Tullow Oil criticises exploration tax regime in Republic
Low take-up of offshore licensing reflects risks involved in drilling off Irish coast
Pictured at the Tullow Oil plc Dubin Shareholders Meeting are Aidan Heavey (right), Chief Executive Officer, and Graham Martin, General Counsel and Company Secretary. Photo: Mark Stedman/Photocall Ireland
The Republic’s tax regime for oil and gas production is not particularly attractive to the industry’s big multi-national players, according to the chief executive of one of its leading operators.
The Minister for Communications, Energy and Natural Resources, Pat Rabbitte, said this week that he intends to review the current regime, under which profits from oil and gas production in the State are liable for taxes of 25 per cent, rising to 40 per cent in cases where profits are large.
Although this is low by European standards, a recent report by Pricwaterhousecoopers, points out that just 6 per cent of the area offered in the last offshore licensing round, in 2011, was taken up, while just one major player, Repsol, bid for one of the permits.
Aidan Heavey, chief executive of Tullow Oil, which has large scale exploration and production projects in Africa and South America, said yesterday that the terms the Republic offers to exploration companies, “are not that great” in a global context. He argued that it is an issue of risk and return.
The key questions are whether there is oil in the State’s territorial waters, and if there is, is it there in sufficient quantities to warrant the huge expense and risks associated with drilling in the deep waters off its Atlantic coast.
Mr Heavey pointed out that it costs “billions of dollars” to explore these areas. “To get somebody in there to drill, you need really good frontier terms for the initial licence,” he said.
He said that if oil is then discovered, you can demand more favourable terms from subsequent licensees as once it is established that there are commercial quantities of oil or gas, it becomes a far less risky investment.
“That’s how it works,” he said, adding that Tullow was the first to explore off Ghana’s coast, where it now has a stake in a field that is producing 104,000 barrels of oil a day. When it began, the government gave it far better terms than those who followed.
Mr Heavey also argued that the controversy over the Corrib gas field, which is due to come into production by 2015, but which was discovered in 1996, damaged the Republic’s reputation. “Corrib has been around for a long, long time,” he said. “All the hassle and trouble getting Corrib in has not done us any favours.”
Tullow, which is planning to spend $2 billion on exploration this year, was founded in the Republic and employs 130 people in Dublin, where the geological data gathered from its licences around the world is analysed.
It has no Irish exploration operations, although its chief executive said it has “looked” at all the recent licensing rounds.