Aberdeen’s oil curse

ABERDEEN, Scotland — The Aberdeen Food Bank Partnership is housed in a former fish-filleting warehouse a stone’s throw from the docks, its shelves lined with boxes of tea and porridge oats, packets of pasta and fresh fruit. In a city once known as “Europe’s oil capital,” former oil workers are now queuing for food parcels.

“One man came in with a Porsche recently. He had lost his job, his house,” says Dave Simmers, chief executive of Community Food Initiatives North East, the food bank’s parent body.

“Oil companies used to be our biggest social enterprise customers and the profit from that supported our charity work. That’s completely changed,” Simmers adds.

Aberdeen, a city of around 200,000 in north-east Scotland, has long been dividedbetween the haves and have nots. Extravagant mansions are often within walking distance of high-rise housing projects. But a sharp downturn in the multi-billion-euro North Sea oil industry has sent the local economy into a tailspin.

“I think there is a lot more pain to come” — Jake Molloy, a regional union organizer and former offshore worker

Plunging oil prices — the cost of a barrel is barely a third of its June 2014 high of $114 — have changed the face of the “Granite City.” Streets in the city center, hewn from hard, gray rock, are pockmarked with empty retail units and “To Let” signs. Amid widespread job losses, many are struggling to make ends meet.

AT SEA - FEBRUARY 24: A general view of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea on February 24, 2014, around 100 miles east of Aberdeen, Scotland. The British cabinet will meet in Scotland for only the third time in history to announce plans for the country's oil industry, which it warns will decline if Scots vote for independence. The fate of North Sea oil revenues will be a key issue ahead of the September 18 referendum to decide whether Scotland will end its 300-year-old union with England, and is expected to be the focus of Prime Minister David Cameron's cabinet meeting.  (Photo by Andy Buchanan - WPA Pool/Getty Images)
AT SEA – FEBRUARY 24: A general view of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea on February 24, 2014, around 100 miles east of Aberdeen, Scotland. The British cabinet will meet in Scotland for only the third time in history to announce plans for the country’s oil industry, which it warns will decline if Scots vote for independence. The fate of North Sea oil revenues will be a key issue ahead of the September 18 referendum to decide whether Scotland will end its 300-year-old union with England, and is expected to be the focus of Prime Minister David Cameron’s cabinet meeting. (Photo by Andy Buchanan – WPA Pool/Getty Images)

“If it wasn’t for this I wouldn’t be able to survive,” says Hazel Burgess as she carefully lays a loaf of white bread on top of her wheelie bag on her weekly visit to the food bank. The mother-of-two has been receiving food parcels for three months, since money became tight when her son, who suffers from autism, had his benefits reduced.

Simmers estimates the food bank will have given out 500 tons of food by December, up from 280 tons last year.

* * *

Since late 2014, nearly 100,000 people have lost their jobs in the oil industry and its supply chain. Another 360,000 have taken pay cuts of, on average, 15 to 20 percent. Workers are giving away cars they can no longer afford to run. Changes to shift patterns mean workers often spend less time on land, which exerts a heavy toll on their families.

Jake Molloy, a regional organizer for the Rail, Maritime and Transport Union, and a former offshore worker, blames the government for “failing” an industry that has contributed some £300 billion to the British exchequer since oil was discovered in the area in the 1970s.

When it comes to oil, successive U.K. administrations have followed a simple policy: Tax heavily in the good times, loosen purse strings in the bad. Now with exploration at lows not seen since the 1960s, Westminster “doesn’t seem to have a strategy” for reinvigorating the industry, says Molloy.

“I think there is a lot more pain to come.”

* * *

For years, particularly as oil hovered around $100 a barrel after the 2008 financial crisis, prices in Aberdeen only went in one direction: up. Now gravity has re-exerted itself. House prices, which rose by 17 percent in 2013, have fallen sharply in the last year, according to a report from the Aberdeen Solicitors’ Property Centre.

