Oil and Gas Fiscal System Review: Statements

Minister for Communications, Energy and Natural Resources (Deputy Pat Rabbitte)

I am pleased to have the opportunity to open this debate on the Wood Mackenzie report on Ireland’s oil and gas fiscal system. In the mid-1970s, when Ireland’s first oil and gas fiscal terms were introduced, there was an expectation that the Irish offshore would be the next North Sea, particularly after the initial success of the Kinsale gas find in 1971. Those terms were set in a manner that reflected this very optimistic view. Unfortunately, after the initial surge of exploration in the late 1970s and early 1980s, interest in the Irish offshore has waned significantly. In the 40-plus years since the Kinsale find, there have been only three further commercial gas finds and no commercial oil finds. A stark example of this reduction in interest is the fact that more exploration wells were drilled back in 1978 alone than have been drilled over the past ten years. The primary factors determining the level of exploration activity are the perceived prospectivity of the area concerned, world oil and gas prices, the applicable fiscal terms and the broader regulatory regime. Having very limited leverage over prospectivity and world oil and gas prices, governments tend to focus on the fiscal and broader regulatory regime when seeking to influence activity levels. In the last few years, we have seen sustained high world oil and gas prices and we also have witnessed a modest but welcome upswing in momentum in terms of exploration interest in the Irish offshore. It therefore was timely to review Ireland’s fiscal terms.

In May 2012, the former Oireachtas Joint Committee on Communications, Natural Resources and Agriculture, chaired by Deputy Andrew Doyle, published its report on offshore oil and gas exploration. This wide-ranging report recommended that, in the case of new exploration licences, the basic rate of tax should be increased from 25% to 40% and that the rate applying to very profitable fields might be increased from 40% to 80%. The report recognised that retrospective changes to fiscal and licensing terms could risk long-term reputational damage. In May 2013, I initiated a Dáil debate on that report and stated my intention to seek further independent expert advice on the fitness for purpose of Ireland’s fiscal terms with a focus on the level of fiscal gain achievable for the State and its citizens and, equally importantly, on the mechanisms best suited to produce such a gain. On foot of a public procurement process, Wood Mackenzie, a major international company with very significant sectoral knowledge, understanding and expertise, was engaged to provide this expert advice. The request for advice was deliberately framed in a broad manner that would allow the consultants to identify all the issues that should be considered and to have flexibility in terms of the outcomes recommended. Wood Mackenzie was provided with the Oireachtas committee’s report, the associated Oireachtas debates and a number of documents reflecting the wider public debate on Ireland’s oil and gas fiscal terms, including publications by Indecon, Pricewaterhouse Coopers, the Irish Offshore Operators Association, SIPTU, Shell to Sea and Own Our Oil. Wood Mackenzie also was requested to meet the members of the Oireachtas Joint Committee on Transport and Communications, members of the former Oireachtas Joint Committee on Communications, Natural Resources and Agriculture and a number of representatives from the oil industry, trade unions and other participants in the debate. On conclusion of its assignment on 30 May, Wood Mackenzie furnished me with a final report and, following consideration by the Government, I published the report in full on 18 June last.

In its report, Wood Mackenzie provided its analysis in what I would consider to be a comprehensive, detailed and accessible manner. I have no doubt but that this report will serve as a key reference point in terms of the factual detail it contains, the broad range of issues it discusses and the clear analysis informing its recommendations. The report first outlines a number of observations and principles, which underpin its analysis of the fitness for purpose of Ireland's oil and gas fiscal regime, as well as recommendations for change to that regime. As a starting point, it is worth noting that Wood Mackenzie makes the observation that Ireland is a relatively high-risk and high-cost country for exploration and that as a consequence, returns for commercial discoveries must be relatively high to strike the right balance. Unfortunately, at times the debate around Ireland’s fiscal terms is not grounded in this reality. Too often the discussion is confused, sometimes deliberately, by reference to potential reserves as if they were actually proven reserves. A second observation it makes is that to attract investment, Ireland must be competitive with a peer group of countries which have similar exploration profiles. While such observations have been made by others in the past, it is important to understand they are central to the analysis and recommendations that follow in this report.

