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.