WHAT’S GOING ON BENEATH THE SURFACE?

A new oil find – the first in Irish waters in 30 years – has been made off the coast of Mayo. On the face of it, it sounds like a good news story, especially in recessionary times. But where the people of Ireland are concerned, this isn’t necessarily the case.

The reason? The terms of exploration and production licenses in Ireland are the most attractive in the world for oil and gas companies. Why this should be is not at all clear.
The companies argue that the odds of striking hydrocarbons in Irish waters are slim. Whether this is true or not, successive governments have offered significant incentives to encourage exploration for oil and gas. As a result, over the past 30 years, a variety of companies have spent around €2.5 billion looking for the oil and gas.
When they do strike ‘gold’ however, the rewards for exploration companies are immense. Tara Mines just delivered a dividend of €118 million to its parent company, from its zinc and lead field in Co. Meath. That there is money, and lots of it, in exploration is certain. And there is also a suspicion that there is a lot more oil and gas to be found in Irish territorial waters.
So why is the Irish State getting so little of the action? And is there anything that can be done to change that deeply unsatisfactory state of affairs?

DISCREDITED MINISTER
Here’s the history: In 1975, Labour Party Minister Justin Keating introduced licensing terms, which guaranteed that Ireland would benefit from its ‘natural’ resources. In the event of a commercial oil or gas find, the State was guaranteed a 50% shareholding in the operation that would exploit the find, as well as minimum royalties of 8%, ranging up to 16%. Corporation tax of 50% applied. Dick Spring modified these terms in 1985, introducing a sliding scale of royalties and State participation but there was still a decent pay-off for Ireland Inc if the gas came rolling in.
Step forward Raphael Burke, the now thoroughly discredited one-time Minister for the Environment, who was jailed for failure to pay tax on monies paid to him, following allegations of corruption. In 1987, as Minister for Energy, Burke changed the licensing terms in a way that thoroughly favoured the exploration companies and did away with Ireland’s right to royalties and a shareholding in commercially viable oil and gas finds. Then, in 1992, Minister for Finance Bertie Ahern further bent over for the oil companies, by reducing the corporation tax to 25%.
In 2007, a small bit of ground was reclaimed by the State when the Minister for Energy and Natural Resources Eamon Ryan introduced an additional sliding scale of tax – adding between 5% and 15% to the 25% tax rate, depending on the size of the find. This additional tax does not apply to Shell’s controversial Corrib field, but it will apply to the recent oil discovery in the Slyne Basin by British company Serica.
However it remains unclear why the Government believes that taxes on ‘profits’ are the best way if securing a return on Ireland’s natural resources when the scale of the profits can be controlled in any number of ways by the operators…

FORMER RIG WORKERS
Article 10 of the Irish constitution states that “all natural resources, including the air and all forms of potential energy, within the jurisdiction of the Parliament and Government...belong to the State.” But not, apparently, when big multinationals are involved. It may not be widely understood, but as things stand, the Irish state does not even have automatic access to any oil or gas found in Irish waters, once licenses have been granted. If Ireland wants to use any of the Slyne Basin oil and gas, it will have to compete for access to the raw material against any and all other potential markets and purchasers.
Fergus Cahill, chair of the Irish Offshore Operators’ Association, which represents commercial interests in Ireland’s offshore hydrocarbons, argues that the deal the State has struck is only fair because Irish waters are less ‘prospective’ than other regions, for instance the North Sea.
“The industry as a whole has spent something in the order of €2.5 billion in the last 30 years and there’s one commercial field, and that’s Corrib, to show for it. It’s not a very pretty picture,” says Cahill.
“As an example,” he adds, “there was a licensing round here earlier this year. There were two applications for licenses. There was a similar round in the UK, a little earlier. There were 199 applications for licenses. The reason for that, of course, is it’s a much more prospective area. Irish offshore results have been very disappointing. That is why the government has a 25% tax rate.”
However, Hot Press has spoken to a number of former rig workers who believe that the exploration companies have misled the state by claiming that Irish waters are less prospective than they really are. They believe that the companies have been playing a long game, waiting out the Government to get a better deal, and also allowing deep sea technology to develop, before bringing the ‘crop’ home.
Pádraig Campbell, chair of SIPTU’s offshore committee, argues that the companies did not begin extensive oil production in the deep waters off Ireland’s west coast in the 1980s for their own reasons.
“What the oil companies did was incrementally attack our tax deal with the illusion that it was the tax was stopping them, where the reality was, it was the low price of oil and gas and the lack of production technology,” says Campbell. “They could drill for it, but they didn’t have the technology to bring it up. That was invented in later years.
“They’ve calmly, and over long periods of time, gained control,” he accuses. “When the time is right, they’re the ones that’ll control our resources. We’ll just be a recipient of what should be ours in every sense.”

