Thank you Cathaoirleach for giving me the opportunity to contribute to the debate today on the Joint Committee’s report on Offshore Oil and Gas Exploration.
The report focuses on an interesting and topical area of public policy, and on a range of diverse subjects and issues.
I know that the Joint Committee invested a considerable amount of time in the preparation of this report. Detailed evidence was taken from a range of parties and considerable time was spent considering the information gathered. The work of the Committee culminated in the publication of what is a quite detailed report which makes a total of eleven recommendations.
I am sure that the Committee’s report will make a valuable contribution to the debate on how we should manage our indigenous oil and gas resources to ensure the best result for the people of Ireland.
The eleven recommendations included in the report reflect the broad nature of the report itself. These recommendations address a number of different themes, including:
- recognising the importance of Ireland’s legislative and strategic policy approach being fit for purpose;
- bringing a focus to specific aspects of the non-fiscal regulatory regime;
- considering interactions involving both the public in general as well as those relating to the communities of areas where development activity is planned; and
- the tax terms that should apply in the case of future commercial discoveries.
This is the first opportunity for either House to debate the Joint Committee’s report since it was published last month. I look forward to listening to the contributions from Senators in relation to the report in general and in relation to the recommendations contained therein.
At the outset of this debate I would like to commend an important aspect of the report, which is that it contains a detailed amount of factual material in relation to Ireland’s historical experience of offshore exploration. This information is presented in a well structured, helpful and accessible manner to the reader. There have been occasions when debate in this subject area has been premised on myth rather than facts and it is a positive aspect of the report that it captures so much detail in a single document.
Understanding Ireland’s petroleum exploration experience over the past four decades is important to any balanced consideration of what fiscal terms are appropriate for Ireland. Understanding Ireland’s experience relative to that of neighbouring jurisdictions is, however, critical! It is helpful, therefore, that the reports contains considerable detail of Ireland’s exploration history, together with some detail on neighbouring jurisdictions, in particular Norway.
Before turning to a discussion of the report and its recommendations, I believe it would be useful to first consider the wider environment within which Ireland’s policy and regulatory framework is set. While the report recognises that the principal piece of national legislation governing exploration licensing is over 50 years old, there is also a broad range of more recent national and European legislation that applies to activities in this sector. Much of that legislation addresses health and safety and environmental issues and is not specific to the oil and gas exploration sector. This is of relevance to some of the recommendations and is a point to which I will return later.
At a general level I can say the following in relation to the report’s recommendations. They include:
- recommendations which at initial consideration seem both sensible and desirable;
- recommendations which are already covered by the existing licensing conditions and regulatory regime;
- recommendations that would need to be explored further, including some which have wider public policy implications; and
- recommendations in respect of which I would strong reservations and remain to be convinced would be the right way to proceed.
I would now like to address the recommendations and will do so in the context of the four general themes I outlined earlier. The report proposes that there should be a clear and transparent fiscal and licensing regime, which provides certainty for the State and industry alike. It goes on to recommend that the 1960 Petroleum and Other Mineral’s Development Act should be reviewed and also recommends that changes should not be made retrospectively to the fiscal licensing terms. The report also stresses the need for a clear strategy governing Ireland’s approach to petroleum exploration, pointing out the merit in such a strategy inputting to other initiatives such as the public consultation on the “Our Ocean Wealth” document.
The 1960 Act is an important Act in terms of setting out the high level exploration licensing regime and the rights conferred by the various authorisations. In the period since this legislation was enacted a broad body of legislation at national and EU level has also been enacted that is of direct relevance to petroleum exploration and production activities. This includes planning, safety and environmental legislation, Against that background my Department commenced a review of the 1960 Act earlier this year and that review is ongoing.
I agree with the Joint Committee that it is important to have a licensing regime that communicates both stability and certainty to industry. This is especially true in circumstances where Ireland is competing with other countries to attract exploration investment in the case of an industry where the nature of the business requires the taking of a long-term view. For this reason I welcome the recommendation of the Committee that no retrospective change should be made to the licensing terms
Ireland has a very clear strategy in this sector, key elements of which are:
- we seek to maximise the benefits to the people of Ireland from our indigenous natural resources;
- we provide opportunities and encourage private industry to take the risk associated with investing in exploration;
- we take initiatives to deepen knowledge of the potential of our offshore, in particular through supporting key research projects; and
- we seek to have a robust regulatory regime in place to ensure that activities are carried out in a safe manner that does not harm the environment.
Going forward we will need to keep our strategy under review to ensure that it remains fit for purpose in what is a constantly changing environment.
As today is the first debate on what is a substantial and detailed report, I do not propose to dwell in detail on each individual recommendation. I will, however, comment briefly on the recommendations relating to:
- the maximisation of production from a commercial field;
- the principle of unitisation; and
- the issue of flaring of gas.
If I am clear in my understanding of what the Committee had in mind with each of these recommendations, then these issues are already addressed to a considerable degree by the existing licensing terms, along with the Department’s own industry specific rules and procedures.
