ideological argument about the 100 per cent of take that Deputy Mac Giolla would like to see, but 100 per cent of nothing is still nothing. That is the case unless one goes and finds the oil, which is what we are trying to do and are determined to do. If there is a find, which I hope there will be, in the Porcupine Belt — and I am delighted to see BP out there in water depths which have not been attempted in the Irish scenario before — I hope it will be a substantial find. If that is over 100 million barrels, the State take is at 60 per cent, taking account of the write-off for exploration and development.
Sixty per cent of nothing is still nothing.
My question has to do more specifically with gas exploration and what the Minister might have in mind to encourage it. The market for gas is filled at the moment in the sense that at the present rate of off-take from the Kinsale Head gas field it would appear that the market is catered for for about the next ten years. What are the Minister's views on opening up an export market for natural gas? That would be a stimulus towards giving the oil companies an opportunity to go out and determine whether gas reserves exist. Further, would the Minister favour the construction of an inter-connector into the UK gas grid? Has he carried out any cost benefit studies in that regard? Would he address that matter generally?
Regarding the suggestion that the full potential of the Irish market is the amount to which we are tied under the present contract level in Kinsale, there is potential for quite a considerable amount more there. The amount, however, is arguable. As part of our development of markets, we are extending the pipeline to Drogheda and Dundalk and taking in the horticultural area of the north county, to try to create a bigger market for gas. I recognise that one of the drawbacks in exploration for gas is the question of off-take. With that in mind I have been examining other possibilities, other industries that could take extra gas, the ESB for example. I established a group in my Department with an outside chairman to review the question of the future of this whole energy question of gas. On the question of an inter-connector, I have discussed this matter with my opposite number in Britain, the Secretary of State, Cecil Parkinson. There has been correspondence on this which is ongoing and I am hoping for a solution shortly.
Does the Minister propose to take any action in connection with the vast number of licences held by a large block under Marathon Corporation, which area has not been explored for over 15 years? Does the Minister propose to take any action on that count?
I share the Deputy's concern about the lack of exploration in this block, as this is prime territory for exploration. I have had a number of meetings with Marathon Corporation to discuss their future activities with the intention of securing their agreement to an exploration programme in the area. These discussions are going on. I am awaiting a response from Marathon at this stage and shall inform the House.
First, has the Minister any plans to restrict the write-off under free depreciation by companies which might use the tax losses of other companies? Secondly, in relation to gas, has he considered declaring that an energy-related price would be given for gas discovered? Thirdly, do the terms now announced apply to the Marathon licences?
On the last question, Marathon is a separate deal with the State altogether. There are specific arrangements there with the State, referred to by Deputy Spring, in relation to the blocks. On the question of write-offs, that is a matter that can be teased out in the House when the legislation comes in. It is not as simple as the suggestion in the papers of one company selling their exploration costs to another and through the marketplace. That is to suggest that one company will stay and the others will give them their write-offs. I do not think it will work like that. As far as an energy-related gas price is concerned, gas pricing has been traditionally a confidential matter. It is not something which I intend to divulge in the House today.
Apart from the questions of royalties, tax, etc., has the Minister made any special arrangements with the oil companies in relation to the job creation area, with regard to the manner in which any oil discoveries will be delivered. Will they be brought to the National Petroleum Corporation and can these take it back to Milford Haven if they wish? Is there anything in relation to the benefits that might come to Waterford, or Galway, or wherever? Have any restrictions been laid down?
In the existing licensing terms it is laid down that the oil must come ashore in Ireland and that the designated areas will be laid down by the Minister unless very special circumstances arise which I could not even envisage at this stage. Let us be confident about it, when we discover oil it will be brought ashore in Ireland.
In relation to gas, can the Minister tell us if a cost benefit analysis was authorised by him and carried out in relation to the extension of the gas line to the horticultural area of north County Dublin? If a cost benefit analysis was carried out for that project, separate from the one which was carried out for the pipeline from Dublin to Dundalk, can the Minister inform the House whether it showed this to be a serious commercial proposition?
The extension of the pipeline originally envisaged by my predecessor took a line from Finglas through Ashbourne continuing northward avoiding the populated areas of Santry, Swords, Malahide, Rush, Lusk, Skerries, and Balbriggan. In line with Government policy to encourage the development of the horticultural industry the Government decided that the pipeline, rather than going through virgin country, would be redirected to service the horticultural area and the industries, such as the chemical industry, of north County Dublin. A cost benefit analysis is carried out on all these projects as the Deputy is aware but I have not got this one in front of me.
Can the Minister state clearly to the House that a cost benefit analysis was carried out on that part of the project which by coincidence happens to weave its way through his constitutency? Is the Minister saying to the House that a cost benefit analysis was carried out and, if so, will he make it available to Members of this House?
I will bring to the attention of the people living in the horticultural area of north County Dublin and in the towns and also those involved in industry there Deputy Spring's strong reservations on the fact that the Government's policy for the development of the horticultural industry should not be encouraged through the provision of natural gas to that area. I am sure they will be delighted to hear that.
The taxpayers of this country are entitled to know if a preliminary study was authorised by the Minister and carried out. I am saying that no study took place given the speed at which the Minister made this decision and had it passed at Cabinet level. I am asking the Minister to say in this House if the study took place and if so, if he will make it available. I am asking him this question on behalf of the taxpayers of the rest of the country, not of just one specific area which the Minister happens to represent.
The former Tánaiste would be unaware of any decision being made at any speed. That seemed to have been one of the hallmarks of the previous Administration. This Administration are going to take decisions. In looking at the proposal for a revision of the line we took into account a cost benefit analysis.
Is that going to be made available? I challenge the Minister to make it available.
Is it not a question of challenging the Minister to make it available. As the former Tánaiste will be aware, such analyses are always kept confidential within the Department of Finance and the Department undertaking the project.
I would like to say that I have given additional latitude in dealing with Question No. 13 because it has been taken with a number of other questions, particularly Questions Nos. 44 and 46 which are questions which have been nominated today for priority.