Taxing issues for offshore oil firms
Published 16/03/2014 | 02:30
Madam – Eddie Hobbs in his article on offshore exploration (Sunday Independent, March 2, 2014), questions Ireland abolishing royalties in 1987. The fact is that royalties are a very inefficient way of taxing high-risk offshore projects. For that reason, they were abandoned by the UK in 1982 and by Norway in 1985. Ireland followed suit in 1987, as did the Netherlands and Denmark.
We should also ask, if the changes to the Irish licensing regime in the Eighties were so undesirable, why no minister has made any significant move to reverse them over the past 30 years? Could it be that successive governments took the position that the terms were appropriate, based on the low level of exploration offshore Ireland for the past 25 years?
He also says "the official government estimate of the value of Irish oil and gas underneath territorial waters at current pricing is about a trillion euro". There has never, to my knowledge, been an "official government estimate of the value of Irish oil and gas" such as he suggests. What he may be referring to is that, some years ago, the Department of Communications, Energy and Natural Resources stated that the "potential, yet-to-find" reserves for the Irish offshore was 10 billion barrels of oil equivalent.
Mr Hobbs describes Ireland as having an "extraordinary cost write-off regime". But all countries allow cost write-off in one form or another. Norway, frequently cited as the example to follow, allows write-off of 130 per cent of the capital costs of offshore projects – much more generous than Ireland's 100 per cent. Also Norway refunds 78 per cent of the cost of dry wells. If we had had the full Norwegian fiscal regime last year, our Government would now be forking out around $134m to ExxonMobil and its partners for the disappointing Dunquin well.
If the Irish fiscal package is so favourable to the industry, where is the queue for licences? A recent licensing round in the UK attracted 350 applications. Our most recent round attracted 13, and was considered a great success, since the previous rounds had attracted just two applications.
Over the past 25 years, on average, fewer that two exploration wells a year have been drilled offshore Ireland. All of the licences awarded in 1995 and 1997 have been handed back to the Government.
Fergus Cahill, Chairman,
Irish Offshore Operators Association