The recommendations therefore are informed by a detailed comparative analysis of nine other countries which, like Ireland, have a history of exploration at relatively low levels and are countries with which Ireland can be regarded as competing for exploration investment. In addition to this peer group, the report also included Norway and the United Kingdom on the basis that, notwithstanding their very different exploration histories, these two countries are regularly referred to in the public debate that takes place in Ireland on this issue. The central conclusion of the report is that while new terms should not be retrospectively applied to existing licences, there is scope for strengthening the fiscal system to be applied to future licensing rounds in terms of providing for an increase in the overall State take, ensuring an earlier share of revenue for the State and addressing inconsistencies in the current fiscal system. The principal recommendations made by Wood Mackenzie are first, that Ireland should for the present maintain its concession system with industry rather than the State bearing the risk associated with investing in exploration. Second, a production profit tax should continue to apply but for discoveries made under future licences, the form of this tax should be revised. Third, 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. Fourth, 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. Fifth, the revised tax rate should be higher than the current profit resource rent tax, thereby ensuring a higher share for the State from the most profitable fields. Sixth, the tax should operate on a sliding-scale basis to be calculated on a producing field’s net income commencing at a rate of 10% and reaching a maximum level of 40%. Seventh, the marginal tax take on a producing field, made up of both corporation tax and the petroleum production tax, should be increased from the current 40% up to a maximum of 55% for the most profitable fields under new licences and eighth, the corporation tax rate applying to petroleum production should remain at 25%, which of course is twice the normal rate of corporation tax.

Wood Mackenzie also considered the question of capital allowances and the carry-forward of exploration losses. In the case of capital allowances, it found that Ireland’s approach, which is only replicated in the United Kingdom and South Africa, is generous but suggested it should be viewed in the context of the overall fiscal system. On the carrying forward of exploration losses, the report concluded that allowing a 25-year carry forward was neither bad practice nor likely to reduce significantly the corporation tax payable by the next field development. No change to the current system was recommended for capital allowances or exploration losses.

Having asked for advice as to how Ireland’s oil and gas fiscal regime should be revised and having received clear advice that is underpinned by extensive data and robust analysis, it is important now to give certainty to the industry.

As I indicated and as recommended in the report, I have secured Government approval for the broad parameters of a new fiscal scheme. The detailed instrument will be agreed with the Minister for Finance in advance of the finance Bill. My Department will work with the Department of Finance and Revenue Commissioners to give operational effect to this approach and the new regime will apply in the case of future exploration authorisations, including those to be awarded under the 2015 Atlantic margin licensing round, which was launched on 18 June last by my colleague, the Minister of State, Deputy Fergus O’Dowd.

By acting now and bringing closure to this matter, it is my intention to communicate an unambiguous message regarding the stability of Ireland’s fiscal regime for this sector. For existing licences, no changes are proposed, while for future prospective licence holders, a clear regime is being set out and the rationale for it has been clearly outlined. This should further engender industry confidence in the stability and predictability of Ireland’s oil and gas fiscal terms.

Bringing certainty to our fiscal regime and the other important measures taken by the Government will make Ireland a more attractive location for exploration investment. These measures include positive initiatives relating to licensing, data acquisition and the safety regulatory regime. One such measure, the 2011 Atlantic margin licensing round, resulted in a number of significant sized exploration companies entering the Irish offshore with an immediate impact in terms of exploration activity. The next licensing round was formally launched recently and I am optimistic that industry will recognise the opportunity it presents and respond positively.

I have stated on many occasions since being appointed to my current portfolio that Ireland needs to see an increase in the level of exploration activity, in particular exploration drilling, if the true petroleum potential of the Irish offshore is to be realised. I had the opportunity last Saturday to mark the launch of the Polarcus seismic survey in the Porcupine Basin, which will assimilate the technical data that will, I hope, enable us to maintain current momentum in the offshore sector.

I thank those Deputies who contributed to the report produced by the Joint Committee on Communications, Natural Resources and Agriculture, which was debated in the House and discussed with the consultants, Wood Mackenzie. I look forward to the Deputies' contributions to the debate on the Wood Mackenzie report, which I expect will be a landmark in the history of exploration for oil and gas in Ireland.

Deputy Éamon Ó Cuív

I am pleased to have an opportunity to speak in this debate. The decision by the Minister brings us to the end of a road that was embarked on at the beginning of this Dáil. It shows that if the Oireachtas functions properly, it can bring about change through analysis and debate, making recommendations and listening to Members. Now that the process has advanced, there is unlikely to much media interest in this debate. As the Minister noted, over the years there has been considerable comment, some ill-informed and some well-informed, about the fiscal terms for oil exploration.

