Fintan O’Toole v Pat Rabbitte ( Rounds 1 – Fintan kicks Pat around the ring. Round 2 – Pat’s left hook puts Fintan on the floor and Angelo Dundee throws in the towel. He wants to preserve Fintan’s brain for future musings.

Round 1.

The Irish Times – Tuesday, August 16, 2011

Let’s make Norway joint owner of our oil and gas

FINTAN O’TOOLE

The State is about to sign away almost all our resources on terms by
far the worst in the developed world

SOMETIMES, YOU have to consider extraordinary things. I want to
suggest two of them at one go. The first is that the State is simply
incapable of dealing with one of the key challenges and opportunities
facing Irish people: getting the best for the Irish people from the
potentially huge resources of oil and gas off our shores. The second
is that we should therefore split those resources with a state that
has proven its ability to manage this challenge for the maximum public
benefit. That state is Norway. I am suggesting, in all seriousness,
that we should give joint ownership of our oil and gas to the
Norwegian state.

The first part of this proposition is the easiest to grasp. The
official estimate of the Department of Communications, Energy and
Natural Resources is that there are reserves of 6.5 billion barrels of
oil and 20 trillion cubic feet of gas off the western seaboard –
enough to meet our energy needs for a century. (This does not include
southern waters, where significant gas fields already exist, or
onshore resources.)

Right now, nobody knows how much of this oil and gas can be tapped at
a cost that’s commercially viable. What we do know is that long-term
energy prices are going in only one direction – upwards. And that the
technologies for recovering oil and gas from deep waters are getting
better all the time. The combination of these factors makes the
recovery of a significant portion of these reserves a much more
realistic prospect.

We need to be sober and sensible: there’s no immediate bonanza that’s
going to save us. Getting at the stuff that’s there will be a long,
laborious and extremely expensive process. It would be crazy to risk
large amounts of the money we don’t have on trying to find the next
big field. The scale of the investment and expertise required means
that the giant oil corporations will have to be involved. Deals will
have to be done.

But there are two kinds of folly here. One is the delusion that all we
have to do is declare our full control of all the oil and gas and our
problems are over. The other is the idiocy of simply giving away all
of this potentially vast wealth for next to nothing. And that’s what
we’re currently doing. There’s no public stake in any field, no
royalty to be paid on the gas and oil, and no control over the sale of
the resources when they do flow. All we get is a tax on profits of
between 25 and 40 per cent – after all the costs of prospecting and
development have been written off. A US government study in 2007 found
these to be the most generous terms in the world, except for Cameroon.

The current licensing round is due to result in rights of pretty much
all the remaining territory – a quarter of a million square kilometres
– being given away. The Minister in charge is Pat Rabbitte, once a
critic of this regime. He was on RTÉ One television’s Prime Time
recently, responding to a thoughtful and balanced report on the issue
compiled by an independent group for Siptu. The report is utterly
sober – it simply calls for a thorough public review of the terms by
an Oireachtas committee before these long-term licences are issued.
Rabbitte, though, has morphed into Frank Fahey. He was contemptuously
dismissive of the call for a review, declared himself perfectly happy
with the current regime and made it clear that he will go ahead and
issue licences whatever the Oireachtas committee decides to do.

This complete dismissal of any notion that we might just pause for
thought before giving away what could be a historic opportunity is
evidence, surely, that we have an official mindset that is simply
incapable of dealing with this issue. My guess would be that the
entire official apparatus is geared towards seducing multinational
companies and giving them what they want. It can’t cope with a
reversal of the situation in which we have what they want.

Whatever the reason, the outcome is obvious: the State is on the brink
of signing away almost all of the resources we have left on terms that
are by far the worst in the developed world. The election has done
nothing to change this.

Hence my second proposal. The State lacks the psychological, financial
and political strength to make a decent deal. We need to get that
strength from somewhere. As it happens, there’s a small, friendly
state that knows how to do this stuff: Norway.

The Norwegians, led by tough politicians who had risked their lives
fighting the Nazis, stood up to the multinationals. They got great
deals for their own people. They ended up with a €400 billion public
pension fund, 200,000 good jobs and decent safety and environmental
standards. Norway actually offered Ireland a deal for direct
assistance in developing our resources in the 1970s. Why not go back
to them now, offering a half share of ownership in return for their
money, expertise and, above all, their guts?

