Colm’s columns

Colm Rapple

Irish Mail on Sunday May 19, 2013

There’s to be another review of our offshore oil and gas licensing terms. But don’t expect any radical conclusions. It was promised by natural resource minister Pat Rabbitte this week in a statement on an Oireachtas Committee report that recommends a significant increase in the State take from all future licences. He doesn’t accept the report’s conclusions but he obviously felt the need to promise something. It’s too little and too late.

Even if such a review did recommend some hardening of the licensing terms, which is unlikely, Mr Rabbitte and indeed the Committee are totally against making any retrospective changes. The chance would only apply to new licences and the State couldn’t expect to see an extra cent of revenue as a result of such changes for at least a decade.

It’s time, given our current financial situation, to make some retrospective changes. Licence holders should be required to land all finds in Ireland. Current licenses don’t require that. And flat-rate royalties should be levied on production. Taxable profits take too long to accumulate.

If we wanted to be generous, the up front royalty payments could be allowed as an offset against taxable profits in the future.

The Oireachtas Committee report was published a year ago and just before its publication, while the Committee was still deliberating, Mr Rabbitte rushed to issue 13 new licensing options covering the most favourable areas off the west coast.

The recipient oil companies will be able to convert those options into exploration and production licences that will be subject to the current licensing terms – terms that the Committee deemed totally inadequate – a conclusion based on very detailed research and open hearings with stakeholders and experts including the Department, the oil companies, SIPTU, the Energy Regulator, the Norwegian ambassador and a Norwegian energy minister.

Its recommendations were not particularly radical but could, if implemented double the State take from future finds. They were ignored by Mr Rabbitte.

He was asked to delay issuing the licences until the Committee had concluded its deliberations. He refused. Now, a year later, he’s going to commission an “expert” review of the terms.

But the last time a Minister promised such a review, his officials simply asked a friendly consultant who was on the Department’s payroll to tender for the job basically allowing him to set the terms of reference. He suggested that he could do a comparison based on the way oil companies looked at different prospects indicating that it would take him 10 or 12 days.

On the basis of that report our offshore terms remained unchanged for years.

A repeat performance is a distinct possibility. Mr Rabbitte claims that we need to find oil before we harden up the terms. But the fact is that we would be almost as well off leaving it in the ground as allowing the oil majors to exploit it under the present terms. We get 25% of the profits after the companies have written off all of the costs they have incurred in Irish waters over the previous 25 years.

On that basis it can be a long time before any taxable profit is declared. There is a quite believable view that a taxable profit will never be declared on the Corrib gas field.

Mr Rabbitte claims that the emphasis must be on encouraging exploration activity and that the licensing terms must reflect our low success rate. Instead of issuing new licences he’d be better employed forcing the oil companies to make some decisions on the 13 offshore discoveries that are currently under assessment. A carrot and stick approach could force the license holders to either declare them commercial and develop them or relinquish their rights.

Colm Rapple
Irish Mail on Sunday, May 13, 2012

It’s official. The terms at which we give away rights to potential offshore oil and gas reserves are far too generous. That was the unanimous conclusion of an Oireachtas committee that included 12 TDs and senators from Government parties and nine from the opposition. They want far tougher terms applied to all new licences. By implication, they fault minister Pat Rabbitte for rushing to issue offshore option rights last year covering the most favourable areas off the west coast.

The recipient oil companies can convert those options into exploration and production licences that will be subject to the current licensing terms – terms deemed wholly inadequate by the Oireachtas Committee, confirming the long-held view of many commentators.

It bases that view on the historical trend in energy prices, the potential for further rises given the political instability in many oil producing countries and advances in exploration and extraction technology. None of those have changed since last year.

Minister Rabbitte was asked to delay issuing the options until the Committee had concluded its deliberations. He refused, showing scant regard for democracy or the rights of elected representatives to influence government policy. He preferred to take a Stalinist approach, accepting the advice of his department officials rather than wait for a committee of TDs and senators to study the issues involved, examine submissions from interested groups and come up with recommendations.

Had he waited, he would now have the benefit of the Committee’s views and, if he accepted them, the terms applying to the options would greatly enhance the potential tax revenue derived from any find.  It would range from 60% more from the very smallest finds to twice as much from the largest finds.

Under the current regime the tax rate ranges from 25% to 40% depending on the profitability of the find. It’s made up of a basic 25% plus a Profit Resource Rent Tax (PRRT) of up to 15%. Under the Committee’s proposals the 25% basic tax would remain unchanged but the PRRT would be applied at rates of between 15% and 55% raising the total tax to between 40% and 80% depending on profitability.

The difference between the existing terms and those recommended is potentially massive given the very large sums involved.   On the basis of the Department’s own estimates there could be €540 billion worth of oil and gas under the seabed off the west coast. If even a tenth of that is under the areas covered by the exploration options, the potential tax revenue could run into tens of billions.

The proposed tax regime would yield twice as much as the existing one so that differences could run into tens of billions too. It’s a lot of money, potentially lost because Pat Rabbitte issued offshore licence options on the basis of the existing terms rather than on the terms now being recommended by the Oireachtas Committee.

Why the unholy rush?

