Statements Re: Report on Offshore Oil and Gas Exploration

I welcome the report of the joint committee and acknowledge the work of its members and Chairman, Deputy Andrew Doyle, who addressed this matter earlier. I acknowledge the considered response of the Minister, Deputy Rabbitte, to the report. All of us wish for significant exploration and, ultimately, successful drilling. If successful, we would wish for the maximum benefit for the people. It is a question of the modus operandi to achieve that and the balance of factors that have to work together in that regard.
The committee cites the benefits of exploration as an increase in tax revenue, job creation and strengthening the security of energy supply. These benefits are very clear from significant finds in countries such as Norway. However, in order to realise the benefits, we must find ways in which to appear attractive to potential investors and set ourselves apart from the competition.
According to the report, Ireland is considered a high-cost and low-reward environment for oil and gas drilling companies seeking potential investment sites. Our offshore territory is largely unexplored and, as such, our potential is not what it might be. There has been an upsurge in exploration activity in recent times but we have not had adequate success, nor has there been an adequate amount of exploration. I hope we will have success.
The report recommends that the Government strive to achieve the maximum tax revenue from petroleum exploration and production without deterring petroleum investment. That is our shared objective. Offshore gas and oil exploration is risky and costly, and a high level of certainty surrounding viable offshore wells is needed before any private company or investor will take a risk. PricewaterhouseCoopers has calculated that the likelihood of our making a substantial commercial discovery is comparably low, namely, one in 32 per round of exploration. To put this into context, the proportion in the United Kingdom is one in six, and the proportion in Norway is one in seven. It is worth citing these figures because they introduce a note of caution and prudence. While we hope for success, we must examine the challenge ahead in the context of the statistics. There is no avoiding realities. We can be overly idealistic about this but the reality is somewhat different.
I welcome the steps the Government has taken to increase the level of interest in Ireland. With recent departmental approval for the conducting of a major 2D seismic survey of the Atlantic region, coupled with positive indications off the coast of Cork, the drilling taking place on in the Dún Chaoin field and our novel and appealing licensing opportunities, the focus of potential investors is increasingly on Ireland. I congratulate the Minister, Deputy Rabbitte, and his Department on that. All of these steps will go a long way towards realising our oil and gas exploration potential.
With regard to the level of drilling carried out off our shores, historically Ireland has had a low activity rate. Our average is the drilling of one well per year, which is hardly enough. As outlined in the report, this is one of the factors contributing to our lower-than-normal level of infrastructure and expertise in this area. The Department has noted that hundreds of wells need to be drilled every year in order to have any chance of making substantive recoveries of oil or gas. It is a chicken-and-egg situation; if there is no drilling, there is no success, and vice versa. It is a complex and difficult challenge.
As previously mentioned, drilling and exploration are costly. A single offshore exploration can cost in the region of €100 million. We have spent €5 billion on exploration and have generated only €1.8 billion in revenue. These are sobering figures but they are the kinds of facts that we need to take on board before we proceed. There is no point in proceeding on fantasy. In the past ten years, 17 wells were drilled and five discoveries were made. None of the five is turning a profit as of today. In light of this, we need to have practicality and common sense in our approach.
One would like to believe our potential is exciting. Let us hope it is. However, it should be noted that oil and gas exploration is high-risk activity. We need to be careful not to make rash decisions and that is why I welcome the fact that the Minister has said the private sector, rather than the Exchequer, should carry the financial risk associated with exploration. He recommends that any future oil and gas development project be subject to a number of consent processes, each of which would be subject to detailed public consultation. The fundamental point is that, because of the state of our national finances and the odds and risks involved, prudence dictates that the private sector should take the lead. If we had a discretionary billion euro or two to spend, we would have to be cautious about investing it given the need for job creation. The risk is too great to invest the family silver. Having said that, we need to attract the private sector, although not allowing it to go after the jewels of our economy. That is the balance that must be struck.
Public consultation is referred to in the report. There was inadequate public consultation in respect of the Corrib area. This has been a considerable difficulty and we will learn from it.
The main issue cited in the report is taxation. Critically, the committee recommends an increased tax yield from the sector. The committee recommends a tax increase up to 40% and applying revised profit resource rent taxes of 15%, 35% and 55%. Those recommendations are understandable given the context. The Minister has made a decision to have an expert study weighing up the feasibility and potential.

I support that and it will be important that the committee reports quickly to the Minister in order that he can give certainty in this area towards the end of the year. This will ensure the environment is certain next year to encourage further drilling.
The element of the report that has excited the most interest is taxation. The report states Norway is the world’s second largest gas exporter and seventh largest oil exporter with the petroleum industry comprising 22% of GDP. It is a distinct position. The UK and Norway are not comparable to Ireland and, therefore, comparisons are not valid because of the level of drilling, the results to date and so on. We should await the outcome of the Minister’s expert committee’s deliberations. He will weigh up its report and I presume the House will have an input in the normal fashion.
I agree there should not be retrospective changes to licensing conditions, taxation and so on. That cannot be the case because it would create an uncertain environment and damage further opportunities. I also agree that consultation with communities is critical. While I acknowledge the 2006 Act provides for that, there is room for a sensitive consultation process.
The Minister’s approach is prudent in the context of where we are at and we should await the expert committee report before setting the taxation rates. The objectives and recommendations of the joint committee’s report should be accepted and I commend them to the Minister. All of us aspire to successful exploration, a successful tax return for our country and enriching our people as a consequence. That should be the thrust of our activity. This should be an ongoing debate in the Oireachtas and we should focus on the question continually. Let us hope we have a major breakthrough shortly.

Senator Joe O'Reilly representing Cavan & Monaghan 2010. | An ExSite website