billion barrel oil find confirmed off Cork coast, we got nothing?

Happyman42

K-9 wrote: »

Less of what exactly?

What has been generated from the Kinsale gasfields, now nearing depletion and what will be generated from the Corrib field. That deal being signed and sealed unfortunately.

K-9

Happyman42 wrote: »

No....and?
Why are we giving them away so cheaply? The net gain from Corrib after Shell wiggle their way through all the tax loopholes will be very little. We don't even retain ownership of what is found, despite this being the norm in a lot of other oil and gas producing countries. We have resources yet we have no fuel security whatsoever.

If the net gain for the Government isn't that much for Corrib, neither will Shell make a huge fortune.

The State could do this itself, except it costs Billions, then you've the likes of Shell to Sea to contend with. For it to be viable oil and gas needs to stay high, so it isn't going to be of much benefit to you personally.

In 40 years of exploration we've found Kinsale and Corrib.. This seems to have potential but there are too many vested interests here to get all uppity about hiking tax rates. I doubt you or many others would believe Independent Newspapers and O'Reilly on other topics.

Scofflaw

Happyman42 wrote: »

No....and?
Why are we giving them away so cheaply? The net gain from Corrib after Shell wiggle their way through all the tax loopholes will be very little. We don't even retain ownership of what is found, despite this being the norm in a lot of other oil and gas producing countries. We have resources yet we have no fuel security whatsoever.

And we won't find any more if the same companies don't look, and they won't bother looking if it's not worth their while. We don't have the capacity to go looking ourselves, nor the money to fund such a risky venture.

To give some idea of how unattractive Ireland as a prospect is, of the licence blocks offered for exploration in the most recent round, only 6% were taken up. That's not any sort of evidence for oil companies desperate to get into Ireland's offshore.

To be honest, I think it's clear at this stage that we can go round and round here - you won't accept that the low takeup of licences in the Irish offshore is meaningful evidence of little interest, and it also seems you won't accept that such a low level of interest in licences despite what you consider a giveaway tax regime means that a less generous tax regime would result in even less interest.

Both of those are very basic commercial points, to which your response appears to be that "oil companies gotta drill" and therefore we can charge what we like. But oil companies don't have to drill here - they want oil and profits, they're not drilling for the fun of it, and they have to balance the risks of exploration against the possible rewards of finding oil. And that they prefer to drill elsewhere, even though our tax regime is more generous than the places they prefer to us, tells you, or should, that the balance of risk and reward is simply not good enough to make them keen to drill here - again, despite the generous tax regime.

And, importantly, it's impossible to claim, as you appear to be doing, that the tax regime has no effect on the calculation of risk and reward - it doesn't change the risk, but it obviously changes the reward. It's possible, of course, that we could change the tax regime somewhat without significantly changing the attractiveness of exploration in Irish waters - and we've done so, most recently in 2007. However, the terms introduced then are a sliding scale based on the ratio of profits to costs for the field, so they don't introduce any additional risk for exploration companies.

Ireland could do the exploration itself, of course. Let's say we'd done Corrib ourselves. Assuming none of our famous cost overruns, you'd be looking at c. €1.5bn in exploration costs and €2.5bn in development costs as per Shell's costs - a €4bn outlay - and a gas worth €9bn in return. Tax wise, we would have got perhaps €1.7bn out of that under the current system, perhaps as little as €0.5bn. Doing it ourselves, we'd be getting the full €5bn in profit, which sounds like a much better deal.

Except that it isn't, really. Corrib has been 14 years now with no gas onshore, and that's not really due to S2S either - it takes time to develop a field (Kinsale, in much shallower water and much closer to shore, took 7 years). It's expected to yield for 15 years once it starts production, so you're looking at 30 years or so for return on investment.

What sort of investment return does that amount to? Roughly 1% annually. And you can beat that with nearly anything. You'd certainly do much better with forestry. The NPRF managed a return of 6% before it was forced to put its money into the banks.

cordially,
Scofflaw

Happyman42

Happyman42 wrote: »

If you accept that it is ok for one corporation to make 18bn a year in profits then you have to accept that somebody somewhere is going to get shafted.