The Committee chaired by Fine Gael TD Andrew Doyle wasn’t exactly top heavy with firebrands. In addition to the chairman there were seven other Fine Gael representatives including the vice-chairman. There were four members of the Minister’s own party, Labour, and four members of Fianna Fail. There were two members of Sinn Féin, and three independents.

There was never any fear of it reaching particularly radical conclusions. Yet Pat Rabbitte couldn’t wait for it to report. Its conclusions are based on very detailed research and open hearings with the whole gambit of stakeholders and experts. They included the Department, representative of the oil companies, SIPTU, The Energy Regulator, the Norwegian ambassador and a Norwegian energy minister.

Its conclusions must be taken seriously but because of Pat Rabbitte’s impetuousness, it’s unlikely to have any impact on policy for many years. There won’t be another round of offshore licences on offer for a few years at least.

Under the licence that applies to the Corrib find, for instance, profits are subject to tax at a maximum rate of 25%. That’s the most that Shell and its partners will have to pay. Applying extra taxes in this case wouldn’t make much difference. Taxable profits will only be declared after writing off all of the partners’ exploration costs in Irish waters, the development costs and the estimated costs of closing down the wells when the field is depleted.  That will be well into the future.

Collecting a royalty on production is about the only option that would produce speedy revenue for the Exchequer and that’s what we need at this time. Unfortunately royalties have fallen out of favour internationally and were not considered in any detail by the Committee. In any case it ruled out any retrospective change to the tax rules applying to existing licences.

That may, however, be an overcautious conclusion. It admits that many countries have introduced windfall taxes but the Committee never seems to have considered this in the context of getting a bigger take from Corrib and other existing finds. Pat Rabbitte may have let the horse bolt but it could be caught again.

Colm Rapple
Irish Mail on Sunday March 4, 2012
The prospect of ever rising gas prices has greatly enhanced the value of the Corrib gas field off the Mayo coast. The latest estimate is that it will contribute some €6 billion to the country’s Gross Domestic Product (GDP) over its lifetime. Four years ago the same consultants estimated the likely contribution at €3 billion.

There might be cause for celebration if that the extra €3 billion was going to flow into the Irish economy. But very little of it will.

Most of it relates to the extra profits that will be earned by the Shell and its partners from the sale of the gas.  The cash will flow into their coffers and, just as quickly, flow out again in payments to their overseas parents.  Thanks to the generous concessions that apply to oil and gas finds, it will be many years before any tax is paid on those profits and, even then, it will only be levied at 25%.

The economy has, of course, already benefited from the Corrib project and the report from Goodbody Economic Consultants goes in some detail into the development costs and the employment created. That’s bound to have given the economy a boost although some of the spending, such as that on security and policing, have imposed very real costs on the local community that will never show up in the economic statistics. Indeed much of the developments have been downright harmful to the environment. That ongoing cost will never be valued as a negative in our national income figures.

But leaving that criticism of economic statistics aside, there is no doubt that the Corrib will continue to provide some economic benefit. But those benefits are greatly overstated when expressed in terms of gross domestic product rather than gross national product – a fact undoubtedly appreciated by Michael Crothers, managing director of Shell Ireland, who has been making great play of the €6 billion figure

In essence, GDP includes all the wealth created in the country while GNP measures the wealth accruing to Irish residents. GDP includes all of the profits earned by multinationals in Ireland. GNP takes account of the fact that most of those profits flow out of the country.

Last year about €30 billion of profits flowed out of the country. GDP was about €155 billion while GNP was about 20% lower at €125 billion. We still gain from the multinationals, of course. They employ people and buy local goods and services. Profit margins can be very high in some cases. Pharmaceutical companies, for instance, can often command high prices for drugs produced from low cost ingredients, and make large profits in Ireland having charged their R&D costs against the profits of a subsidiary in a high tax country. But some companies employ significant numbers of people.

Once the gas starts flowing the Shell consortium will be employing only 73 people while almost all of the revenue from the sale of gas will immediately leave the country. The ongoing production and distribution costs will be minimal so the bulk of the revenue will go to the partners. It will contribute nothing to the Irish economy whether it’s used to pay off debt incurred in developing the project or simply distributed as profits.

In due course some of it will be paid in tax but the gas will be flowing for many years before the Exchequer gets a cent. Shell and its partners will be allowed to take account of all of its development and capital costs before declaring any taxable profit. Most companies have to write off capital costs over eight years. So if a business pays €100,000 for a machine, only €12,500 can be taken into account as costs each year.

But Shell would be allowed to immediately write off the full €100,000 and that’s true for all of the consortium’s exploration and development costs, ongoing costs related to exploration elsewhere off the Irish coast, and even an estimated cost of shutting down the wells when all the gas has been extracted.

It’s a major concession and maybe justified by the long lead-time between initial investment and getting a flow of revenue. But the fact remains that very little of the revenue from the sale of Corrib gas will remain in Ireland for years to come. It will show up in GDP but it won’t be contributing any benefit to the economy.

The Goodbody report was commissioned and distributed by Shell updating an earlier report published four years ago. At that time a value of $0.455 a therm was put on the gas. That was increased to about twice that using an up to date ICE UK Natural Gas Futures price. It’s that change that accounts for the bulk of the increase in the value of the find. It’s an increase that will, in no way, benefit the Irish economy.