The current journey started when Sinn Féin tabled a Private Members' motion early in this Government's term. I remember arguing in that debate that it would be pointless to have the usual discussion in which Deputies from each side speak from prepared scripts and no one listens to anyone else. I advocated instead referring the matter to an Oireachtas committee to examine the issue calmly, listen to the various points of view and make detailed recommendations. I pay tribute to Deputy Andrew Doyle who chaired the Joint Committee on Communications, Natural Resources and Agriculture which examined this issue as its first task. Deputy Doyle chaired proceedings in an open and non-partisan manner and did not in any way try to stifle debate. He facilitated, in particular, an engagement with the Norwegian Ministry of Petroleum and Energy which gave members a very good insight into the realities of Norway's policy on exploration. Given that reports on that issue were sometimes inaccurate, the advice offered by the Ministry and the facts that emerged proved very interesting. For example, we learned that Norway's high tax rates were introduced after the Ekofisk field was found. It is also interesting to note that the Norwegians strongly recommended against changing terms retrospectively. We also learned that Norway uses some of its tax revenue from offshore exploration to pay companies to explore for oil. Under the Irish regime, companies pay the full cost of exploration, which can be up to €100 million for one drill. Norway, in contrast, offers rebates to companies involved in drilling.

The joint committee's report, which made 11 concrete recommendations, has acted as a spur to review the licensing terms. I recall during the debate on the report in the Chamber that the Minister blew hot and slightly cold on it, first following the official line that the terms in place at that time were good and it would not be possible to attract more companies to engage in exploration, before promising to have the matter re-examined, as he subsequently did through the Wood Mackenzie report. I welcomed the undertaking he gave at the time as a good and sensible approach.

In general, I welcome the changes the Minister has made. During the terms of this Government and its predecessor, we will have moved from a position in which corporation tax on profits from offshore exploration were 25% to one in which a maximum tax rate of 55% will apply to substantial finds. I favour the idea of a graded tax, as did report produced by the joint committee in which we proposed three tax rates of 40%, 60% and 80%. The Minister, in proposing a sliding scale ranging from 30% to 55%, has accepted the principle advocated by all members of the joint committee, from Fianna Fáil, Fine Gael, Sinn Féin, the Labour Party and the Independent member, that the tax rate applied should reflect the profitability of the find. I welcome the Minister's response in this regard.

A number of interesting facts emerged when we were doing our analysis. I submitted a parliamentary question asking how much of the seabed was subject to licence, in other words, to what proportion of the seabed did the old terms apply should a company strike lucky. The answer I received indicated that 4.4% of the continental shelf is currently licensed, which means more than 95% of the seabed is not subject to licence.

Only 9.8% of the geologically significant areas for hydrocarbons, that is, the places where one would be likely to find a hydrocarbon, is licensed and the Minister would still have 90% left if one managed to strike gold by finding an Ecofisk out there where it is only a relatively simple matter to encourage exploration companies to find the rest of it. Therefore, the idea that all is given away has been grossly exaggerated.

Unfortunately, our record of finds in recent years has not been great. On the other hand, there is always the possibility. Our understanding from the Norwegians was that when they found Ecofisk they were nearly on the point of giving up. Their licensing regime stated they had to go slightly deeper than the exploration company had gone at the time. It was that extra depth that found the field and if they had not forced them to comply fully with the licence, although I presume they would have found it eventually, they might not have found it as fast. What we must have, and what we are now building into the system, is a contingency that if one strikes rich veins of hydrocarbons, the State will benefit.

I presume there will be a debate as to whether we should have gone even higher and included the provision that one could get a marginal tax rate of 80% if one found very large deposits. It is a significant achievement that we have moved, from the 25% rate to the 55% marginal rate, depending on the size of the field, by a good process.

Deputy Pat Rabbitte

The 5% upfront is an important provision.

Deputy Éamon Ó Cuív

I welcome that. The Minister has done a good job. I welcome his willingness to take on board the report, and not let it gather dust, because it proves, if we work together, if we follow a process and if we do the tedious work, we can get results.

One point fascinated me because of all the talk over all of the years about decisions. At the committee, I asked one of the officials had any government gone against official advice on the low terms. There had been Deputies from various parties, including from Deputy Rabbitte's party, previously as Ministers for energy and they had gone along with these terms. The official confirmed it occurred once only. I could see all the ears pricking of the few members who were present that day. Then he went on to say that it was during the term of the previous Government, the Government in which I sat. When we adopted the 40% marginal rate, which was recommended by the then Minister, Mr. Eamon Ryan, the civil and public service were opposed to the decision, as I am sure Deputy Rabbitte has found out since. We went for the higher rate. I was proud that we were the only ones who had gone against the advice and that we had done so by changing the rate to a higher figure than they had recommended but it would now appear that we did not go high enough and the Minister's report by Wood Mackenzie states that we could have gone another step. I hope that would put some of the allegations that have been made to bed because my experience over a long period in dealing with the officials is that they took a very conservative view. In my view, they recommended rates much too low. The idea that these rates were not recommended officially was put to bed in the work of the committee.

There are other issues in the report worthy of examination. One of the issues was recommendation No. 11, the setting up of a forum of all of the stakeholders to be there on a continuous basis. I believe that if the Minister wants to get buy-in and get people to accept that the way we are doing our work is open, we need much more transparency and involvement to ensure that the stakeholders, including, for example, unions and workers, are much more involved.