Aberdeen’s population has declined by about 15 percent since the oil market crash, and a majority of students and young professionals are considering leaving the city in the next few years, according to a recent PwC report. The market crash has largely been attributed to a price war waged by Saudi Arabia against the U.S. shale industry.

Hotel rooms were once so hard to come by that offshore workers were put up in Edinburgh, more than 100 miles away. Now, vacancies are the new normal.

“What we are experiencing now is here to stay,” says Stewart Spence, owner of the five-star Marcliffe Hotel. “When we had $100 oil, we had 100 percent occupancy. Now we have $40-$50 dollar [oil], we have 40-50 percent occupancy. That’s what we have to live with for the future.”

The Scottish share of tax receipts from the North Sea shrank from £9.6 billion in 2011-2012 to £1.8 billion in 2014-2015.

Most North Sea staff are employed not by Big Oil, but by smaller, local contractors. The downturn has taken a heavy toll on these local businesses across the board. Even the city’s few success stories are illustrative of a deeper malaise.

Michelle Clark spent a decade working in recruitment and training for an Aberdeen-based firm before being made redundant in 2014. Fifteen months later she lost her job again. After unsuccessfully interviewing for 60 posts she decided to try something different — and opened her own business.

“I always wanted to do this,” Clark says from behind the counter of Melt, a small take-out restaurant in Aberdeen’s leafy west end. The premises, formerly a check cashing outlet, has a self-consciously 1970s feel: laminated floors, retro floral wallpaper, vintage tea sets. A chalk board advertises special Nutella and cheese toasties.

Since opening in March, business has been brisk. “It’s an affordable luxury at a time when everyone is struggling,” explains Clark. Her husband recently lost his job at a specialist musical instrument store.

“I probably speak about oil and gas more in here than I did when I worked in oil and gas,” she says. “It seems to affect everyone who comes in and they want to speak about it.”

Across town, native New Yorker Stephen Dillon closed his steakhouse, Prime Cuts, after a decade in business. Midweek sales had fallen by almost 70 percent. “The corporate business just disappeared.”

Dillon and his French wife, Pascaline, opened a new BBQ restaurant but have little hope for the future.

“Even if the oil industry does come back to a reasonable level, for us it won’t be enough,” he says. The stress has taken its toll on the salt-and-pepper haired American: He has recently suffered from depression. “You try to be optimistic but it’s tough.”

* * *

Beyond its boom effect on the local economy, oil has also been inextricably linked to Scottish independence in the national imagination. In the 1970s, the Scottish National Party (SNP) ran on the acerbic slogan: “It’s Scotland’s Oil.” In those days, Texans in Stetsons sauntered down Aberdeen streets and the nationalists were a minor concern.

Now, the SNP is the dominant power in Scottish politics, and oil remains a key part of their platform. The 2014 prospectus for leaving the three-centuries-old union with England proposed setting up an oil fund in the Norwegian mold.

Mark McDonald, an SNP member of the Scottish parliament for Aberdeen, says an independent Scotland would be best placed to guide the North Sea through turbulent waters: “We have left other people to deal with our economic situation for quite some time and there are plenty of people who haven’t got a good deal out of that.”

The oil industry’s recent travails, however, have not helped the independence cause. The Scottish share of tax receipts from the North Sea shrank from £9.6 billion in 2011-2012 to £1.8 billion in 2014-2015, and is likely to fall to zero in the coming months — undermining the argument that the Scottish economy can stand on its own.

“The EU referendum added to the uncertainty that we already had with the oil industry” — Lynn Bennie, reader in politics at Aberdeen University

In spite of the downturn, Aberdeen’s skyline is littered with cranes. Construction for new shopping centers and hotels planned in the boom years is still going ahead. A recently signed “City Deal” is expected to fund a new harbor development. At Marischal Square, workmen lower girders into place on a £50 million development built under a controversial, complex private finance deal that could leave the local council with a significant black hole in its budget. The development was dogged by protesters, many of whom argued that the city could not afford — and did not need — another glass-and-steel retail complex.

