Slick job by Government consultants on oil industry report

For an industry that exists to provide fuel for heat and light, debates about Ireland’s exploration sector always elicit way too much of the former and not enough of the latter. The guff from both sides in Corrib is proof of that.

The Wood Mackenzie consultants, whose report on Ireland’s oil and gas fiscal terms was published by Government yesterday, should be commended for bringing cold, hard logic to the debate.

The consultants’ proposals, which are to be adopted by the Government for future licences, include a 5 per cent slice of an oil or gas field’s revenues for the State off the top, from day one. They also recommended boosting the maximum tax on a field’s profits from the current 40 per cent to 55 per cent. If the maximum tax exceeds the 5 per cent royalty, the latter is disregarded.

The 5 per cent proposal is a clever one: it guarantees that once a field goes into production, the State will at least get something. Under the existing terms, even once a field goes into production, the State effectively gets nothing for the first several years as the exploration company writes off its costs against tax.

Minister for Energy and Natural Resources Pat Rabbitte, announcing the proposals, was keen to stress the report did not recommend the establishment of a national oil company, a key demand of the protestors against the current regime. He said the report only states the notion of such an entity "should be reviewed in the light of experience".

The report is not as dismissive of the idea as the Minister’s words might suggest, however. It clearly recommends that the Government properly investigate all aspects of setting up a national oil company, which could function as a one-stop shop for all the State’s interests in the sector.

It will be interesting to see if the Minister, who welcomed the report, follows up on this particular proposal by establishing a proper review group.