But it will boost the profits of Shell which own 45% of the find, the Norwegian state owned Statoil, which owns 36.5% and the Canadian based Vermillion Energy which owns the other 18.5%.

Colm Rapple
Irish Mail on Sunday, Sept 4, 2011

Labour minister Pat Rabbitte is doggedly going ahead with his intention to grant more offshore exploration licences on the basis of the flawed objective of encouraging more exploration activity. It’s flawed because the real aim should be to get the maximum return for the Irish people from their natural resources. Some exploration is necessary to achieve that result but maximising exploration won’t necessarily maximise the return.

The return to the State depends on the terms attaching to the licences, not on the level of exploration.

Yet during the week on Today FM Mr Rabbitte declared that his “entire approach is to generate more economic activity in terms of the exploration levels off our coast.”

That single statement epitomises the flawed rationale that has informed the policies generated within his Department and accepted seemingly without question by both Mr Rabbitte and his predecessors. Success is measured solely in terms of exploration activity.

How short-sighted can you get?

But the return that we get as owners of the resources is crucial. There is no doubt, in our current financial straits, that we could do with getting some of it as soon as possible. But Mr Rabbitte’s policy won’t achieve that objective.

The 15 applications currently being considered are for options which will run for two years giving rights to get licences at the current terms. Only at that stage do the oil companies have to enter drilling commitments. It could be another two years before a well was drilled and another three or more before a find was declared commercial and perhaps another three or more before any oil or gas flowed ashore.

At that stage a successful company would be entitled to write off all of its exploration and development costs against revenue for declaring a taxable profit. It could even write off the estimated cost of decommissioning the find and the cost of any ongoing exploration in Irish waters.  We’d be very lucky to get any revenue into the Exchequer for at least ten years from the time the options were issued. That’s possibly a conservative estimate.

The economic benefit to Ireland from any exploration activity including the drilling of wells would be minimal. Rigs are usually serviced and crewed from abroad. There might be no development benefit for Ireland either, since, under the current terms, any oil or gas found doesn’t have to be landed in Ireland. Both can be pumped into tankers and taken away. The technology has long been available for pumping oil from the sea bed into tankers and more recently the Norwegians have been exploiting Arctic gas finds in this way.

But once the options are granted, if Mr Rabbitte goes ahead with his plan, we’ve given away rights to the areas off the west-coast most likely to contain oil and gas. Éamon Ryan and Conor Lenihan sought applications for any of the remaining Atlantic areas not already licenced. The whole area has been well studied and the most prospective sub-sea structures identified.

To claim, as Mr Rabbitte has, that the areas to be given away might only cover 6% of the total ignores the fact that there is unlikely to be any recoverable oil or gas under most of the area on offer. The applicants will have cheery picked and the 6% could cover all or most of what’s out there.

There are alternatives. Let’s ignore the Atlantic margin for a while. It’s a long-term bet anyway and it’s not going to go away. Oil and gas can only rise in value. Let’s zone in first on what might be achieved in the short-term.

To achieve some short-term return for the Exchequer we could impose a windfall royalty on the output from the Corrib field when it starts to flow. It’s justified by the increase in gas prices since the find was made. Some reduction in the royalty might be negotiated if Shell and its partners belatedly adopts a more people and environmentally acceptable approach to exploiting the find.

Then let’s use a carrot and stick approach to the companies sitting on the thirteen finds already made but not yet declared commercial. There have been two oil finds and three gas finds since 2002.

The stick could be wielded by setting new deadlines for relinquishing existing licences. That would promote speedier activity than giving out licence options for the Atlantic. And as a carrot those first to get oil or gas ashore could be given first option on licences off the west coast to be granted later and at more advantageous terms for us.

It’ll be time enough to issue new licences when the massive Dunquin prospect off the west-coast has been drilled by Exxon/Mobile in 2012 or 2013. A dry well wouldn’t leave us any worse off. But a successful well would greatly enhance the value of Irish licences and what we can look for them.

Colm Rapple

A hydrocarbon prospect 120 miles off the Clare coast could, on conservative estimates, yield enough oil and gas to supply our needs for over twenty years according to a report on the Tony O’Reilly controlled Providence Resources issued to investors last month by Davy Stockbrokers. It describes what is known as the Dunquin prospect as “potentially a giant gas/oil field”.

It has yet to be drilled but on the basis of detailed seismic and other surveys, there is said to be a 50% chance of it yielding about 8.4 trillion cubic feet of gas and 300 million barrels of oil. That would make it about 5 times bigger than the Kinsale field and that could be a massive underestimation. There’s a 10% chance of it being twice that size.

Davy acts as stockbroker to Providence Resources and as such it must have access to the company’s own estimates and, of course, it might be expected to err on the side of optimism rather than pessimism.

But there are others, even more knowledgeable than Davy, who are very enthusiastic about the Dunquin prospect and are planning to back up their optimism by investing over €100 million to drill an exploratory well. It is to be drilled by 2013 at the latest.

The Government licence covering this area was initially issued in 2006 to Providence Resources in conjunction with a small Scottish company, Sosina Exploration. The prospect was so attractive that they were able to do a deal with the US oil giant Exxon Mobile under which it took an 80% stake in the licence while allowing Providence and it’s partner, Sosina Exploration, a free ride on the other 20%.

