Following his address to delegates at Energy Ireland’s annual conference at Croke Park yesterday, Ciaran O’hObain, principal officer at the Department of Natural Resources’ Petroleum Affairs Division (PAD), was specifically asked whether energy consultants Wood Mackenzie, which advised the Government on last year’s tax changes, would advise differently if delivering its findings in the current oil price environment.
World oil prices have fallen from over $100 per barrel to $50-$60 in the last year and are not expected to rise past $70 per barrel in the long term.
Last year, the Government changed the tax framework for Irish offshore operators, with the top rate of tax on profits made from any future oil find in Irish waters increasing from 40% to 55% and a 5% royalty revenue also going to the State for each year of a producing field’s lifespan.
The new terms will only relate to new finds and will not be backdated to cover previous finds that have yet to be drilled.
Mr O’hObain said yesterday that there is no issue to address regarding the new fiscal terms. He said that Wood Mackenzie based its analysis on a $60+ oil price, not specifically on a $100 price tag.
He added that the analysis was based on “a longer term view” and on a number of issues, including competition, outside of the record high oil prices.
“It wasn’t based on a 2014 price footing, but a more longer-term view. There is no proposal to be revisited,” Mr O’hObain said.
The question was posed by Irish Offshore Operators’ Association (IOOA) chairman Pat Shannon.
Earlier this year, the IOOA suggested this year’s Finance Bill should include — as has been mooted by Government — incentives for marginal field operators, such as a lowering of the corporate tax rate (currently at 25% for explorers) and a removal of the 5% royalty fee for small and marginal field operators.
Mr O’hObain also suggested it is still too early to gauge how much interest is being shown in this year’s Atlantic Margin licensing round, which closes in September.
He said firms would be making “critical decisions”, regarding new investments this summer.
“Yes, there is interest. But we won’t know how this will translate into actual applications until September,” said Mr O’hObain.
He added that Ireland has many elements in place for a viable oil industry, including fiscal policy, industry engagement, joined-up thinking, and regulatory structure, but needed to see more drilling activity.
He said that Ireland remained under-explored, even though we are at a time of a record high number of licence and prospect authorisations.
Earlier this week, Deirdre Michie, the head of the UK’s oil sector representative, Oil & Gas UK, warned that the industry needed to get used to a future environment where long-term oil prices will hover around the $60 per barrel mark.
Britain’s once thriving North Sea-based exploration sector reached a 20-year low last year in terms of activity, with just 14 exploration wells drilled compared with 44 drilled in 2008.