I would like to discuss the recommendations relating to public consultation and “community gain”. The statutory obligations requiring public consultation in the case of petroleum related projects are very detailed and extensive. I do not know if the recommendation is a statement recognising the value of public consultation and advocating continuance of the status quo, or is it a suggestion that adequate public consultation is not already provided for.
While I appreciate that the latter might be perceived as being the case by some who made submissions to the Committee, the reality is that all major infrastructure consent processes involve a public consultation phase, generally including an oral hearing. These requirements are not industry specific and the obligations result from both national and European legislation. This means that any future oil or gas development project would be subject to a number of consent processes, each of which would have a detailed public consultation phase.
The community gain concept is an interesting concept. As a concept it is clearly not industry specific. It is also a complex concept as communities are not homogenous and as a result what some may consider a gain others may consider a loss. An Bord Pleanála in granting planning consents under the Strategic Infrastructure Act has included specific “community gain” conditions in some cases. The question of introducing such a provision on a statutory basis is far a broader question and would of course have implications well beyond the subject matter of this report.
Tax Terms
I will turn now to the recommendation in the report that has generated the greatest level of interest since the report’s publication and that is the recommendation for an almost doubling of the existing tax rate applying to petroleum production.
As I already acknowledged the report includes a good deal of useful historical information in relation to Ireland’s experience of offshore exploration. While the report recognises that “Ireland’s petroleum potential is largely unproven” it does not address how this situation should be remedied going forward.
The changes in the tax regime proposed are not of a minor or modest nature. What is proposed is a fundamental re-positioning of Ireland’s tax terms, bringing our tax on profits from petroleum production to a similar level as that of the UK and in the case of very profitable fields imposing a higher tax level in Ireland than that which applies in Norway. The proposal is that this new tax regime would apply in the case of discoveries made under exploration licences granted in the future.
The report sets out four main reasons for proposing these tax changes:
- high oil prices;
- the impact of advances in technology on exploration success levels;
- the fact that not all regions with petroleum potential are politically stable locations for investment; and
- recent positive indications from exploration off our south coast.
The first two of these factors, high oil prices and new technologies, do not give Ireland any comparative advantage. They do not make investing in exploration in the Irish offshore more attractive relative to investing in the North Sea or elsewhere. I should add that advances in technology in the exploration sector, like most other sectors, tend to be of an incremental nature. It is still a fact that without exploration drilling no new discovery will be made. This is a critical factor for Ireland, as drilling levels in the Irish offshore remain very low. Incremental advances in technology may help, but more drilling is essential.
Political stability as a location for investment is an advantage that Ireland has over certain other regions. But this is by no means a new or indeed an exclusive advantage. It is also an advantage that is enjoyed by our neighbours, Norway and the UK, who have better prospectivity that has been demonstrated through decades of successful exploration.
The final factor that would seem to underpin the report’s tax recommendation is the positive news from recent drilling of the Cork coast. While the drilling results are encouraging, further work is required to establish if this discovery can be declared commercial. If this discovery is declared commercial that could be expected to have a positive impact in attracting more exploration investment to the region. But the potential impact should not be overestimated and needs to be put in context. It would be positive as a new commercial discovery and Ireland’s first commercial oil discovery. It would, however, also be only Ireland first commercial discovery in well over a decade. With the last commercial discovery, the Corrib gas field, not yet in production. While it would be positive news, it would not by itself make Ireland the new North Sea.
I do not wish to be negative or to undersell Ireland as a location for exploration investment, but we must deal in realities. The reality is that the Irish offshore is under-explored and its petroleum potential is largely unproven, particularly when compared with other petroleum regions such as Norway and the UK.
The statistics on exploration drilling and on producing fields speak for themselves. Offshore Ireland 156 exploration and appraisal wells have been drilled to date compared with over 1,200 wells in Norway and 4,000 wells in the UK. The UK has in excess of 300 producing fields while Ireland has only three with a fourth in development. Norway is the second largest gas exporter and the seventh largest oil exporter in the world. Ireland on the other hand imports over 95% of our gas and 100% of our oil requirements.
In my view our focus should be on how to encourage an increase in the level of exploration investment and exploration drilling in particular. This is what is needed if we are to establish the true petroleum potential of the Irish offshore.
It is important to recall that the principal factor driving exploration investment decisions by industry is the likelihood of making a new discovery. The challenge is how to improve industry’s perception of Ireland’s prospectivty, relative to that of other countries. Exploration drilling is key to that. Last year we had one well and this year there may be no exploration well. That is the backdrop against which we are having this debate.
We have to recognise that Ireland competes with countries such as Norway and the UK to attract mobile international exploration investment and cannot set its tax terms in isolation or we risk discouraging potential investment.
A Chathaoirleach, I will conclude my contribution on that point. I would like to again thank the Committee for its detailed report and I look forward to hearing the views of the members of the Seanad.