Irish government announces new round of licensing for oil & gas exploration under new licensing terms

Details will be published in the EU Official Journal in September. Companies wishing to explore this area will also be subject to the new licensing terms. The new licensing terms include a profit resource rent tax. This new tax will be in addition to the 25% corporate tax rate currently employed.

It will operate on a graded basis of profitability as follows: an additional 15% tax in respect of fields where the profit ratio exceeds 4.5; an additional 10% where the profit ratio is between 3.0 and 4.5; an additional 5% where the profit ratio is between 1.5 and 3.0; no change where the profit ratio is less than 1.5; On our most profitable fields, therefore, the return to the State will increase from 25% to 40%.

The Government has taken this decision in light of a detailed review of licensing terms carried out by the Department of Communications, Energy and Natural Resources and the report by economic consultants Indecon in the area. Outlining the details of the changes Minister Ryan said, “The basis for this decision was to ensure a greater return to the State from our own natural resources, while maintaining the incentive for companies to explore off our shores. I believe these changes achieve this balance. I wish to pay tribute to my predecessor Minister Noel Dempsey for beginning this review process, to thank the officials within my Department for directing the research and Indecon for their work. This is clearly a case of collective concerted action on the basis of expert advice, ultimately agreed across Government. It is best practice in policy-making.”

The previous terms were introduced in 1992 with the aim of encouraging petroleum exploration in Ireland. However, this did not eventualize with only 23 exploration wells drilled in Ireland since that time. Notwithstanding this fact, Minister Ryan said that he is optimistic that greater exploration investment will take place under these new terms. He explained, “The difference now is in prospectivity, price and profitability.

The data available to us now and seismic technology necessary for prospecting have vastly improved in the intervening 15 years. Energy prices continue to rise. Both of these factors are leading to greater profits in the industry. Fewer prospective areas are open for exploration internationally, making Ireland’s unexplored basins more attractive. The Atlantic area is seriously under-explored. Departmental analysis of this area estimated risked reserves in the order of 10 billion barrels in the Atlantic area alone.”

The Minister also announced that he will be making changes to the non-fiscal licensing terms as well. These include: reducing the overall length of certain licenses; requiring licensees to surrender acreage earlier; increasing all fees in line with the Consumer Price Index and reducing the confidentiality period relating to data acquired by licensees and furnished to the Department. All changes will apply to exploration licenses awarded after 1 January 2007, effective immediately.

Minister Ryan believes, “These changes in the non-fiscal regime will encourage efficient and timely exploration. All changes, both fiscal and non-fiscal, alter the way Ireland deals with oil and gas exploration companies. They bring us into line with other comparable countries. Successful exploration will contribute greatly to securing Ireland’s energy supply into the future. Ireland’s oil and gas is a resource of the people.

The Government acts as caretakers/owners of these resources on their behalf. It has a duty to ensure appropriate return and to ensure that they are adequately and properly explored. Overall, I feel these changes represent a licensing regime that is in the greatest public good”. (oilvoice.com)