Eddie Hobbs: Wake up, Ireland: multinationals are set to give us very little for our own oil
A new book highlights the State's reckless policy on Ireland's natural resources, writes Eddie Hobbs
Published 02/03/2014 | 02:30
'GODDAMMIT we're being misinformed, misled and exploited – all over again.' Words to that effect summed up my own moment of epiphany in the autumn of 2012. The thought that Ireland, whose undersea territory extends nearly half way across the North Atlantic, nearly eight times our land territory, was set up to be exploited for its economic rent – the excess value over and above normal profits – seemed impossible to swallow. We are, after all, a first world country, part of the EU and not some third world dictatorship.
I'd assumed that the occasional grumbling about our offshore oil and gas potential was generated by a dolly mixture of extremists, lefties and planet-before-people types who grasped little about economics, business and risk-taking. It was uninformed. It was wrong. It was arrogant. It was also part of the learned helplessness in the ether here when it comes to matters of the people versus the State. Challenged to read deeply into the subject, I now see industry and government PR for what it is; a legacy of betrayal, callowness and servitude where the owners of the endowment are indoctrinated, by their trustee, with the idea that they're getting a great favour afforded to them – that anyone arriving into Dublin on a corporate jet prepared to sink money into holes offshore should be rewarded with the most generous giveaway pricing model in the world.
There is nothing out there, we are told, just like the Norwegians – whose half a trillion sovereign wealth fund is approaching three times Ireland's national debt – were first told about the shoulder of rock than runs from Northern Europe across the Atlantic to Newfoundland. Meanwhile, stock market analysts, shareholders and the oil majors are being told the complete opposite. The truth is that Ireland doesn't have a strategy, no set of guiding principles from which everything else is grounded, merely a pricing policy that allows Irish assets to be exploited for a handful of coloured beans.
Tomorrow, Own Our Oil – the Fight for Ireland's Economic Freedom, is being launched, a book and national briefing campaign, grounded in a compilation of essays from a team of multi-disciplined writers. It challenges the industry-captive groupthink which passes for Irish government policy, on every level, taking input from senior barristers, legal experts, and experts on environment, taxation, industry, geology and strategy. This bookends the old debate dominated by industry and establishment one-liners and challenges it with fresh thinking, deeper insights and the truth – from a panel of volunteer writers.
Own Our Oil is dedicated to the memory of Justin Keating (January 7, 1930 – December 31, 2009), veterinary surgeon, government minister, broadcaster, writer and humanist. His daughter, Eilis Quinlan, co-writes the chapter on how to change our current porous pricing model by tightening tax rules. Her father drove through changes in Irish policy that mimicked the Norwegians' courageous pivot in 1972 in the face of severe pressure from Big Oil.
Minister Keating (March 1973 – July 1977) positioned the Irish people to retain their economic rents from offshore drilling. His intervention, which combined royalties off top-line revenues, production sharing on every barrel and cubic metre of gas for the Irish people and taxation on profits, was dismantled by Ray Burke in 1987. Burke, who was subsequently to serve a jail sentence for tax offences and betrayal of trust, engaged with industry unaccompanied by civil servants and erased royalties and production sharing and allowed an extraordinary cost write-off regime. In 1992, Bertie Ahern, as Finance Minister, halved the headline rate of corporation tax to 25 per cent.
The result is that Irish oil can be extracted, shipped into tankers and sold on the international markets – to be bought back at international prices by its owners, the Irish people. It would be better left in the ground. In his last interview the year before he died, available on Ownouroil.ie, Justin Keating finished, "Make big mistakes with natural resources and that's it – there is no rehearsal and there is no second choice – it's gone. . .I would like to add this thought about the future; if we waste this resource, it will be a crime against Irish people. We are in danger of doing it". Indeed – Justin Keating validating Own Our Oil, from his grave.
The official government estimate of the value of Irish oil and gas underneath territorial waters at current pricing is about a trillion euro. Globally the recovery rate for sovereigns ranges between 70 and 80 per cent, still leaving private explorers' annual profit growth ranging from 20 to 30 per cent. Existing Irish licences, which cover about 6 per cent, the sweet spots, of Ireland's 660,000 sq km offshore territory, when run through an international model, provide for annual profits, calculated annualised returns, at 46 per cent per annum for the life of the field over several decades. That means doubling money every 1.7 years – for shareholders.
Despite what you may have believed, we are positioned to get nothing or next to nothing, as global oil multinationals, to whom oil minnows will flip licences, drive a horse and coaches through Burke's taxation model, compressing the return, at best, into low single digits.
Government policy isn't just callow, unambitious and lacking savvy, it's reckless. Writing in the book, Norwegian economic expert Helge Ryggvik warns not to give away too much in the first round, and to take time to set up a legal framework flexible enough for the State to tighten rules when conditions change. He warns that strategic agreements and decisions made in the early phase have decisive implications.
Everything flowed from the Norwegians' decision on the cusp of the '73 oil crisis to first establish a set of principles. Ireland has none.
These pinciples are: a qualitatively better society, a slow rate of extraction, a goal to become independent in oil and gas supply, State governance and control, petroleum to be brought ashore, the development of a domestic service industry, ownership and control of distribution and the establishment of an operational oil exploration company – Statoil.
There is a separation between the owners of our offshore natural resource endowment, the people, and our trustee, the State, and it's time for a new set of rules of engagement. The Own Our Oil move, bypassing direct engagement with the State, preferring instead to fully inform the owners through local briefings by volunteer advocates, has a simple objective that rejects the notion that this is an issue for experts only; to invite everyone to understand what is happening, what is at stake and what they can do about it, certain in the knowledge that the Irish establishment will follow a shift in public opinion.
Do read this book, and however you react to it, at least you'll be better informed, more curious and above all, no longer neutral. A condensed e-version will be available free at ownouroil.ie from St Patrick's Day. You may think, as I did, that you don't count, but you do matter – when the herd stands together, the lion lies down hungry.