Across the street, in Aberdeen’s council offices, local representative Barney Crockett says the city has been forced to be “creative” to support new projects. “We are the lowest funded local authority and the lowest funded health board in Scotland,” the Labour councilor says.

Crockett, who is “old enough to remember Aberdeen before oil,” says the city will bounce back. But he admits to being “worried” about the recent Brexit vote.

Aberdeen has often relied heavily on links with Europe, and particularly nearby Norway.

“We often feel we don’t get a fair look from Scottish or British governments so Europe has been really important,” Crockett says, pointing to the city’s hydrogen-powered bus fleet, partly funded by the EU.

A section of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea, around 100 miles east of Aberdeen, Scotland | AFP photo / Pool / Andy Buchanan

Brexit could heap more woes on the already-stressed oil and gas industry. The North Sea’s mainly mature fields have far higher production costs than places such as Saudi Arabia or Equatorial Guinea. Last month, analysts at S&P Global Plattswarned that for the North Sea, fears over Britain’s EU exit “could be the straw that breaks the camel’s back.”

Most Aberdonians, however, seem more concerned with fluctuations in oil prices than the political machinations in Brussels or Edinburgh.

Influential Aberdeen oil magnate Ian Wood has been a vocal critic of calls for a second independence referendum — a vote Scotland’s First Minister Nicola Sturgeon has called “highly likely” in the wake of Brexit.

Aberdeen also voted ‘No’ to independence in 2014 and there is little sign of a shift in mood, even though the SNP holds all the Westminster seats in the region. Recent opinion polling suggests that despite voting overwhelmingly to remain in the European Union, most Scots still favor being part of the U.K.

“The EU referendum added to the uncertainty that we already had with the oil industry,” says Lynn Bennie, reader in politics at Aberdeen University. “Most people just want that uncertainty to end.”

***

Back at the Aberdeen Food Bank Partnership, volunteer Ingrid Pringle is concerned about the city’s future. The retired social worker recalls moving to Aberdeen from south-east England in 1981.

Four decades ago, oil transformed Aberdeen from a rough fishing town into a key player on the global market. But the city has little to show today for the billions that passed through it, says Pringle.

“Back then it was a city on the up. It doesn’t feel like that now,” she says as she fills plastic bags with fruit and vegetables during her weekly six-hour shift.

“I assumed that the oil industries would invest in Aberdeen, but aside from sponsoring the odd roundabout they haven’t really done anything.”

This piece originally appeared in Politico Europe.

Shame in the Shetlands

Shetlanders are fond of saying that their nearest train station is the Norwegian city of Bergen, such is the islands’ distance from the British mainland. Perched on a rocky outcrop surrounded by the wild, oil-rich North Sea, the U.K.’s most northerly archipelago has a very distinctive history and identity.

But windswept Shetland — population circa 25,000 — has not escaped the political gale that blew across Scotland and the rest of Britain in the wake of last year’s defeated independence referendum.

In May’s general election, Shetland and Orkney was one of only three Scottish constituencies not to return a Scottish National Party MP. Incumbent Liberal Democrat Alastair Carmichael held on, by less than a thousand votes, as the SNP took 56 seats across Scotland.

The former Scottish secretary’s political future — and the future of his party in their last Scottish redoubt — now hangs in the balance.

Carmichael is under investigation by Westminster’s parliamentary standards commissioner after he admitted to approving the leak of a Whitehall memo suggesting SNP leader Nicola Sturgeon told a French diplomat she would like to see David Cameron remain as Prime Minister ahead of the general election. He had previously denied any involvement.

Recently passed legislation that allows the recall of MPs is not yet in force, but, if the commissioner finds against him, Carmichael’s position could become politically untenable. At the same time, a separate public petition crowd-funded over £55,000 to launch a legal challenge against the Lib Dem’s election victory. An Edinburgh court is expected to hear the case in September. Either outcome could result in a by-election.