Round 2.

The Irish Times – Thursday, August 18, 2011

Oil firms will shun us if we have Norwegian-style taxes

PAT RABBITTE

THE CLAIM by Fintan O’Toole (Let’s make Norway joint owner of our oil
and gas, Opinion and Analysis, August 16th) that Ireland “is on the
brink of signing away almost all of the resources we have left on
terms that are by far the worst in the developed world” is factually
incorrect on both counts, writes PAT RABBITTE

Far from resulting in all of the Irish offshore being licensed for
exploration, the total area covered by the 15 applications received is
approximately 6 per cent of the area on offer. The terms on offer
quoted by O’Toole – “a tax on profits between 25 and 40 per cent” –
compare favourably with all similar countries but not with Norway.

The explanation for this exception is the very enviable geology of
Norway’s offshore.

For example, the tax rate in Portugal is 27.5 per cent, 30 per cent in
Spain and in France the rate is 34.4 per cent. The reason why a higher
rate applies in Norway is straightforward: the strike rate in
Norwegian waters is incomparably better.

O’Toole is correct in one assertion, namely, that I “was once a critic
of the regime”. In the 1970s, like many others, I thought Ireland had
Norway-like prospects. Unfortunately it has turned out otherwise. For
example, 156 exploration and appraisal wells have been drilled in
Ireland compared with over 1,200 in Norway and 4,000 in the UK.

The statistics are more stark when it comes to producing fields.

The UK has had in excess of 380 oil and gas fields, while Ireland has
only three with a fourth in development. The Troll field offshore
Norway is in the region of 50 times the size of the Corrib gas field.

Is it any wonder that the tax take in Norway is higher? If Ireland
over the last 40 years had enjoyed Norwegian-style finds then I too
would be recommending similar tax rates. Norway’s enviable success is
almost exclusively attributable to its fortunate geographic location
and the geology of its offshore.

Unfortunate as it may be, replicating the Norwegian regulatory
approach will not in any way change the geology of the Irish offshore.

Fintan O’Toole accepts that “the scale of the investment and expertise
required means that the giant oil corporations will have to be
involved”. But he can’t logically then argue for Norwegian-style tax
rates. The oil companies simply wouldn’t come to Ireland and, as he
concedes, we do not have the capacity financial or otherwise to do the
job ourselves.

If the basic rate of tax of 25 per cent introduced almost 20 years ago
was too low, why then have fewer than 20 exploration wells been
drilled in the Irish offshore in the last decade? The answer is that
the international industry has by and large chosen to invest its
exploration budget elsewhere on the basis of its perceived risk/reward
balance.

In relation to the appropriateness of Ireland’s licensing terms it is
important to recall that Ireland’s oil and gas tax terms were revised
as recently as 2007, following a review that was informed by
independent economic experts. There have been calls for the Oireachtas
to review these tax terms and I would of course be happy to engage
with any such process. I believe, however, that the evidence in terms
of the international industry’s investment decisions provides a clear
indication as to the appropriateness of Ireland’s tax approach.

Without dwelling on the relative merits of tax, versus royalties,
versus a State shareholding, as a means for the State to extract value
from Ireland’s natural resources, it is important to recall that each
of these is simply an instrument to ensure a return to the State from
successful exploration. The most common instrument in use
internationally is a tax on profits and this is the model used in
Ireland. Needless to say without successful exploration the choice of
instrument is irrelevant.

Finally to return to the opening sentence of the O’Toole piece. The
reality is that the recent licensing round, while positive in terms of
demonstrating a modest upswing in interest, will not put Ireland on a
footing with countries like Norway and the UK in terms of the level of
exploration activity. Far from resulting in all of the Irish offshore
being licensed for exploration, the reality is that the vast majority
of Ireland’s offshore will continue to be both unlicensed and
underexplored.

This represents a real challenge for Ireland. Ireland is not Norway.
Ireland’s policy approach to the taxation of profits from oil and gas
production must be informed by clear and rational analysis and must be
grounded in reality.