Off-shore earnings

With a major oil find off the cost of Cork, Sean Finnan examines if this is the beginning of Ireland’s oil industry.

Last month, Chief Executive of Providence Resources Tony O’Reilly Junior confirmed that over one billion barrels of oil exists at the Ballyroe oilfield, off the Cork coastline. Providence Resources are also exploring the possibilities of the existence of large reserves of oil at Drombeg, also off the coast of Cork and have plans to begin exploring for oil off Dublin Bay from next year. With the possibilities of these finds bringing whispers of a beginning of an Irish oil industry, so far it seems that the impact of these finds are seeing little benefits to the Irish economy.

Currently, the base rate of taxation is 25% on the profits of oil companies, rising to 40% depending on the size of the oil fields. This is one of the lowest tax rates in the world on oil, with countries like Norway, where a highly developed oil industry exists, having an 85% tax rate on profits. Bertie Ahern as Minister for Finance introduced the above tax rate in 1992 reducing it by 50%. Five years earlier, disgraced politician Ray Burke reduced the State’s share in offshore oil and gas from 50% to 0% while also abolishing royalties. These changes were introduced in an effort to make what seemed like Ireland’s meagre resources more attractive for harvesting.

However, exploration costs for the past 25 years can be written off against the taxes due, meaning in effect the Irish economy gains little from their own natural resources. What then, if any, are the benefits for both local people and the Irish economy in the drilling of oil off the Irish shore, especially when it is the Irish people that will bare the environmental consequences if problems occur on the rig?  According to Professor Frank Convery of the UCD School of Geography, Planning and Environmental Policy, the initial benefits for the economy will be minimal.

“The wider implication though is that if it turns out to be very successful, it will encourage more exploration as we’ve had a chicken and egg problem where there’s been literally hundreds of wells drilled in Ireland and hardly any oil has been found, and when you’re in that situation you have to have very attractive terms to get guys in. Each well costs several hundred million to drill. A potential big gain would be, if we could get a few more discoveries, then you could increase the tax take, probably quite dramatically… I don’t get as frantic about [low taxation rates] as others. You basically have to have a low rate to get people to drill but as soon as you begin to discover oil you can begin to increase the minimum rate. But if you increase the rate and they don’t drill well then you’ve got a nice rate but no activity.”

However, Stephen Varde of the Dublin Bay Concern group that is lobbying against the exploration for oil off the Dublin coast, believes that the economy is getting little benefit from the sale of its oil and gas. “If they were to be successful and find oil, the tax regime in Ireland for oil is the second lowest in the world… The reality is that we won’t see a penny tax.”

The building of an oil-rig just six kilometres from Dublin Bay is proving highly contentious. Recently Dublin City Council has started a campaign called Uniquely Dublin, aiming to hear from citizens of the city what makes Dublin special. Yet, it seems absurd that during this very period in which the city is aiming to promote itself to its own citizens and possible future tourists that it would consider granting planning permission for the building of a very intrusive landmark.

“The Norwegians would never put an oil rig in what they would call a sensitive area,” says Varde. “They do a three month consultation process where they ask people what do they think, they discuss the pros and cons, they check with all of the interest groups etc. and they will continue to get to the bottom of that and then it goes on a becomes a two or three years process but they examine it more carefully, they bring in experts etcetera.”

The lack of an independent enquiry into the suitability of placing an oil-rig on Dublin Bay raises eyebrows as to how the state interacts with citizens in the planning stages especially with the sensitivity surrounding local people and the possible impact that a nearby oil rig will have on their day to day lives. Professor Convery believes that if any oil and gas industry is to become successful in Ireland, they will need to directly compensate the local people.

“The other thing that we have failed to do, which is a mistake and it arises very much in the Mayo case, is that there should be some automatic kind of sharing by the local community in the revenues because… local communities obviously bare some costs.”

If, as the evidence so far suggests, Ireland sees further discoveries of oil and gas fields then it’s imperative that the government get more active in introducing legislation that will protect both our environment and ensure that our natural resources are not getting plundered by private hands. In some cases, the presence of an oil field may interfere with the natural beauty of an area, meaning a conflict of interests exist with no mechanism to deal with it. As Varde said of Dublin Bay: “What’s the value … of that bay? How do you put a number on that?”