70% of offshore explorers want fiscal terms review

The general consensus among exploration companies with Irish assets is that the Government’s new fiscal/tax terms need to be revised to take account of the new low oil price environment.

The near 50% oil price fall in the past 12 months, coupled with the current tax regime are set to delay meaningful development of Ireland’s burgeoning oil and gas sector and cause headwinds for the industry, a new PwC survey has warned.

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 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 new terms will only relate to new finds and won’t be backdated to cover previous finds that have yet to be drilled.

However, in its 2015 Oil and Gas survey — published this morning —PwC notes that 70% of respondents think the new terms should either be reviewed or deferred until the industry recovers.

UK GDP figures yesterday showed that Britain’s oil and gas output had one of its biggest leaps, in the second quarter, on the back of tax cuts for the sector introduced in March. PwC noted that other countries with early-stage exploration sectors have lower fiscal regimes than Ireland.

“Due to the fall in the prices of oil and gas, nearly half (48%) of those surveyed noted their intention to defer or significantly curtail exploration investment in Ireland.

"In the prior year, 91% of those surveyed outlined their intention to maintain or increase their level of investment in Ireland,” its report of 60 explorers and support companies said.

That said, the report noted that more than €1.5bn is still expected to be invested in the Irish offshore sector, by survey participants, in the next two years.

“The significant fall in the price of oil and gas has had a dramatic impact on the Irish oil and gas industry. Ireland is viewed, internationally, as a high risk location for investment in oil and gas exploration, due to the lack of historic commercial discoveries.

"At times of low oil and gas prices, investors will invest in high return/low risk locations, which unfortunately we are not,” commented Ronan MacNioclais, PwC’s oil and gas partner.

Last month, Ciaran O’hObain — head of the Department of Natural Resources’ Petroleum Affairs Division (PAD) — said there is no issue to address, regarding the fiscal terms.

He told Energy Ireland’s annual conference that energy consultants, Wood Mackenzie based its analysis on a $60+ oil price, not specifically a $100 one, which was in place when the terms were adjusted last year.

“The sector needs to be supported and it will be important to ensure that the fiscal and regulatory regime is competitive and fit-for-purpose,” Jim Power, chief economist at Friends First, said when launching the PwC survey.

“The most important role for Government is to maintain/enhance fiscal terms and regulatory/planning reform,” PwC added.