Such political skullduggery is almost unheard of in the Shetland Islands.

“It’s not a particularly political place. People in Shetland just want to be left to get on with things,” says former BBC journalist Tom Morton over coffee in a busy café near the harbor at Lerwick, the Shetlands’ largest town.

Liberals have dominated Shetland politics for more than half a century. Jo Grimond, who first became MP in 1950, is still revered for brokering a deal with international oil companies in the early 1970s that saw the construction of a massive refinery at Sullom Voe under unusually favorable terms for the local community. Almost overnight, the impoverished fishing community was transformed into a prosperous mini-state with local control over its own oil fund.

“People in Shetland just want to be left to get on with things” — Tom Morton, former BBC journalist.

But the Liberal Democrats hemorrhaged support in May, and the Carmichael affair has sparked indignation among many in Shetland. More than once I was told that the MP had “brought shame” on the islands — not by leaking the “Frenchgate” memo, but by lying about it.

“The ordinary Liberals feel betrayed by what he did because they trusted him,” says Shetlander Mary Blance.

Even Tavish Scott, the sitting Liberal Democrat member of the devolved Scottish parliament for Shetland, admits that voters feel let down. But Scottish nationalists went over the top in their campaign to oust the MP, he says, adding: “I think it will rebound on the SNP.”

Scott and his party hope so — Shetland is one of just two Lib Dem constituencies to have survived the SNP tsunami in the 2011 Scottish elections. Polls suggest the nationalists could win almost every seat in Scotland next year. With the Lib Dems currently polling in the low single digits, the party needs all the support it can muster.

* * *
On a blustery summer’s evening on Lerwick harbor, a brass band decked out in British Legion livery plays to a small crowd. The event commemorates more than 250 men who left the islands a century ago to fight in World War I. Many never returned.

As the band plays, a Shetland flag swirls in the breeze. The ubiquitous standard — the colors of the Scottish saltire in the form of a Nordic cross — reflects the islands’ own complex ties.

The islands were under Norwegian control for centuries. In 1468, the King of Denmark pawned Shetland, along with Orkney, to Scotland as part of a dowry for a royal marriage. The Danes never managed to repay the debt.

The Act of Union brought the Shetlands into the United Kingdom, but traces of the Viking heritage remain: St Magnus, St Olaf and King Harald are among the names of Lerwick’s pretty Victorian streets. Udal law, an ancient Norse legal system, still holds sway in the Shetlands’ courts. Solid Scandinavian-style timber houses are dotted across the islands.

With such a rich history, identity is a particularly thorny issue, says Shetlands-born writer Malachy Tallack.

“Most people would say they are Shetland first. Most people would say they are Scottish too, and probably British. There is no contradiction.”

Although a short-lived movement for greater autonomy emerged after the discovery of oil, the Shetlands have long been stony soil for Scottish nationalism. In 1979, the Shetlands voted against Scottish devolution. In the 2010 general election, the SNP finished a massive 41.4 percent behind the Lib Dems here.

But Shetlanders’ antipathy towards the nationalists seems to be softening.

Last September, the pro-independence vote was lower in Shetland than the national average but, at more than 36 percent, was still significant, says Tallack. “Ten years ago you wouldn’t have found 5 to 10 percent who would have voted yes.”

Since the referendum, the SNP’s membership in Shetland has risen more than five-fold.

“You can’t afford to buy a house in Shetland. You can’t afford to rent a room” — Ella Gordon, textile maker.
Often accused of centralizing power, the Scottish nationalist government in Edinburgh has set out a new agenda for the islands, promising more local powers and appointing Scotland’s first dedicated islands’ minister. This approach is proving popular in Shetland, says Mike MacKenzie, an SNP member of the Scottish Parliament for the Highlands and Islands.

“In the past they have felt neglected by the Scottish government (and) by the SNP. That has changed,” says MacKenzie. “I’ve been warmly received. That’s partly the natural island hospitality but also we’ve been taking a pretty good message to the island.”