Exxon Mobile subsequently sold half it’s stake to the Italian oil giant ENI. It bought a 40% stake but will be paying 50% of the costs including the drilling of two exploratory wells. It obviously has reason to be optimistic.

This was one of the most obvious blunders made by the Government in its handling of our natural resources and much of the blame must be laid at the door of the officials who advise ministers on what to do.  Both Exxon Mobile and ENI were willing to give up a 20% free equity stake to get their hands on this licence. It went to Providence and it’s Scottish partners.  That stake could just as easily have been retained by the State.

It’s little wonder that Jack O’Connor, president of SIPTU has called for a halt to the issue of new offshore licences until the current terms and conditions have been reviewed in detail by an Oireachtas Committee. The last Government invited applications for licences covering any blocks in the remaining areas off the west coast. Fifteen applications are currently being considered and the new minister, Pat Rabbitte has defended the current licensing regime.

He has agreed with the proposal put forward by Fianna Fáil’s Éamon O Cuiv that the issues involved should be considered by an Oireachtas Committee but it is not clear if he intends postponing the issue of new licences until after that review takes place.

It seems certain that it will take place. A number of TDs on the Committee are very much in favour. They include independent, Tom Pringle of Donegal, Sinn Féin’s Martin Ferris and Éamon Ó Cuív.  But whether it will make any difference remains to be seen. It should at least promote some debate although the SIPTU report that prompted Jack O’Connor’s call got scant media attention.

It was designed to promote debate rather than outline any specific solution. It’s principal message is that the licensing terms need to be reviewed in the light of increasing energy prices, new technologies for extracting finds, and our current economic problems.

I must declare an interest in that I’m a member of the SIPTU Oil and Gas Review Group that drew up the report. The brief was to combine a summary of the facts with an outline of some alternatives to current policy in regard to natural resources, in particular oil and gas. It’s not a polemic although there is certainly room for one.

Any oil and gas deposits under the Irish continental shelf belong to the State. It can certainly be argued that, particularly in our current straitened financial position, we need private investors to help exploit whatever is there. But if we do, the government must ensure a fair and adequate return to the State.

Given the dismal failures of previous governments, it’s now time not only to impose harder, more equitable terms on any new licences but to revisit the old licence terms under which provides for only a 25% tax on declared profits after all costs have been written off.

At the very least all gas and oil produced from currently licensed areas, including the Corrib gas where ever it comes ashore, should be subject to an up-front royalty based on output not on profit.

Colm Rapple
Shell to Sea People’s Forum,
Inver, July 2, 2011
Shell to Sea has a lot to be proud of. In its ten years of existence it has achieved many successes. Most notably it has forced the would-be mandarins in government departments, regulatory authorities and local government to rethink their old “touch the forelock” attitudes to the multinational oil companies and their followers, in favour of a more citizen friendly approach.

The favourable impact is not only on Shell and its partners but also on other individuals and corporations that attempt to ride roughshod other the rights and interests of people and communities both now and in the future. Of course, there is more to be done but much has been achieved.

It is arguable that many towns in Mayo would never has been connected the natural gas grid had it not been for the Shell to Sea campaign. It wasn’t an objective of the campaign but it is one of the side-effects achieved as a result of the attempts by Shell and its official backers attempted to buy support.

Those who have benefited from Shell’s seeming largess should realise that without the Shell to Sea campaign there would have been a lot less of it.

Another very notable success of the Shell to Sea campaign has been its highlighting of the scandalous way that our natural resources are been given away. The campaign undoubtedly played a part in forcing the Government to improve the licensing terms in 2007. But they are still far too generous to the oil companies and much more needs to be done, and urgently.

Last year Conor Lenihan, then junior minister to Éamon Ryan in the Department of Communications, Energy and Natural Resources invited applications for licensing options to all of the remaining areas off the west coast. Fifteen applications had been received by the end of May and they are now being assessed in the Department.

It can be assumed that these applications cover all of the remaining potential oil and gas bearing structures in the area. If these licences are issued, there will be little left to licence in the future.

Given the rapidly changing world energy market and the spiralling cost of oil and gas, it is essential that government policy with regard to the exploitation of any hydrocarbon reserves be reassessed before any fresh licences are issued.

Following a Dáil debate on offshore licensing terms in May, the Minister for Communications, Energy and Natural Resources, Pat Rabbitte undertook to have the current terms considered by an Oireachtas Committee. This is the least that should be done before any new licences are issued. The Committee should have the widest possible brief to consider not only the changes necessary in the licensing terms but also alternatives involving a more direct State involvement.

But there is still no guarantee that new licences will not be issued before the promised review takes place or, ven if they are put on hold, that the review will be adequate in its scope. Up to now Mr Rabbitte has shown no sign of deviating from the policies pursued by his predecessors. Only two pages of the briefing document were devoted to hydrocarbon exploration including the Corrib debacle and in the Dáil debate initiated by Sinn Féin last month the Minister showed no sign of any fresh thinking on the issue.

It was very clear that the permanent government is alive and well in the Department of Communications, Energy and Natural Resources, and that Mr Rabbitte has taken his brief only too well from his department chiefs who were described during the debate as very dogmatic on the issue of our offshore resources by former minister Éamon O Cuiv.

