Internal report confirms the potential of Irish offshore areas
Colm Rapple
Irish Mail on Sunday April 23, 2006
Despite a growing optimism that the seas off the Irish coast will yield more oil and gas finds, the Government is sticking to its policy of giving away the rights to those resources for a pittance without even a requirement that the finds be landed in Ireland. A new report just published by the Petroleum Affairs Division of Noel Dempsey’s Department of Communications, Marine and Natural Resources highlights the fact that most of the exploratory wells drilled in the Slyne/Erris/Donegal areas off the west and north coasts of Ireland have encountered oil or gas. It also indicates a high level of optimism about the future.
The expectation is that some 33 wells will be drilled in the area over the next six years and up to fifteen of those will be development wells sunk into identified oil or gas finds. Somewhere between 6 and 10 such development wells will be drilled in areas already licensed to oil companies.
So there are high hopes of success, not only in the areas already licensed but also in the areas currently the subject of applications from a number of international oil groupings including Shell and Statoil which are currently involved in exploiting the Corrib gas find off the Mayo coast.
But the report makes clear that the Government intends to maintain the present licensing and taxation terms. Under these terms the licensed companies effectively own any gas or oil they find. Apart from some minor licensing fees the only payment they have to make to the Irish state is profit tax. But taxable profits only arise after the write off of all exploration, development and operational costs including the estimated costs of eventually closing down the find when it is exhausted.
It has been estimated, for instance, that the Corrib gas field will be at least half depleted before any tax is paid and ongoing exploration by Shell and Statoil could delay that even further. The exchequer is unlikely to see a cent in tax revenue for at least ten years.
There is no requirement to land any gas or oil in Ireland. There is nothing to stop an offshore development allowing for oil to be shipped away in tankers to refineries abroad. Indeed that might well be the most economically viable option in the case of a smaller oil find particularly, at least for the oil companies involved although clearly not for the rest of us.
So we’ll get little revenue and may not even enjoy whatever extra security could come by having crude oil or gas landed in the country. One wonders at the lack of joined up thinking – the failure to reconsider the offshore licensing terms in the light of spiralling energy prices and the recent Forfás report on Ireland’s oil dependency which concluded that we are particularly vulnerable to a looming crisis in liquid energy supplies.
The current rapid rise in oil prices, it suggested, could well appear modest in comparison to the price escalations and oil shortages that could arise in the not too distant future.
Our offshore licensing terms are far too generous. If this was not already clear, it should have been made patently obvious by the fact, already reported in this column, that a few months ago the Mobile/Exxon corporation took over a licence issued only last year to Tony O’Reilly’s Providence Resources. Under the deal the US giant will pay all of the exploration costs while leaving Providence with a 20% carried interest. Providence is getting a free ride.
Presumably Mobile/Exxon would have been just as happy to give the State that 20% stake. The licensing terms clearly need to be reviewed in the light of changed circumstances, particularly the continuing spiralling rise in energy prices and the growing world-wide concern at looming oil shortages.
But while the Department has managed to review the potential environmental impact of offshore exploration in the Slyne/Erris/Donegal areas it hasn’t undertaken any meaningful review of the licensing terms since they were introduced by ministers Ray Burke and Bobby Molloy in the early 90s.
The indications of future drilling activity, potential development and the commitment to leave the licensing terms unchanged are contained in a draft environmental assessment that has just been published. It considers a wide range of topics from the likely impact of drilling noise on minke whales to the effect of oil spills on sea birds. The assessment is being carried out to comply with EU regulations and the overall conclusion so far is that the risk of a major incident is so remote and the impact of general operations so small that no licensing constraints need be applied.
Given the abject failure to review the money terms of the licenses that shouldn’t come as any surprise. A final report is expected next month and Minister Dempsey will then be able to issue another batch of licences.
There are five applications in for blocks under the present round. The areas sought cover 6 full and 10 part blocks. They stretch from due west of Galway to North West of Belmullet in Mayo – closer to shore than the Corrib find and North of Donegal. Two of the applications come from a consortium of Island Oil and Gas plc, Lundin Exploration BV and Endeavour Energy UK. There are also applications from Senica Energy (UK) Ltd, Grianan Energy Ltd and one from a consortium of Statoil Exploration (Ireland) Ltd and Shell E & P Ireland Ltd – the companies involved in the Corrib find.
The great oil and gas give-away continues. Will no-one shout stop?