The second issue is public consultation and community gain. When the history of the development of the Corrib gas line is reviewed, it will show that there was quite a defensive non-interactive process involved. By consultation, I do not mean the advertisement in the newspaper and the following consultation process where it is only when things begin to happen that ordinary people become fully aware and get involved in the system.

I hold strong views on the recommendation on community gain because there are many major infrastructural developments taking place that are needed for the national good but where often the host community is not the direct beneficiary or might not even benefit significantly. For example, to my knowledge, there is no plan to make the gas available to the people of Erris, even into the town of Belmullet. It is important that we have a statutory system, not by the grace and favour of the exploration companies, and where in major developments such as this there would be a requirement to provide some of the money for both infrastructural and social development in the host community. If that was done, it would add considerably to the acceptance of such developments in the future.

There was another recommendation that the Norwegians made that I found interesting. They liked to give the licences to consortia rather than to individual exploration companies. The reason for that was they believed that if they did it that way, there would be a much greater certainty of the data being made fully and properly available to the state because the same data that would go to the different partners would be the data that would go to the state. It would be unlikely that they would cheat on the partners and in not being able to cheat on the partners, they would be in a position of much greater certainty that the state would be fully aware of all of the seismic data. The Department will argue that it gets all of this information anyway. They argued that when I was a Minister, and we had endless arguments with them. It is interesting, when one reads the report that the committee produced, that it reflects on what the Norwegian authorities told the committee, that they are not as sure as the Department, they are aware of these possibilities and they ensure that they narrow the angle on the information deficit.

In general, this is an important step forward. I hope some of the drilling taking place is successful, that we manage to land more oil and gas, and in the not too distant future this island will become energy independent rather than being a major net importer of both oil and gas.

Deputy Michael Colreavy

Reports are reports, whether they come from an Oireachtas committee or from Wood Mackenzie, but let us look at what is happening in this country at present.

The gas from the Corrib field is expected to start flowing next year or in 2016. Do we know how much income the State will receive once the operation is in full production? Do we know how much it will cost the State in facilitating the company to bring that gas ashore? Do we know how many permanent jobs there will be for Irish workers once the gas is flowing? Do we know how much profit the company will make from the field once it is in full operation?

After the allowable write-offs, do we know how many years it will take before Irish taxpayers seen any financial return from our national resource? Do we know how many years it will take for Ireland to recoup its expenditure on this project? I suggest the answer to these six questions is that we do not know.

Ireland’s oil and gas terms have been the subject of much controversy over the years. Some people feel that while the country is broke, there is a lot of change at the back of the couch in the form of our oil and gas reserves. While this might not be entirely true, it is fair to say this State has not exploited its natural resources to a level where the public and the public coffers see a significant return. This has been the result of poor policy decisions in this area for many years, coupled with the State allowing private industry to call the shots while shirking its own responsibility.

The Government may not have a comprehensive strategy on maximising the return from our natural energy resources but the companies certainly do. In the absence of a detailed, comprehensive strategy outlining the State’s vision and plan for our natural resources, the companies simply run rings around us. In fairness to the Minister, Deputy Rabbitte, he has initiated the development of a Green Paper and policy for natural resources and renewable energy. I hope that my endorsement and that of Deputy Ó Cuív do not damage the Minister’s political prospects but it needs to be said he has recognised the need for a good, detailed comprehensive strategy for Irish natural resources. He is to be commended on that but the work needs to be expedited.

There is a common misconception among the public that Ireland needs its low oil and gas taxation take in order to promote exploration and develop our oil and gas industry. Successive Irish Governments and the oil industry lobby have propagated this myth for many years. The successful oil and gas lobby, with the help of the Independent News & Media group, have spun the myth that Ireland’s current system of taxation is the best deal there is in the exploration of our natural resources. The line which this lobby group spins is that the more oil and gas that is extracted from Irish waters, the more jobs there will be for Ireland. This lobby also claims that the current system of oil and gas exploration off the Irish coast will ensure energy security for Ireland and the State will not be so reliant on imported fossil fuels. Oil and gas company PR spokespersons also subtly imply that Irish homes will have access to cheap fuel if oil and gas companies are allowed to proceed under the current rules. This is not true; it is a myth.

Ireland’s offshore oil and gas reserves have the long-term potential to be a significant source of revenue for the economy. According to a 2006 report carried out by the Department of Communications, Energy and Natural Resources, there are approximately 10 billion barrels of oil equivalent off our western coast, composed of 6.5 billion barrels of oil and 20 trillion cu. ft. of gas. At current oil prices, this would be valued at approximately €540 billion. We should stop apologising or explaining the technical difficulties in gaining access to that oil or gas. While it is true that the actual amount of oil and gas brought ashore has been small, those reserves exist. At present, there is very little gas and no oil being extracted from Irish waters, but we have the potential to do so.