The Department’s dogmatic view was accepted by Mr Rabbitte’s predecessors, Éamon Ryan, Conor Lenihan and before them by Fianna Fail minister Noel Dempsey and it seems that the Labour minister has succumbed within weeks of taking office. We can only hope that given time he will consider the possibility that the Department might just be wrong and that there are alternative policies that need to be considered.

That type of unquestioning attitude to the dogmatism of the bankers, the regulators and many civil servants is at the root of much of our current financial problems. Yet we seem bound to repeat our mistakes.

While later conceding An tUas O Cuiv’s suggestion that the issues should be considered by an Oireachas Committee, Mr Rabbitte gave no indication of backing down on his intention to issue fresh licences under the current terms and conditions. This is nothing short of scandalous and in no way justified by the general arguments he put forward in the Dáil.

The fifteen consortia that have applied for licences under the current round have clearly
cherry picked the best prospect. If they are granted licences, they won’t even be required to drill a well. All they’ll have to do is pay a fee of only €1,520 and buy, or carry out, some seismic exploration using boats that may never even call into an Irish port. In return they gain an option to get a full exploration licence at any time during the following two years. Such a licence would allow them to exploit any find at the current generous fiscal terms.

The Department itself, in an official document available on its web site, describes our terms as “amongst the most attractive in the world”. For many finds the State take would be no more that a 25% corporation tax charged on profits after allowance has been made for all exploration and development costs.  For very large finds the take can go up to 40% but even that’s low by international standards.

In North America the minimum Government stake according to a report prepared within Mr Lenihan’s department is 42% and it can rise above 60%.  South American governments get between 25% and 90%. The take in sub Saharan Africa ranges from 44% to 85%.

Just how generous our terms are was made clear when Tony O’Reilly’s Providence Resources got an exploration licence in 2006 and was able to do a deal with Exxon Mobile under which the US giant took 80% in return for giving Providence and it’s partner, Sosina Exploration, a free ride on the other 20%.

So Exxon Mobile was willing to give away a 20% free stake. That could have been got by the State rather than Providence.

The licence covers the Dunquin prospect that on some relatively conservative estimates could be five times as big as the Kinsale gas field.

Our very favourable licensing terms have been defended in the past on the basis that we still need to prove the potential of Irish waters to yield sizeable oil and gas finds.  Once we’ve made that big strike, it has been argued, we can then up the anti for new licences.  It might be a valid argument if we hadn’t already licensed many of the most promising areas, most of them at the previous give-away terms under which the State can get no more than a 25% profit tax irrespective of the size of the find.

There is no case at all to be made for now letting the oil companies lay claim to the most promising of the remaining areas of the Atlantic margin at the current terms.  There’ll be nothing left on which we can demand the type of return due to the Irish people for the exploitation of their natural resources.

Putting the issue of new licences on hold wouldn’t put an end to exploration. There are plenty of scope for exploration in areas already licensed.  Mr Rabbitte made great play, in his Dáil contribution, of the fact that only four discoveries off the Irish coast have been declared commercial. That’s true but 13 other discoveries are still being assessed. There have been two oil finds and three gas finds since 2002.

Davy stockbrokers in a report prepared earlier this month on Providence Resources pointed out that contrary to popular perception, oil and gas have been found offshore Ireland on numerous occasions. High oil prices and technological advances now offer an opportunity to revisit some of the earlier finds.

Security of supply was another issue raised in the Dáil debate mainly in relation to getting the Corrib gas ashore as quickly as possible. The trouble is that the pipelines bringing gas into Ireland can just as easily bring it out. Shell can sell the gas to whoever it likes and no-one has ever claimed that Bord Gais has rights under any contract.

Even if it has, it doesn’t guarantee security of supply. If gas was ever in short supply in the EU for some reason or other, we’d undoubtedly have to accept a limited supply or else we wouldn’t get any oil.

Even an oil find wouldn’t guarantee security of supply since there is no requirement in the offshore licences for companies to land product in Ireland. Providence Resources is currently examining the possibly of piping oil from some small finds off the south coast into tankers that would most likely take the oil off to a British refinery.

Departmental officials did recommend that the State should be able to demand payment in kind of the extra tax introduced to licences issued after 2007.  But that proposal was overruled by the Minister or the Government. It never found it’s way into law.

Gas found off the west coast would almost certainly be landed in Ireland but oil could go anywhere. It could be piped from sub-sea facilities into tankers for shipment to refineries anywhere in the world.

We urgently need a debate on the lines suggested by Éamon O Cuiv and a Dáil committee would be as good a place as any to hold it with Department officials having to answer for their views in public. According to the briefing document prepared for Mr Rabbitte they view the oil industry’s representative body, the IOOA, and individual companies as the key stakeholders. Some TDs might be able to remind them that the public that they represent, are the major stakeholders since they own the resources.

Colm Rapple
Irish Mail on Sunday, April 24, 2011

The permanent government is alive and well in the Department of Communications, Energy and Natural Resources. The new minister, Pat Rabbitte has taken his brief well from his department chiefs who have been described by former minister Éamon O Cuiv as very dogmatic on the issue of our offshore resources. He repeated the Department’s long standing line in the Dáil this week in response to an opposition motion calling for a reassessment of policy with regard to the exploitation of both our offshore and onshore hydrocarbon resources.

