Ireland Increases Tax On Oil Firms

by Jason Gorringe, Tax-News.com, London

10 August 2007

Announcing a new licensing round for oil and gas exploration in the ‘Porcupine Basin’ in the early autumn, Ireland's Minister for Communications, Energy and Natural Resources, Eamon Ryan, said that companies will be subject to a profit resource rent tax as part of their licensing terms.

This new tax will be in addition to the 25% corporate tax rate currently employed. It will operate on a graded basis of profitability as follows: an additional 15% tax in respect of fields where the profit ratio exceeds 4.5; an additional 10% where the profit ratio is between 3.0 and 4.5; an additional 5% where the profit ratio is between 1.5 and 3.0; and no change where the profit ratio is less than 1.5.

In Ireland's most profitable fields, this will mean that the return to the state will increase from 25% to 40%.

The government said that it took the decision in light of a detailed review of licensing terms carried out by the Department of Communications, Energy and Natural Resources and the report by economic consultants Indecon.

Ryan stated that: “The basis for this decision was to ensure a greater return to the State from our own natural resources, while maintaining the incentive for companies to explore off our shores. I believe these changes achieve this balance.

"I wish to pay tribute to my predecessor Minister Noel Dempsey for beginning this review process, to thank the officials within my Department for directing the research and Indecon for their work. This is clearly a case of collective concerted action on the basis of expert advice, ultimately agreed across Government. It is best practice in policy-making.”

The previous terms were introduced in 1992 with the aim of encouraging petroleum exploration in Ireland. However, only 23 exploration wells have been drilled in Ireland since that time.

Ryan has said that he is optimistic that greater exploration investment will take place under these new terms.

“The difference now is in prospectivity, price and profitability," he stated.

"The data available to us now and seismic technology necessary for prospecting have vastly improved in the intervening 15 years. Energy prices continue to rise. Both of these factors are leading to greater profits in the industry. Fewer prospective areas are open for exploration internationally, making Ireland’s unexplored basins more attractive. The Atlantic area is seriously under-explored. Departmental analysis of this area estimated risked reserves in the order of 10 billion barrels in the Atlantic area alone," he added.

Ryan said that the changes will bring Ireland into line with other comparable countries.

"Ireland’s oil and gas is a resource of the people. The Government acts as caretakers/owners of these resources on their behalf. It has a duty to ensure appropriate return and to ensure that they are adequately and properly explored. Overall, I feel these changes represent a licensing regime that is in the greatest public good," he concluded.

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