EVERYTHING CONFIDENTIAL
Joe O’Toole worked as a roughneck, both in Ireland and in the North Sea, for many years. In 1997 he was working on a rig where he believes oil was found but the State was not notified. After the oil was struck, equipment was removed from the rig and a second well was drilled. The core sample, which was to be sent to Dublin to be assessed, was taken from there.
“In all my years on the rigs I never saw a core barrel opened. The decks would be cleared and only the geologists would be on the floor. That would be put into boxes, sealed and sent off. This particular oil barrel was open on deck and everyone chipping away making sure there was nothing there. It was a core sample, a sample of formation. They knew before they started drilling that appraisal well or wherever they took the sample from that there was nothing there. Everybody on board the rig seen that.”
O’Toole insists that this was not an isolated incident in Irish waters.
“There was never anybody representing the government out there. If they did a test and it was a good show at 3,000 feet of gas and there was another show at 7,000 feet, well, they would test that at 5,000 feet. It wouldn’t be a true reading,” he says.
Another former roughneck, who asked not to be named as he hopes to work in the industry again, tells the same story.
“When you have a find you’d know, especially with oil and gas, from the pressure readings,” he told Hot Press. “But the government had no-one on board, they were trusting the companies to come up with what the story was. We were told to keep everything confidential. When we went ashore we were instructed that we weren’t to speak to the likes of yourselves.”
Kevin O’Mahoney worked as a roughneck since the late ‘70s. He says he believes a number of finds were covered up, adding that many Irish rig workers noted that State monitoring of oil and gas companies activities was very lax in Ireland compared to the North Sea.
“We worked in the Norwegian sector as well for a good number of years,” O’Mahoney says. “The Norwegian government had their own geologists out there [on the rigs] and they kept their own samples. But the Irish government never thought of that. They were fed a right cock and bull story out there for a number of years.”

INCREASED INTEREST
The Department of Communications, Energy and Natural Resources disagrees. A spokesman told Hot Press that the Department has “comprehensive and detailed information on every well that is drilled offshore Ireland.”
So how does that operate in practice?
“When an exploration well is drilled, the Department receives the same detailed well log data as the exploration company and the Department receives this information in ‘real time’. No additional benefit would result to the Department from having a person present on a drilling rig when the Department is already is in receipt of full data showing what is being encountered, hour by hour, during drilling.”
Quite apart from the issue of revenue and royalties, Ireland stands to lose out further, if the business of manning and servicing any future production facilities does not go to Irish workers and companies. In the late 1990s, Enterprise Oil (since taken over by Shell) removed a good deal of the business associated with its Corrib activity from Foynes to Scotland, much to SIPTU’s annoyance.
Asked whether the Department would be taking any steps to ensure that Serica’s field is serviced using Irish workers and resources, a Department spokesman said: “In the event that Serica determined that the discovery is commercial, the company would have to bring forward a plan of development to be agreed with the Minister. A plan of development would address the options for production.”
As deep-sea production technology improves and as the North Sea fields are expended, it’s likely that there will be increased interest in Ireland’s relatively under-explored waters in coming years – it remains to be seen whether the country will ever get a decent share of the associated revenues.