The Department’s dogmatic view was accepted by Mr Rabbitte’s predecessors, Éamon Ryan, Conor Lenihan and before them by Fianna Fail minister Noel Dempsey. Now the Labour minister has succumbed and within weeks of taking office. There hasn’t been much time to consider the possibility that the Department might just be wrong and that there are alternative policies that need to be considered.

That type of unquestioning attitude to the dogmatism of the bankers, the regulators and many civil servants is at the root of much of our current financial problems. Yet we seem bound to repeat our mistakes.

Éamon O Cuiv made one of the most balanced contributions to this week’s Dáil debate coming down neither for or against the current policy but accepting that there was room for discussion. He accused the Department of being very defensive and very dogmatic, an approach that had not helped the debate.

The issues should be considered by a Dáil committee, he suggested. In such a forum participants might be willing to have their minds changed. Too often in the Dáil, he pointed out, TDs kept to their prepared scripts and refuse to move no matter how good a case the other side put forward. If we just all read our scripts, he added, we might as well put them up on the internet and stay at home.

An tUas O Cuiv’s suggestion doesn’t seem to have been taken up and the Dáil debate was marred by the very shortcomings that he outlined. Mr Rabbitte, and his cohorts from Fine Gael and Labour, kept to the Department line and the opposition, for the most part, kept to their scripts.  It was a useful raising of the issue but to no good effect.

Mr Rabbitte is still intent on issuing licences under the new round due to close for applications next month. This is nothing short of scandalous and in no way justified by the general arguments he put forward. It may be better at this stage to leave the costly process of exploration to the private sector at this stage but there is plenty to explore without giving options over all of the remaining areas off our west coast.

That is what’s on offer in the current round. The oil companies have been asked to apply for options covering any prospective areas off the west coast that have not already been licensed. The options will give rights to get licences on the current terms within two years. The successful companies won’t even be required to drill a well but simply buy or carry out some seismic exploration using boats that may never even call into an Irish port. The notion held by some of Mr Rabbitte’s colleagues that there are jobs in this is nothing short of a joke.

It’s not as if there isn’t plenty still to explore without licensing new areas. Mr Rabbitte made great play of the fact that only four discoveries off the Irish coast have been declared commercial. That’s true but 13 other discoveries are still being assessed. There have been two oil finds and three gas finds since 2002. The initial briefing document prepared by the Department for Mr Rabbitte didn’t mention these finds but the details were released to the Dáil late last year. Hopefully Mr Rabbitte has had time to read up on the relevant Department’s files.

Only two pages of the briefing document were devoted to hydrocarbon exploration including the Corrib debacle.

Security of supply was another issue raised in the Dáil debate mainly in relation to getting the Corrib gas ashore as quickly as possible. The trouble is that the pipelines bringing gas into Ireland can just as easily bring it out. Shell can sell the gas to whoever it likes and no-one has ever claimed that Bord Gais has rights under any contract.

Even if it has done a supply deal with Shell, if gas ever was in short supply in the EU for some reason or other, we’d undoubtedly have to accept a limited supply or else we wouldn’t get any oil.

Even in the longer run, even an oil find wouldn’t guarantee security of supply. There is no requirement in the offshore licences for companies to land product in Ireland. Provident Resources is currently examining the possibly of piping oil from some small finds off the south coast into tankers that would most likely take the oil off to a British refinery.

We urgently need a debate on the lines suggested by Éamon O Cuiv and a Dáil committee would be an ideal place to hold it with Department officials having to answer for their views in public. According to the briefing document prepared for Mr Rabbitte they view the oil industry’s representative body, the IOOA, and individual companies as the key stakeholders. Some TDs might be able to remind them that the public that they represent, are the major stakeholders since they own the resources.

Colm Rapple
Irish Mail on Sunday, 20th February 2011

Exploration rights potentially worth billions of euro are to be handed out by Natural Resources Minister, Conor Lenihan, in what may well be his last official act as minister and maybe even T.D.  The only Irish company getting a licence, Lough Allen Natural Gas, has never been involved in oil or gas exploration before. It was only set up last July by Dublin based Thomas Anderson and Askeaton based Martin Lawrence Keeley. Licences are also going to an Australian company, Tamboran Resources PTY Ltd and a British based company, Enegi Oil plc that has exploration interests in Newfoundland.

Enegi’s licences covers area in Country Clare while the other two are being granted licences covering areas close to the border around Lough Allen. Full details have yet to be disclosed but reports prepared in the mid 1990s on the basis of past drillings in the Lough Allen area indicated that three sandstone reservoirs could potentially contain over 10 trillion cubic feet of gas.

Exploring onshore is relatively cheap compared with offshore exploration and development costs are almost certain to be lower although there are major difficulties in exploiting the type of shale gas likely to be found. Most of the gas has often to be left in the ground. There are also major potential environmental costs, given the need to fracture the underground shale with pressurised water to which chemicals are added.

None of these issues have been publicly discussed yet Mr Lenihan is intent on giving these licences on the same generous terms and conditions that apply to offshore licences.

It would be nice to think that his rush in announcing his offer to confer these licences comes in response of pressure from one or all of the benefiting companies who may fear that the incoming government will change the rules.