Companies that discover oil or gas in Irish territory are not obliged to supply these resources to the Irish market. Not only that, our licensing terms are so weighted in the industry’s favour that they do not require the companies to bring a single drop of our oil or gas ashore in Ireland. Ireland’s licensing terms do not award the country with fuel security. When the Government awards oil and gas companies with a licence, ownership and control of Irish oil and gas is transferred to that company. It other words, it is abdicating. Under the current licensing terms, the Government cannot guarantee that the oil and gas will be sold to the Irish market, that the oil and gas will be landed in Ireland or that the companies will use Irish workers. Irish consumers must pay the full international price for oil and gas found off Ireland’s coast. In a period when the world is nearing peak oil production, it is important that Ireland secures its fuel supply.

By international standards, Ireland's licensing terms are extremely generous to oil and gas companies. A report carried out in 2007 by the US Government Accountability Office studied the licensing terms of 142 fiscal systems. The report found that Ireland has the second lowest government take of all the countries studied. In the United States, there is a minimum government take of 42%, and in Norway, the government take amounts to 75%.

As new technologies emerge and develop, along with the rising price of oil and gas, reserves that were previously dismissed are now becoming commercially viable. However, at present companies are entitled to rely on their own data in assessing commerciality. The current system governing the control of Ireland's oil and gas reserves cannot be allowed to continue.

Under the 1992 and 2007 licensing terms, a 25% tax on the net profits of oil and gas is applicable. However, oil and gas companies can write off 100% of costs against tax, including costs incurred up to 25 years before field production begins and including the cost of any unsuccessful wells drilled anywhere in Irish waters in that 25-year period. Under the 2007 licensing terms, a profit resource rent tax, PRRT, was introduced. PRRT is payable on a profit ratio calculated by the cumulative after-tax profits on the specific field divided by the cumulative level of capital investment on the specific field. Oil and gas companies may be subject to pay PRRT on after-tax profits of between 5% and 15%. This means that an oil and gas company may pay up 40% tax on its profits. However, in reality only the largest of oil and gas exploration fields would pay the higher tax, and small and medium-sized fields would pay little or no PRRT.

The changes to the fiscal regime announced recently by the Minister are welcome in some respects. They show that those who protested against Ireland’s poor tax terms on offshore oil and gas have been proven correct. However, the changes announced will not have a major impact. The 5% royalty on finds is welcome but it could hardly be described as a burden on the oil and gas industry. The increase in the maximum rate of PRRT falls far short of what the report produced by the Oireachtas Committee on Communications, Natural Resources and Agriculture proposed in 2012.

The report of the Joint Committee on Communications, Natural Resources and Agriculture, entitled Offshore Oil and Gas Exploration and published in May 2012, outlined a number of recommendations. While it stated that retrospective changes to fiscal and licensing terms can risk long-term reputational damage, it also agreed that "future agreements can reflect policy changes necessitated by significant changes in the policy context and circumstances, for example a large increase in the number of commercially viable finds or the size of fields".

The report went on to state:

the Joint Committee believes that the overall tax take should, in the case of future licenses, be increased to a minimum of 40%. The PRRT should increase from existing levels according to a sliding scale based on the rate of profit (i.e. to give an overall tax take of 40% for small commercial discoveries, 60% for medium commercial discoveries and 80% for very large discoveries).

I intended to outline the recommendations made in the report but I probably do not have time to do so. It is clear that the issue of our offshore oil and gas has not gone away. Our oil and gas reserves may not be the quick fix to our economic woes that we would wish them to be but that is not how we should view them. Instead, we should view our natural resources as part of a long-term project aimed at a securing financial return for the State and developing an energy policy for this nation.

I will conclude by speaking about an energy project that we should not be considering regardless of the fiscal system put in place. I refer to hydraulic fracturing, or fracking. We all know that pressure is growing from vested interests who want to push fracking onto the unwilling people of Ireland, most immediately in the west and north west of the island. Ministers in both jurisdictions are telling us not to worry or get alarmed because nothing will be done until the EPA publishes a report indicating whether fracking can be carried out safely. They say they will agree to nothing until they are sure the technology is safe.

