Call for tax cuts for oil exploration operators

The main representative body for Irish oil and gas exploration firms wants to see more incentives for marginal field operators, as well as a lowering of the corporate tax rate for such companies, included in the Finance Bill later in the year.

The Department of Natural Resources has suggested it will table certain incentives for those active in the sector for inclusion in the bill, which is due to be drafted in October or November, without expanding on possible moves in detail.

While not actively lobbying the Government at present, the Irish Offshore Operators’ Association (IOOA), the chief representative body for companies prospecting for oil and gas in Irish waters, has suggested such measures would help progress Ireland’s exploration sector.

“It would be nice to see some incentives flagged ahead of both the closing date for licensing round applications and the publication of the Finance Bill,” said IOOA chairman Pat Shannon said.

Last summer was a significant one for Ireland’s exploration sector, with the Government launching its first offshore licensing round for three years (the 2015 Atlantic Margin Oil and Gas Licensing Round is open for applications until September) and significantly altering the tax framework for the sector, with the top rate of tax on profits made from any future oil find (charges, vitally, will not be backdated to include previous finds) in Irish waters going from 40% to 55% and a 5% royalty revenue also going to the State for each year of a producing field’s lifespan.

The IOOA has said there should be some room for improving Ireland’s attractiveness, noting last year’s fiscal terms were introduced at a time of $100 being the average oil price.

Speaking recently, Prof Shannon, who took over at the helm of the IOOA last year, said the altered fiscal terms were not incentives, but the lack of retrospection and the saving from the heightened tax of older fields was a welcome feature.

The association would like to see — via the Finance Bill —the level of corporate tax for firms operating here lowered from 25% and brought into line with Ireland’s broad 12.5% rate and a potential exclusion of small and marginal field operators from the proposed 5% royalty revenue element of the new terms.

Making Irish waters more attractive to overseas exploration players is a timely issue. Similar moves are about to be introduced in the UK, where calls have been made for oil tax cuts to attract more explorers to invest in the North Sea region. In his last budget ahead of May 7’s general election, British chancellor George Osborne is today expected to unveil tax relief measures to breathe fresh life into the UK’s North Sea exploration sector, where new investment has fallen in recent times and many assets have been put up for sale.

It is hoped that a change in Britain’s tax regime would revive investment and deal-making in its £5bn-a-year exploration sector.

“If tax relief doesn’t happen, investment will start to tail off, exploration activity will not increase and there is a real risk of early decommissioning of fields and the associated infrastructure,” Julian Small, Deloitte’s global head of oil and gas tax advice, told Reuters this week.

Today’s UK budget is expected to introduce an investment allowance, reducing companies’ capital expenditure pressures.