But unfortunately the great oil and gas give-away hasn’t emerged as an election issue for any of the three main parties. Even Éamon Gilmore, who cut some of his political teeth as chairman of the Galway branch of the Resources Protection Campaign, hasn’t raised it as an issue.   Neither has ex-minister Éamon Ryan who was very vocal about the Corrib find before the last election but not while he was in power. It was he who passed responsibility for natural resources to his junior minister Mr Lenihan but it was part of his department.

These latest onshore licences cover an area of over 750 square miles (1948 sq km) which is about as large as the whole of County Wicklow. A case can be made for leaving offshore exploration to the experts with deep pockets while ensuring that the State – that’s us – gets an adequate share. But onshore exploration is well within the capabilities of various semi-State and State organisations.  That way we could keep it all for ourselves.

This latest move by Mr Lenihan is scandalous but worst still is the prospect of handing out rights to the remaining prospective areas off the west coast. Last year he invited applications from the oil companies for options which would allow them first refusal on exploration licences over the remaining 250,000 square kilometres of our Atlantic shelf. That’s an area three times as large as the Irish land-mass.

The companies can cherry pick the best prospects, undertake to do, or buy, some seismic studies, pay a fee of only €1,520 and gain an option to get a full exploration licence at any time within the following two years. Such a licence would allow them to exploit any find at the current generous fiscal terms.

However the incoming government will call a halt to this scandal but there is no indication that either Fine Gael or Labour have even thought about it. But the fact is that the terms under which exploration licences are given must be reviewed.

The Department itself, in an official document available on its web site, describes our terms as “amongst the most attractive in the world”. For many finds the State take will be no more that a 25% corporation tax charged on profits after allowance has been made for all exploration and development costs.  For very large finds the take can go up to 40% but even that’s low by international standards.

In North America the minimum Government stake according to a report prepared within Mr Lenihan’s department is 42% and it can rise above 60%.  South American governments get between 25% and 90%. The take in sub Saharan Africa ranges from 44% to 85%.

Our very favourable licensing terms have been defended in the past on the basis that we still need to prove the potential of Irish waters to yield sizeable oil and gas finds.  Once we’ve made that big strike, it has been argued, we can then up the anti for new licences.  It might be a valid argument if we hadn’t already licensed many of the most promising areas, most of them at the previous give-away terms under which the State can get no more than a 25% profit tax irrespective of the size of the find.

There is no case at all to be made for now letting the oil companies lay claim to the most promising of the remaining area of the Atlantic margin at the current terms.  There’ll be nothing left on which we can demand the type of return due to the Irish people for the exploitation of their natural resources.

Let’s get some pre-election promises that this will not happen.

Colm Rapple
Irish Mail on Sunday, 20th June 2010

On a conservative estimate there could be 10 billion barrels of oil, or the equivalent in natural gas,  under the seabed off the west coast of Ireland. That’s about enough to supply all of our needs for a hundred years. But junior minister Conor Lenihan is intent on giving it away. Oil companies already have rights to some of the most promising areas off the west coast. Oil and gas have been found and not only in the Corrib field off Mayo.  Now Mr Lenihan has invited applications from the oil companies for valuable options which would allow them first refusal on exploration licences over the remaining 250,000 square kilometres of our Atlantic shelf. That’s an area three times as large as the Irish land mass.

The companies can cherry pick the best prospects, undertake to do, or buy, some seismic studies, pay a fee of only €1,520 and gain an option to get a full exploration licences at any time within the following two years. Such a licence would allow them to exploit any find at the current generous fiscal terms.

Even the Government, in an official document, describes those terms as “amongst the most attractive in the world”. For many finds the State take will be no more that a 25% corporation tax charged on profits after allowance has been made for all exploration and development costs.  For very large finds the take can go up to 40% but even that’s low by international standards.

In North America the minimum Government stake according to a report prepared within Mr Lenihan’s department is 42% and it can rise above 60%.  South American governments get between 25% and 90%. The take in sub Saharan Africa ranges from 44% to 85%.

Our very favourable licensing terms have been defended in the past on the basis that we still need to prove the potential of Irish waters to yield sizeable oil and gas finds.  Once we’ve made that big strike, it has been argued, we can then up the anti for new licences.  It might be a valid argument if we hadn’t already licensed many of the most promising areas, most of them at the previous give-away terms under which the State can get no more than a 25% profit tax irrespective of the size of the find.

There is no case at all to be made for now letting the oil companies lay claim to the most promising of the remaining area of the Atlantic margin at the current terms.  There’ll be nothing left on which we can demand the type of return due to the Irish people for the exploitation of their natural resources.

There has long been a suspicion that oil has already been found in commercial quantities off the west coast and that it suits the oil companies to underestimate the prospects while they hoover up rights to more of our hydrocarbon resources. Mr Lenihan says that his decision was reached after consultation with the industry and is designed to boost the level of exploration activity.

Applications don’t close until May next so maybe he is also hoping for some good pre-election publicity. The announcement of an oil find wouldn’t go amiss and there are a few oil finds out there that have yet to be declared commercial. They might be so declared after these proposed new licences have been issued.

