The fact of the matter is that, as far as the international oil and gas industry is concerned, Ireland continues to have serious reputational problems. This perception is fuelled by the uncritical acceptance in Ireland of what might be described as “urban myths", among which are:
Urban myth 1: The oil companies are sitting on huge areas offshore Ireland where they know that there are vast resources, and are waiting for the optimum time to declare and develop them.
Fact: Only three per cent of the Irish Offshore area is under licence at present. If all of the recent offers are accepted, this figure will increase to five per cent. The terms of licences are specifically designed to prevent long-term retention of acreage. If an area under license is not being worked in accordance with the terms of the licence, the licence must be surrendered, a provision known as “drill or drop”. Thus, all of the licenses awarded in the 1995 licensing round have been surrendered, and 10 of the 11 licences awarded in 1997 have also been handed back to the Government…
Urban Myth 2: In the ‘80’s, a dodgy deal was done with the industry to remove royalties and reduce taxes.
Fact: The UK removed royalties on new production in 1982. Norway did likewise in 1985. Ireland followed suit in 1987. Royalties have now virtually disappeared in north-west Europe for the very good reason that, as a levy on production rather than a tax on profits, royalties are disproportionally penal on high risk, low profitability projects. As illustrated above, the adjustments to the fiscal regime at that time were a measured and rational response to the failure of the previous terms.
Urban Myth 3: Ireland’s oil and gas fiscal terms are the most generous in the world. Why can’t we be like Norway, who levy 78% of profits?
Fact: They can afford to, we can’t. The success rate of exploratory drilling is Norway is about one in five. In Ireland so far, in terms of commercial success, it is about one in 40. More tellingly, since 2005, if you drill a dry well in Norway, the Government will refund 78% of your costs, either by remission of tax, or if you are a new entrant having no taxable revenue, they write you a cheque! Thus, only one fifth of your investment is at risk. On both counts, it is very attractive to explore offshore Norway. If Ireland had had the Norwegian terms since 2005, the Government would by now have refunded around €300 million to the industry, without a cent of countervailing tax revenue. The two situations are simply not comparable. The only valid comparison, as the Minister has recognised, is with countries with similarly poor success rates, i.e. France, Spain and Portugal, who in fact have broadly similar fiscal regimes
Notwithstanding the above facts, these and other myths continue to be assiduously peddled and promoted. This contributes in no small part, on the one hand to the erroneous domestic belief that there are vast offshore riches just waiting to be tapped, and on the other hand, to the industry’s perception that Ireland is indeed a cold church for offshore exploration.