I thank the Chairman and members for inviting us to make our presentation. The Department of Communications, Energy and Natural Resources, estimates a total reserve potential in the order of 10 billion barrels of oil equivalent beneath the seabed off the west coast of Ireland.
On the basis of geological studies, seismic surveys and drilling results, these estimated reserves divide approximately into 6.5 billion barrels of oil and 20 trillion cu. ft of gas. This quantity of estimated reserves, if found and exploited, would be sufficient to meet Ireland's demand for hydrocarbons for over 100 years, based on current usage.
SIPTU is not presenting this oil and gas potential as a panacea for the country's economic difficulties. We are not advancing the proposition that there is a vast pot of gold out there in the deep which can solve our problems overnight. However, we do suggest that the estimates provided by the Department require us to consider carefully how to best optimise these potential oil and gas reserves. It also assesses the potential employment benefits from oil and gas exploration and production, and related services, and reviews the experience of the industry in this country over recent decades.
Over the years significant changes have been made to the licensing terms introduced by former Labour Party Minister, Justin Keating, in 1975, which allowed for a 50% State holding, royalties and a 50% tax on profits accruing from an oil or gas find and development. In 1987, royalties and State participation were abolished and in 1992 the corporate tax rate was reduced from 50% to 25%. The tax rate of 25% applies on profits from oil and gas production although since the introduction of the profit resource rent tax, PRRT, in 2007 this can rise to 40% on very large fields. In Ireland tax can be written off against the costs of exploration, development and close-down of any field.
As a consequence, the State's current approach to the management of its resources means that Ireland has one of the lowest returns from its oil and gas resources anywhere in the world as acknowledged by the Government's own commissioned reports. According to an Indecon report commissioned by the then named Department of Communications, Marine and Natural Resources in 2007 the "current fiscal system ... yields among the lowest government take in the world". This remains the case even with the introduction of the profit resource rent tax in that year.
We also examined a 2007 report by the US Government Accountability Office which studied 142 fiscal systems and confirmed that Ireland had the second lowest rate of government take of all the countries studied. Of these 142 fiscal systems, only 34 resulted in a government take of less than 50%. In 60 of these fiscal systems rates of government take are over 70%.
According to another report by the Independent Petroleum Association of America, in 2008 more than half of the governments with hydrocarbon production worldwide use production sharing contracts unlike the licensing system in Ireland which is a concessionary system. This study served to emphasise how countries with higher rates of government take utilised production sharing contracts or service agreements, ensuring that alongside higher returns, the Government retained control and ownership of its hydrocarbons with additional benefits through local employment, service provision and supply of goods.
We recommended in June that it would have been preferable to delay the issuing of the 13 exploration licensing options awarded in the Atlantic margin licensing round in mid-October or any other exploration licences until this committee had completed its review of the licensing and fiscal arrangements. However, the Department decided to press ahead.
As new technologies allowing for the exploitation of previously inaccessible reserves emerge, and the rising cost of oil and gas makes investment in exploration and production more economically viable, we still believe that this review of the Irish licensing terms is timely.
Consideration should be given to a change in the licensing terms which might include the imposition of royalties, State equity stakes and increased taxes. We believe we should examine alternative models for the development of oil and gas resources and the growing global trend towards increasing direct State involvement in the exploitation and production of hydrocarbons. We should examine the potential for economic development, job creation, skills enhancement and training in an advanced oil and gas industry and seek information and advice from countries that have successfully managed and grown their hydrocarbon production. We should also investigate the impact of oil and gas production on climate change. Any new terms must reconsider the licensing terms offer of a first refusal to companies with exploration licenses for petroleum leases to develop potentially productive oil and gas fields as this would appear to bind the Irish State into fixed contract terms without it having prior knowledge of the value of the reserves in the relevant field. It is important that any significant finds that are developed to production are landed in Ireland and contribute to the revival of the onshore servicing and supply industry as well as other potential educational, skills development, including at third level and professional level, and job creation initiatives, particularly in coastal towns with harbour facilities.
In regard to onshore exploration, the review must examine the real concerns over the potential damage to human health and the environment arising from the use of hydraulic fracturing, or fracking, in the extraction of natural gas from shale and seek to ensure that a safe, alternative process for the development of these known resources is deployed. In this regard, we welcome the recent decision by the Government to review the safety of the extraction process proposed by those seeking to develop these onshore resources before any such work commences. In the light of the 2010 oil spill disaster at a BP facility in the Gulf of Mexico it is also essential that a review takes place of the regulatory and supervisory powers of the State in regard to oil exploration and production, particularly in the more hostile offshore territories of the Atlantic margin.
The Oireachtas review should consider the establishment of a body which would involve industry stakeholders, including the oil and gas companies, trade unions, Government nominees, environmental and community representatives in order to improve communications between the various interests and ensure that the maximum potential for Ireland is derived from all aspects of hydrocarbon development. I have exhausted my ten minutes but I do not know if the Chairman wishes to invite other members of the delegation to comment.