There is the Dunquin find west of Kerry. The licence was issued to Tony O’Reilly’s Providence Resources but it brought in ExxonMobile in return for a free ride. The Italian ENI group also has an interest. Davys stockbrokers have conservatively estimated that it could contain  9 tillion cubic feet of gas equivalent to 1.5 billion barrels of oil. That’s about the same size as the Corrib find.

The Dooish prospect off the Donegal coast was drilled by Shell in 2008. It has been keeping quiet about the prospects but gas flowed from earlier drillings in 2001 and 2003 with a “substantial gas condensate column” confirmed.

A prospect west of Clare known as Spanish Point was first drilled in 1981 and has yielded both oil and gas flows.

Those are just some of the known prospects that have already yielded finds.  But the State take from any of them will be small and long delayed. The licences were issued when the maximum tax was 25% and it’s only charged after all of the exploration and development costs have been written off.  It will be many years after oil or gas has started flowing before a cent of tax is paid.

The terms are decidedly lax in one other important way. There is no requirement to land any find in Ireland. Departmental officials did recommend that the State should be able to demand payment in kind of the extra tax introduced to licences issued after 2007.  But that proposal was overruled by the Minister or the Government. It never found it’s way into law.

Gas found off the west coast would almost certainly be landed in Ireland but oil could go anywhere. It could be piped from sub-sea facilities into tankers for shipment to refineries anywhere in the world.

It’s time to rewrite those old licensing terms perhaps by, at least, imposing a royalty levy on all oil and gas production. Until that’s done, no new licences should be issued.

Colm Rapple
Irish Mail on Sunday, April 11, 2010

As Tony O’Reilly’s Providence Resources raised the hope of finding oil in Dublin Bay this week, green Minister Éamon Ryan is preparing to give away another large slice of our natural resources. And I mean, “giving away”.  He has done it before, but his plans are even more scandalous this time. In the past the potential oil and gas reservoirs were in deep and inhospitable waters offshore. This time they are onshore. It’s true that the prospects are not thought to be great and any finds are likely to be small but exploration costs will be very low and the same very generous licensing terms that apply offshore will apply. The finders will effectively own whatever they discover and simply pay tax on their profits after writing off all their exploration and development costs.

Ireland’s first exploratory wells were drilled onshore back in 1959. Ambassador Irish Oil that was subsequently taken over by Marathon was granted rights to large areas both off and onshore. Wells were drilled in Cavan, Clare, Kilkenny, Cork, and Meath and some minor gas shows were reported in Cavan and across the border in Fermanagh where some drilling also took place.

Some of these areas were revisited in the 1980s and wells were also drilled in Leitrim. The last exploratory wells were drilled in Leitrim and Cavan in 2001.

Now Conor Lenihan, the junior minister in Éamon Ryan’s department has invited applications for licences that will give the holders the right to explore and exploit any hydrocarbons under about 8,000 square kilometres in what are know as the North West Carboniferous and the Clare Basins. Included are large areas of Counties Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon, Sligo, Clare, Cork, Limerick and Kerry.

According to the Minister “this presents an exciting opportunity for the petroleum industry to invest in exploration onshore Ireland”.  That’s certainly true. But it would be far better if the opportunity was restricted to a State company like Bord Gais which undoubtedly has the expertise and the resources in co-operation with State agencies like the Geological Survey of Ireland to pinpoint and find any hydrocarbons that might be there.

It would require putting up some risk capital. But not a lot, and anything found wouldn’t have to be shared with the oil companies.

These new licences will be subject to the revised tax terms introduced in 2007 in response to the growing recognition that the old terms were far too generous. But in fact the old terms are likely to apply to any finds made. The new terms are not all that much onerous in any case. The only change was an additional sliding scale tax that will only hit really large and very profitable finds. Onshore finds are unlikely to fall into this category.

The terms will require the successful applicants to get their exploration work under way a lot quicker than it normally required with offshore licences. They’ll have an initial term of only two years. But with the low costs involved that should be no problem.

One of the arguments for maintaining the generous licensing terms made in the Indecon consultants’ report on which current policy is based, was that we are trying to promote a deepwater area in the Atlantic. It is pointed out that the Corrib gas field is at a depth of 300m and the Dooish gas condensate discovery is at a depth of 1,500m.

It was admitted in that report that oil companies the technology has improved significantly, and there are many examples of successfully exploited deepwater finds in the Gulf of Mexico, Brazil, and the Gulf of Guinea, among others but it was stressed that the costs are still relatively high.

That argument cannot be applied to onshore exploration. Even if the current terms were less generous than they are, it makes no sense to apply the same lax fiscal terms to such finds as apply to the offshore.  Indeed it makes no sense to apply them to the Providence Resources prospect on the Kish Bank off Dublin Bay.  The water is very shallow, sheltered and close to land.

It’s not the first time, of course, that hopes have been raised of an oil or gas find in Dublin Bay and it is still only a hope with no firm plans, as yet, to drill an exploratory well.  Four wells have already been drilled on the Kish, the first in 1977 by Amoco. Two years later, Shell thought it had identified a prospect. Than in 1986 it was the turn of Charterhouse while the latest well in 1997 was drilled by Enterprise Oil.

We know that there is coal under the Bay and that the geological structure is similar to that under Morecambe Bay, on the other side of the Irish Sea, where a gas find is being exploited. Maybe Providence will be lucky. The trouble is that, if it is, the rest of us will gain little from its luck.