The demand to introduce fracking came from a company or companies with a vested interest in getting as much money as possible for the shareholders. There was no public or political conversation. The request to submit tenders for exploratory licences was issued in the dark of night by temporary Ministers in both jurisdictions just days or weeks before they faced the electorate. The matter stinks to high heavens. The Minister, Deputy Rabbitte, argues that fracking can be a game changer if it can be done safely and that it would be foolish not to carry out research to prove whether it can be safe. I advise the Minister, however, that some things are so self-evidently bad for this and future generations that they should not be considered by the EPA, the Government or anyone else.

I challenge anyone to look at the beautiful unspoilt scenery of counties Leitrim and Fermanagh and argue that the few years of shale gas supply which may be available can be extracted without destroying our landscape. I challenge anyone to say that tourists would continue to visit the deserted industrial wasteland that would be left behind once the frackers have taken our gas and money, and ran. I challenge the EPA to justify how an area so susceptible to water contamination that a man cannot build a family home with a domestic septic tank could be considered suitable for fracking. I challenge anyone to convince me that agriculture and property values would not be destroyed in this area if we permit fracking. Irrespective of the illusory promises of jobs, revenue for the State and increased energy security and regardless of the bribes paid, the companies putting this forward will not and cannot enforce the conditions set or the promises made. Their sole role is to get planning permission, sell it on, take the money and run. We cannot inflict this on future generations of Irish people.

Deputy Richard Boyd Barrett

In so far as there has been any movement on this issue, credit has to go to the people of north County Mayo, the Shell to Sea campaign and the many other campaigners around the country who supported their battle and sought to expose the scandal of what has happened in north county Mayo, Shell's treatment of the people of that area and the scandalous giveaway tax and licensing terms established by Ray Burke, Bertie Ahern and Frank Fahey. One only has to mention these names to understand why our tax and licensing regime gave away our offshore gas and oil reserves. The Minister, Deputy Rabbitte, has repeatedly stated that our reserves are unproven but the estimates that have been produced by oil companies through geological and seismic studies, as well as actual finds, indicate potentially substantial reserves. There are gas and oil reserves off our shores and at some point they will be exploited. When people justify the very low tax regime that applies and the system of concessions that gives exclusive rights to private oil companies to develop fields and take ownership of the oil and gas produced, they say that our resources are unproven or not commercial. What is deemed commercial will vary over time but we know that oil and gas prices are going to increase. Oil companies, like developers of land, sit on finds until they deem the time is optimal to exploit them and profit from them.

How much information is available to the Minister and the Department about what has happened in respect of drilling and the capping of wells by oil companies? The companies know what is going on down there but I doubt that we know. People who worked on these drilling operations have told me these companies are a law unto themselves and nobody is representing the State in finding out what is going on. As I previously noted, Statoil took away a full tanker of oil from its Connemara field. The Minister acknowledged this but none the less he repeatedly claims there is no proven reserve at that field.

The Government has been forced into addressing this issue because of people's protests. While some improvements have been made, major problems remain. Norway established a state oil company that was involved in the process at every hand's turn and, even before the discovery of Ecofisk, declared sovereignty over its resources and decided to ensure that its citizens got the maximum benefit from them. Sometimes we will have to do deals with international oil companies because we do not have the expertise or money for the initial investment.

The problem is the regime still being proposed is one where they have all the control and get allowances and tax deductions. That means despite having headline or nominal rates, the companies can write off large amounts of losses and costs in different ways so the effective tax take would be minimal and almost unquantifiable. On examining our corporate tax regime generally, one would be very worried.

There has been a marginal improvement but it falls way short of what it should be. We need a State oil and gas company and it should be involved in the development and production of these resources. Under no circumstances should the fields be given away to private oil companies.

Deputy Clare Daly

What is going on is best summed up by Wood MacKenzie in its undoubtedly expensive report, paid for by us, which states that the recommended system will greatly improve the "perception" of the fiscal terms. It is largely the perception rather than the reality which is being addressed. Mr. Terence Conway from Shell to Sea summed it up accurately when he stated:

As could be expected from a company so closely linked with the oil industry, the Wood Mackenzie report still recommends continuing to give the oil companies control over and the vast majority of the profits from whatever oil and gas is found. The State will still take no share in production and will have no control over what happens to our oil and gas, whether it is landed in Ireland or supplied to the Irish market.

That really is the essence, as although the report has 11 recommendations, some were just put in to fill a bit of space because they are already in place. There is a critical absence as the proposed changes are not retrospective. The best areas for which licences have already been awarded will continue to be subjected to the very same terms which have been so clearly exposed in the eyes of citizens, thanks largely to the work of campaigners like Shell to Sea. These terms have resulted in a €100 billion giveaway of oil and gas resources, with appalling treachery carried out by Mr. Ray Burke when he abolished royalties and reduced returns, as well as Mr. Bertie Ahern afterwards when he reduced the tax rate for the profits made from the sale of resources to 25%. As other Deputies note, companies have been allowed to write off 100% of costs before they have to declare any profits to be taxed at the paltry rates.

