“The Irish terms are the best in the world.”
This quote came from Mike Cunningham and he should know, as he was once the Director of Statoil E&P Ireland, one of the companies in the Corrib Gas consortium. The terms to which he was referring are those under which energy companies operate in Ireland.
Corruption and Economic Treason
How the Oil and Gas was Given Away
A Timeline of Economic Treason
1971 – Gas Discovered
Offshore drilling for Irish oil and gas began in the 1960s. The first substantial find occurred in 1971 when Marathon (a US transnational energy company) discovered the Kinsale gas field off the coast of Cork. Marathon was granted a ‘one-off’ deal which saw Bord Gáis purchasing the Kinsale gas, at a reduced bulk rate price, over a twenty year period with the first gas entering the national gas network in 1979.
1975 – Progressive Legislation
The first substantial legislation for the development of Ireland’s oil and gas reserves was introduced in 1975 by Justin Keating of the Fine Gael/ Labour coalition government. The legislation was modelled on international best practise, ensuring that the Irish people would substantially benefit from their own oil and gas. Under this legislation the state could acquire a 50% stake, by right, in the any viable oil and gas reserves discovered. In addition production royalties of between 8% and 16% and corporation tax of 50% would accrue to the state. In exceptional cases the 16% royalty could also be increased. The legislation also attempted to prevent the energy companies from ‘sitting on’ exploration licences by specifying that the energy companies would begin drilling within three years of the date of the issue of an exploration license.
1979 – Irish National Petroleum Corporation Established
The Iranian revolution of 1979 triggered a rise an international oil prices which in turn spurned the Justin Keating’s successor Des O’Malley of Fianna Fail to reluctantly establish the Irish National Petroleum Corporation, a state energy company. By O’Malley’s own admission he reluctantly enacted the legislation to form the INPC because the governments of Iraq and Norway were only willing to supply fuel and expertise to a state company.
Whatever O’Malley’s motivation in forming the INPC it had, once established, the potential to replicate the role that Statoil had played in developing Norway’s oil and gas on behalf of the people of that country. This, however, was not to be.
1985 – The Rot Begins – Dick Spring Changes the Terms
With the ending of the oil crises of the late 1970’s and the apparent failure to discover further substantial Irish oil or gas reserves interest in exploration off the coast of Ireland waned. When the Labour Party’s Dick Spring became Minister for Energy he re-examined the terms under which the energy companies operated and over the course of 1985 and 1986 he introduced a number of measures which he claimed were designed to encourage the energy companies to continue explorations in Ireland.
These changes to legislation were primarily focused on oil or gas fields of less than 75million barrels. State participation in such fields was abolished and royalties from such fields were reduced.
1987 – Fianna Fail Corruption – Ray Burke as Minister for Energy
Within a year of Dick Spring’s dilution of the terms under which the energy companies operated Ray Burke of Fianna Fail became the Minister for Energy. Burke, who was subsequently found guilty of political corruption and jailed for tax evasion, began the wholehearted deconstruction of many of the progressive elements of the original 1975 legislation.
The terms introduced by Dick Spring in relation to oil or gas reserves of less than 75 million barrels were extended to reserves of all sizes. With the stroke of a pen all state royalties were abolished and all state involvement in the development of Irish oil and gas ended. Burke, however, wasn’t quite finished. He, and the then Fianna Fail government, also introduced a 100% tax write off against all capital expenditure incurred by the energy companies, backdated by up to twenty-five years. The only progressive element untouched by Burke was the 50% rate of corporation tax which he deemed it would be ‘over-generous’ to the energy companies to reduce.
1992 – The Coup De Grace Delivered by Bertie Ahern
Ray Burke’s view of over-generosity was not shared by his Fianna Fail colleague Bertie Ahern who, in 1992 as Minister for Finance, halved the rate of corporation tax paid by the energy companies from 50% to 25%.
The same year also saw significant changes to the terms of the exploration licences granted to the energy companies. Exploration licenses are issued, at a nominal fee, to energy companies. Each license covers a defined ‘block’ of Irish seabed in which the holder of the license has exclusive rights to explore for oil and gas. The explorations licences issued under the 1992 terms are divided into three categories with each operating over different time-frames, ranging from six years for a ‘standard’ license, twelve years for a ‘deepwater’ license and not less then fifteen years for ‘frontier’ licences.
In addition to the ending of all state involvement in the development of Ireland’s oil and gas the new licences also allowed that any gas or oil discovered would be sold by the energy companies at market prices.
Since 1992 only one ‘standard’ or ‘deepwater’ license has been issued and that was for the block containing the Corrib reserve. All other licenses issued over this period have been of the ‘frontier’ type, many on a sixteen to twenty year basis. Where oil or gas is discovered the relevant energy company can then apply for a petroleum lease which can increase the period from license issue to production to twenty-one years. The Petroleum license itself is valid for thirty years. In effect the energy companies now hold the exclusive rights to explore for oil and gas across huge swathes of Ireland’s territorial waters for decades to come.
2007 – Too Little, Too Late
In August 2007 Green Party Minister for Communications, Energy and Natural Resources Eamon Ryan, announced changes to the terms of all future oil and gas explorations. Under these revised terms a sliding-scale tax rate was introduced whereby the rate of tax to be paid was linked to the profitability of each individual exploration. While larger, more profitable, ventures would now have to pay up to 40% tax on all profits, smaller projects will still only pay the 1992 rate of 25%. Significantly Ryan’s ‘new’ tax regime had no effect on any existing projects, including Corrib.
To fully appreciate just how bad the Ryan changes to the oil and gas taxation regime were one need only compare the global price of energy in 1992 – when the 25% rate was set – to the global price of energy in 2007. When Bertie Ahern lowered the tax rate to 25% in 1992 the price of a barrel of oil averaged $20. When Eamon Ryan increased the tax rate for more profitable projects to 40% in 2007 the price of a barrel of oil averaged close to $70 with many predicting that that figure would increase dramatically over the coming years. So while the value of any given reserve increased by more then 250% the rate of tax for smaller reserves remained unchanged and the rate for larger reserves increased by a maximum of only 15%.
2007 Until Present
Global energy markets have been defined by their volatility in recent years. In mid 2008, for example, the price of a single barrel of oil reached close to a staggering $150, but within six months the same barrel of oil cost less than $40. By the spring of 2011 the price was back up to €120. Given such uncertainty in the energy markets the need for Ireland to secure its future energy needs has never been greater.
Any hopes that the Fine Gael / Labour Party government which came to power in February 2011 would correct the mistakes of previous administrations were quickly dashed. Within weeks of coming to power, the new Minister for Energy and Natural Resources, Pat Rabbitte, happily oversaw the latest round of applications for exploration licenses. The terms of these licenses were largely based on those developed by the disgraced former ministers Burke and Ahern.