Shetland News journalist Neil Riddell agrees. “People always say, ‘We are as remote from Edinburgh as we are from London,’ but that isn’t strictly true. We have much more access to Scottish ministers. Before devolution there was just one U.K. minister for the whole of Scotland.”

Ostensibly Shetland has done well from the union. Oil has paid for a road network that is the envy of rural Scotland. Even small hamlets have heated swimming pools and leisure centers. Lerwick boasts both a state-of-the-art performance space and a museum that rivals those of many larger nations.

Meanwhile, a massive gas plant is being built at Sullom Voe. Many of the workers live in huge, static ocean-liners moored in Lerwick and Scalloway.

Some Shetlanders, however, question whether this so-called “second oil boom” is benefiting their community. Beyond the bar owners and the hoteliers, there is little sign of oil money trickling down. House prices have risen sharply, and a new generation of locals find themselves forced to leave.

“You can’t afford to buy a house in Shetland. You can’t afford to rent a room. A friend of mine was renting a one bedroom flat for £900 a month,” says Ella Gordon. The 24-year-old textile-maker lives with her parents.

Most of her friends now live in Edinburgh or Glasgow, hundreds of miles, and an expensive day’s journey, away. “Growing up in the 90s we had it so good. We could do anything we wanted. Now it’s like life is going backwards.”

Poverty in Scotland’s oil capital

Before the discovery of North Sea oil in the 1970s, Aberdeen was a regional town and nationalism a marginal concern. With weeks to go until Scotland’s historic vote on independence, Aberdeen is a city transformed. It’s Scotland’s oil capital and the city’s resulting wealth is apparent. But not everyone has benefitted from those riches. As Peter Geoghegan reports, life for some is a daily struggle.

Book Review: The Oil Road

The Oil Road: Journeys from the Caspian Sea to the City of London by James Marriott and Mika Minio-Paluello.

These are straitened times for BP. The oil giant faces a slew of civil and criminal suits arising from the 2010 Deepwater Horizon spill. In October, Azerbaijan’s autocratic president Ilham Aliyev chastised the company for its failure to meet production targets in the Caspian Sea. BP’s ‘grave mistakes’ have cost the oil-dependent Caucasus state $8.1bn in lost revenue over the past three years, the Azeri president claimed.

Azerbaijan is in the midst of an oil boom, as anyone who watched the coverage of year’s Eurovision song contest from the Azeri capital Baku will attest. The once-rusting Soviet city is now dominated by shimmering skyscrapers, funded by profits from Azeri-Chirag-Guneshli, a huge field 120km off the coast of Azerbaijan controlled mainly by BP. Oil from ACG constitutes around 1 per cent of total global production.

Part-travelogue, part-reportage, the Oil Road is a powerful – if slightly repetitive – account of how a valuable natural resource can turn a tiny elite into plutocrats, destabilise nations and ruin the lives of ordinary people. Told through a series of vignettes and diary pieces, the book traces the journey of Azeri oil, from its extraction in the Caspian Sea all the way to the City of London, where BP’s financial power is consolidated.

Channelling the spirit of Wilfred Thesiger and Paddy Fermor, the authors follow the route of the 1,100-mile Baku-Tbilisi-Ceyhan pipeline, known as BTC, which connects the fecund Caspian fields with container ships on the edge of Europe. ‘What is shipped from the BTC terminal is a raw commodity in bulk, extracted from weaker nations and transported to the most powerful.’ It’s a journey that takes them overland from Azerbaijan to Turkey before finally arriving in Bavaria, where ACG’s black gold powers the industrial furnaces of Central Europe.

Marriott and Minio-Paluello show time and again how the oil industry has captured putatively sovereign states. Legislation is passed at the behest of BP executives, at times with the direct assistance of Western politicos.