In 2008, a fiscal study of 45 international companies indicated that Ireland had the lowest returns at half the rate of the US and UK and less than a third of Norway. This arrangement will not change this result as the natural resources owned by the people of this country were given away by Fianna Fáil to be bought back by citizens at ever increasing prices determined by the market. The flaw in the proposal is that it is utterly reliant on private companies to deliver, which is short-sighted and will inevitably lead to the Irish people being the losers. Even if exploration was facilitated and led to a trickle of returns, it will not transform the economy. This is our gas and oil and it is a bitter irony that the Norwegian people, through the state oil company, Statoil, will benefit from our gas resources more than any Irish person. It is regrettable that there is no vision from the Government on this issue.

Why not cut out the middle man? We agree that a State-owned oil company would not have the resources to explore the potential but why not link directly with another state oil company, such as that owned by the Norwegian Government? If that company can be approached directly we could see what exploration methods could bring benefits. What about other countries with control over their own oil resources? The Russian oil company, for example, has demonstrated some innovative techniques so why not approach it and see what expertise we could develop? We should cut out the middle men or the multinationals and examine some of the benefits delivered by the Venezuelan Government taking more control over its oil resources. That is being used to make a real difference in the lives of ordinary people. What is being proposed with this report is that a few extra crumbs will be handed over in lieu of our resources. In that sense we are considering the matter very much the wrong way around.

Parts of this country have communities under siege, where an Garda Síochána has been turned over to essentially become private security agents of a multinational company to keep people intimidated in their homes. Communities are divided with a bitter legacy and for what? Irish people will gain practically nothing from the Corrib experience other than that bitter legacy. Considering the potential that could have been realised, it is a wasted opportunity, and I am sad to say this arrangement will not alter the issue in any significant way. I absolutely echo the points made by Deputy Colreavy about learning lessons and ensuring that there will be no fracking on these shores.

Deputy Ruth Coppinger

The estimated potential of our oil and gas reserves should be outlined and examined further. It is estimated that €420 billion of reserves have been discovered recently under the Irish Sea but there has been a lack of exploration of late. In his speech the Minister mentioned that of the 158 exploration areas and wells drilled offshore, two thirds were done in the 1970s and 1980s, so there has been very little attention paid by the Irish Government to the potential in this sector.

Previous Deputies have outlined how Fianna Fáil handed over our reserves so I was not surprised to hear Deputy Ó Cuív welcoming this; that demonstrates how minimal the effort has been. In the past Fianna Fáil ensured that the wealth which could be derived by the Irish people from these resources would not be realised. A former Taoiseach, Charles Haughey, did a deal with multinational companies before Ray Burke and Bertie Ahern compounded this, leaving us with scandals like that in Rossport, where the State through the Garda is spending large amounts to protect a private company that is profiting from our natural resources.

Today, the Minister, Deputy Rabbitte, has indicated there will still be exclusive reliance on a tax on profits as a means of getting any money from our natural resources. We have all seen how creative multinationals are with accountancy practices, so in effect we may get nothing from the corporation tax rate referred to by the Minister. We have seen how Apple has paid no tax whatever on profits in Ireland and Starbucks has paid €35,000 since 2007. We may well see absolutely the same behaviour from these oil companies.

Oil companies are being given full control over the vast majority of the profits made through exploration. The State is opting to take no share in the production process, with no control over what happens to our oil and gas, whether it is landed here or supplied to the Irish market. There has been no comment from the Minister about a national oil company and the potential to establish same, although it is mentioned in the report. The Government has not even referred to the idea of production sharing, for example, where royalties would be held by the Government as an option. It is feasible for Ireland to set up a State company to explore our natural resources in the same manner as how electricity was supplied to the nation by a public company in the 1930s.

Deputy Pat Rabbitte

We do not have the money. At €100 million per-----

Deputy Ruth Coppinger

The Minister was not even here when I spoke before so he should allow me to finish. There is a neoliberal mantra which the Minister seems to have adopted which dismisses out of hand any State interest in such endeavours. The report mentions Newfoundland and Labrador, as well as other areas where this has been done. The State could develop expertise in this area if it put the work in, although it would take a certain amount of time. A national oil and exploration company owned and controlled by the public is the only way to guarantee that resources are used to benefit the common good.

Energy prices could be kept low because that is a serious issue for old people and for working class people who are suffering under the cosh of austerity, and the least environmentally damaging practices could be explored in a democratic way.

