State may benefit from €500m tax windfall
THE news that Providence Resources' oil prospect off the coast of Cork could hold between one billion and 1.6 billion barrels of oil creates a potential €500m annual windfall for the government, but one it will have to wait years for.
Yesterday's announcement confirmed how much oil is "in place". How much oil is "recoverable" will be significantly lower.
In the North Sea, the rule of thumb is around 38pc of the oil in place can be recovered. The most recent estimate on recoverable reserves for Barryroe is based on a 16pc ratio.
An updated estimate is being prepared and company chief executive Tony O'Reilly Jnr expects the recoverable reserves to be somewhere between 30pc and 40pc eventually.
Even at lowest estimates, however, the government can reasonably expect to take in as much as €500m a year in taxes.
By general consensus, oil companies have to spend about $30 for every barrel of oil it produces.
At current oil prices of close to $100, that means Providence would be making about $70 profit per barrel.
The current tax regime calls for oil firms to pay 25pc in basic corporation tax on profits gained here, and that can rise to 40pc if certain benchmarks are hit.
In addition, the local economy could look forward to a mini-windfall if Barryroe comes on stream as workers arrive and infrastructure is built up to service the field.