In Turkey, one of the authors is detained near the pipeline. A secretary for energy and environment at the British embassy in Ankara calls, not to assist but to warn the writers against visiting villages affected by the pipeline without permission. No such prohibition exists in Turkish law. ‘[A]s in Azerbaijan and Georgia, the arbitrary power of the state is being utilised to prevent BP’s pipeline being scrutinised.’

For the next four decades villagers living near the BTC are forbidden from building anything within 40 metres of the pipeline. Although two Turkish children die while playing on a construction site adjacent to the pipeline, ‘(q)uestions about compensation are met with a snort of derision.’ In Georgia, locals whose homes were built near the route complain that BP, ‘send the police force instead of coming to meet us themselves.’

Western interest in the Caucasus has long been mediated by oil. From the 1870s to the 1900s, Azeri crude was the bedrock of a flourishing kerosene industry. By the turn of the 20th century, the Oil Road’s exports fuelled factories across Europe and Asia. So dependent were the British that after World War I they sent troops to support the short-lived anti-Soviet Centro-Caspian Dictatorship. ‘We are not here to put down Bolshevism, but to guard British capital sunk in the old fields,’ a Corporal in the expedition wrote to his mother in July 1919.

The Oil Road was a busy nexus at the crossroads of much 20th century history. We meet Stalin, or Koba as he was originally known in Georgia; the Futurists in the fascist city-state of Fiume; the Nazis; and the Red Army Faction.

This is no dry historiography, however. References to Lermontov and Marco Polo, Kemal and Ruskin pepper a highly readable text (Although some slipshod editing has left a lot of unnecessary and distracting repetition).

Unlike the Silk Road, which the title consciously echoes, the contemporary Oil Road is haunted by the spectre of climate change. Despite BP’s rebranding as ‘Beyond Petroleum’, less than one per cent of its turnover comes from renewable energy. Indeed, the company supports groups in the US that actively deny global warming.

Earlier this month, Ireland-based oil and gas company Providence Resources announced that a field at Barryroe, off the coast of Cork, is expected to yield 280million barrels of oil. Irish politicians, and citizens, would do well to heed the OilRoad’s cautionary lesson: without proper social and environmental oversight, oil can be a boon for a powerful few and a disaster for everyone else.

This review originally appeared in the Sunday Business Post.

What’s Mined is Theirs — Ireland’s Oil and Gas

Earlier this month, Providence Resources announced that an oil field at Barryroe, off the coast of Cork, is expected to yield 280 million barrels. The company’s CEO, Tony O’Reilly Jr, the son of the media mogul, told the Today programme that this was ‘very good news for Providence shareholders and the Irish economy’. The first part of his statement is undoubtedly true: Providence’s share price rose sharply on the back of the Barryroe news. That Ireland’s economy will benefit is much less likely.

According to the World Bank, Ireland offers ‘very favourable’ fiscal terms for oil and gas companies. At 25 per cent, Ireland’s government take is among the lowest in the world. Norway’s, by comparison, is 78 per cent; Yemen’s is 95 per cent. Ireland also boasts some of the most generous tax-write offs in the industry: companies can offset all costs before they declare profits, including any ‘incurred in the 25-year-period prior to commencement of field production’, from such activities as drilling unsuccessful wells in Irish waters.

When a company finds oil or gas in Irish territory, ownership and control of the resource is transferred in full to the company; no royalties are paid to the state; the company can choose to export the oil or gas; they do not have to land the resources in Ireland or use Irish services or personnel.

In the late 1950s, the minister of industry and commerce (and future taoiseach) Seán Lemass sold the first exclusive exploration drilling rights in Ireland for £500 to Madonna Oil, a shell company owned by three American representatives of the Messman-Rinehart Oil  Company of Wichita and the Ambassador Oil Corporation of Forth Worth. In 1961, a two-thirds share in the rights was sold to Continental Oil and Ohio Oil International for $450,000.