Fracking has been mentioned and should be rejected out of hand. It represents a short-term gain for the companies involved and lasting damage to our environment and our reputation as a clean food-producing nation, and will destroy rural areas. This is in nobody's interest but that of the companies. We can all see the potential for companies to write off corporation tax as they do in other areas. It is very disappointing that the State has opted once again to take no interest in, or control of, production in this sector.

Deputy Bernard J. Durkan

I am glad to have an opportunity to speak on this important report. Wood Mackenzie is well placed to produce an authoritative report. It has the experience and a broad range of resources to call upon which are an advantage in commenting on a subject that is imperative for the future development of this country. Energy is the gold of the future. In the context of climate change restrictions on conventional energy sources, including oil and gas, will become a feature of life. I have absolutely no ideological hang-ups about it one way or the other. I have been around long enough to be able to look back at the progress of oil and gas exploration in this country in the 1970s and 1980s, its success and lack of success, and the need to ensure that there were adequate and ongoing incentives to encourage exploration. I do not accept the notion that we have huge resources and the Government or some Minister is preventing their exploitation for the benefit of the Irish people. A comparison with Norway is not fair. The success rate for drills there is 1:8 compared to 1:40 here. As a result there is more international interest in exploring in Norway and much greater success. People will want to go where the odds are better. Grateful as we are for the success of Kinsale Gas and other fields, we have not been overburdened with success.

We should not say in this House that companies or multinational corporations do not pay tax on their profits in this country. That is not true. All profits generated in this jurisdiction are subject to corporation tax. We do ourselves immense damage internationally by suggesting, and adding to the criticism from outside, that this is a tax haven. That is not true.

Deputy Ruth Coppinger

It is perfectly true.

Deputy Bernard J. Durkan

I recognise people's ideological positions. We are, however, speaking to a worldwide audience about matters that have a huge impact on our development and on employment now and in the future. We should always be careful to ensure that the message we put out has a sound basis.

I was a member of an Oireachtas committee between 2002 and 2007 that published a report on oil and gas exploration. We went into it the subject in considerable detail. The question was why do we not have a national corporation that will dig deep, using modern technology, to avail of the resources for the benefit of the Irish people. That would have been a great idea but it costs €100 million every time one sinks the drill into the sea or the ground. It would be a good idea if we could borrow those resources from international banks. Unfortunately, we live in a very competitive world and the people who specialise in that sort of exploration are very selective.

We did have a giveaway policy for a couple of years but the level of exploration was not sufficient to indicate that we have massive untapped resources. Oil workers might say there are huge resources that the oil companies are keeping from us. If we have resources and the oil companies have found them they would be well advised to bring them up very quickly because soon oil will be a thing of the past. Our environment is changing and the fossil fuels that we use will become very difficult to handle in the future. We have plenty of information about that.

Climate change is a major international focus. The G8 and other large economic or political groups have to think of what will prevail in the future and how that will affect our environment. If unquantified resources are being kept from us my advice to the oil exploration companies would be to bring them ashore fairly quickly. We need to do something about them while we can still use those resources because the time is fast approaching when we will not.

I have been here long enough-----

Deputy Colm Keaveney

Too long.

Deputy Timmy Dooley

Too long.

Deputy Bernard J. Durkan

-----to remember the history of the Corrib gas field. If we spend 15 or 20 years exploring, drilling and bringing our product ashore our reputation abroad will suffer dramatically because nobody wants to be associated with that kind of long drawn out hassle. I agree that all national requirements must be complied with, such as licensing and planning permission. The best practices should prevail at all times. We must be sure to go through all the necessary procedures. We cannot go on moaning about this forever because if we want oil and gas we must bring it ashore. If we do not do that somebody else will. We had better recognise that. International investors will always look at our record, which shows very little progress and a very long time to achieve it.

I agree that the Exchequer and the people need to benefit from any finds on or off our shore. I have pursued that objective for years in this House, as have many Ministers, and will continue to do so. It is important to do the best thing for the economy. I do not have time to go into detail, but suffice to say that we do not know much about the full potential of our reserves but 12 times the world's known resources in terms of reserves of coal and potential for coal and gas exist immediately off the coast of Norway. That is several times this country's potential.

That is why the success rate in Norway is much greater. The potential for successful oil speculation is much greater in Norway because of the law of averages. If one is going to have a success rate of one in eight, one in seven or one in five in one country, it is obviously a much better bet than a country where there is a success rate of one in 40. There is a massive difference in the costs associated with this activity in either jurisdiction. It is good to have this useful and authoritative report on hand. We need to use it in the best way possible to develop this country's oil and gas industry for the benefit of the people. We should spend less time moaning about what might have been. If we want to get full employment across the length and breadth of this country, we need to ensure we have a good energy policy that makes adequate energy resources available to all the population.

Dáil Éireann díospóireacht -
Thursday, 3 Jul 2014