In 1971, Marathon Oil (as Ohio Oil International had become) discovered gas off Kinsale, Co. Cork. The terms of the government deal under which the gas was extracted were so favourable to the company that it became an issue in the 1973 general election. Influenced by Norway’s creation of a state oil company, the new minister for industry and commerce, Labour’s Justin Keating, set about recalibrating Ireland’s relationship with oil and gas companies: the state would have a stake in any commercial find; corporation tax on oil and gas revenue was set at 50 per cent; production royalties would be levied.

Keating’s amendments did not last long. In 1987, the energy minister Ray Burke – who in 2005 was jailed in relation to corrupt payments received in office – abolished royalty payments and state participation in oil and gas development. In 1992, the finance minister (and another taoiseach in waiting) Bertie Ahern cut corporation tax for the industry from 50 per cent to 25 per cent, where it broadly remains, despite some alterations to the new licensing terms made by the Green party minister Eamon Ryan in 2007.

Ireland’s oil and gas regime reflects the dominant logic of Irish economic policy: low taxes will make Ireland attractive to foreign companies, even if they are simply harvesting the country’s natural resources and creating little in the way of jobs or tax revenue. That speculative Irish licence holders get rich in the process is no cause for concern.

A year ago, the minister for communications, energy and natural resources, Pat Rabbitte, announced that 13 new offshore exploration licences had been awarded. ‘Ireland must continue to communicate the message to international exploration companies that Ireland is open for business,’ he said.

In 1973, the Union of Students of Ireland published a pamphlet entitledWhat’s Mined is Ours! The Case for the Retention and Development of Irish Minerals under Public Ownership. According to the foreword, ‘those with a vested interest in the development of Irish mineral resources appear to have access to unlimited finance for public relations purposes.’ One of the text’s three signatories was the USI president, Pat Rabbitte.

This piece originally appeared on the London Review of Books blog.

Sceptics say oil find will not mean boom for Irish economy

IRELAND’S devastated economy received a boost yesterday with the announcement that an offshore field at Barryroe, 30 miles off the coast of County Cork, could yield up to 280 million barrels of oil.

Providence Resources, an Irish and UK company that has been drilling at six locations off the coast of Ireland, said Barryroe will yield more oil than expected, which could trigger an oil rush off the Republic’s coastline.

“It’s very good news for Providence shareholders and the Irish economy,” Providence chief executive Tony O’Reilly said. “We hope this will not be a single project. From an Irish perspective, here we have no oil industry. This really heralds the beginning of that industry.”

Mr O’Reilly said the oil recovery rate during exploration had exceeded expectations and, with oil at about $100 per barrel it was a “big moment” for Irish oil exploration and the Irish economy.

Ireland has extensive, untapped oil and gas reserves. The area off the west coast alone contains potential reserves of 10 billion barrels of oil equivalent (oil or gas), according to a 2006 study for the Irish government. This estimate does not include areas off Ireland’s south coast, where Providence’s offshore field is located.

However, serious doubts have been raised about the benefit of the Providence oil find for the Irish economy. Under a deal signed by former premier Charles Haughey in the 1980s, when a company finds oil or gas in Irish territory ownership and control of the resource is transferred in full to the company.

The only guaranteed benefit to Ireland from extraction of resources is a 25 per cent corporation tax on the profits declared from the sale of the oil or gas. Before declaring profits, the company can write off 100 per cent of costs from the previous 25 years against tax, including the cost of previous, unsuccessful wells drilled anywhere in Irish waters and costs incurred in other countries.

Ireland’s minister for communications, energy and natural resources, Pat Rabbitte, has admitted that the tax take from oil in Ireland will be much lower than in the UK, but has argued that the low rate will make Ireland attractive for foreign oil companies.

Whether the oil from Barryroe will be landed in Cork or elsewhere in Europe remains unclear, but many expect refinement and related processes to take place outside Ireland.
Even extensive oil extraction is unlikely to create more than “a few hundred jobs” in Ireland, said Conor McCabe, author of Sins of the Father: Tracing the Decisions that Shaped the Irish Economy.

This piece originally appeared in the Scotsman.