Why can`t a successful company make good profits?
What is wrong with that?


We can all hope our pensions are invested in such well run companies. Would beat the banks anyday

tippilot

A few points.

Why is the tax rate so low?

Well there are a few good reasons.

Ireland has had few commercially viable hydrocarbon finds with as yet little or no geographical clustering over a massive exploration area. This translates into much higher risk.

There is no oil/gas exploration infrastructure in situ here. Everything must be imported, even manpower. Higher cost = Higher risk.

We have no real track record as yet and talks of changing the taxation system are at least 10 years and numerous commercial finds premature.

The cost of shallow water(ie Ballyroe) exploration well averages at €30m with 100% of that risk borne by the exploration company. That is not the case in Norway where the government refunds 78% the cost of an unsuccessful exploration well.

A favourable tax rate is absolutely necessary to encourage exploration companies to assume 100% of unmitigated risk and develop a track record here allowing for more favourable terms and conditions for the Irish people to be introduced in future.

Regarding Ballyroe itself and assuming the North Sea average of 38% recoverable assets(Providence figure), then you could potentially triple the 160 mmbo recoverable number which as of yet has not been revised upwards.

It is doubtful that any refining industry will be developed here beyond what is already in situ. Corrib has seen to that. Off take will be at sea for immediate export.

A couple of interesting years lie ahead. The drilling of Dunquin a deep water gas prospect could be of massive significance. Repsol have taken primary exposure and if successful based on seismic data it could turn out being one of the largest gas fields worldwide. Again, off take at sea for immediate export. Drilling scheduled for next year.

The re appraisal of Spanish Point and Burren with drilling also scheduled for next year. Drilling at the Dalkey prospect is also on the horizon.

Interesting times.

everdead.ie

tippilot wrote: »

A few points.

Why is the tax rate so low?

Well there are a few good reasons.

Ireland has had few commercially viable hydrocarbon finds with as yet little or no geographical clustering over a massive exploration area. This translates into much higher risk.

There is no oil/gas exploration infrastructure in situ here. Everything must be imported, even manpower. Higher cost = Higher risk.

We have no real track record as yet and talks of changing the taxation system are at least 10 years and numerous commercial finds premature.

The cost of shallow water(ie Ballyroe) exploration well averages at €30m with 100% of that risk borne by the exploration company. That is not the case in Norway where the government refunds 78% the cost of an unsuccessful exploration well.

A favourable tax rate is absolutely necessary to encourage exploration companies to assume 100% of unmitigated risk and develop a track record here allowing for more favourable terms and conditions for the Irish people to be introduced in future.

Regarding Ballyroe itself and assuming the North Sea average of 38% recoverable assets(Providence figure), then you could potentially triple the 160 mmbo recoverable number which as of yet has not been revised upwards.

It is doubtful that any refining industry will be developed here beyond what is already in situ. Corrib has seen to that. Off take will be at sea for immediate export.

A couple of interesting years lie ahead. The drilling of Dunquin a deep water gas prospect could be of massive significance. Repsol have taken primary exposure and if successful based on seismic data it could turn out being one of the largest gas fields worldwide. Again, off take at sea for immediate export. Drilling scheduled for next year.

The re appraisal of Spanish Point and Burren with drilling also scheduled for next year. Drilling at the Dalkey prospect is also on the horizon.

Interesting times.

There is also the fact that none of Providences finds have been independantly verified so while unlikley to be fraudulant could still be misleadingly large.

Happyman42

Scofflaw wrote: »

And we won't find any more if the same companies don't look, and they won't bother looking if it's not worth their while. We don't have the capacity to go looking ourselves, nor the money to fund such a risky venture.

I understand absolutely the risks and margins for an oil company. I also understand how the figures can be manipulated. Without wishing to open up a conspiracy theory can of worms, corporations, including Shell, haven't exactly covered themselves in glory in what they are prepared to do to get at resources elsewhere in the world. Not many of them succumb to the 'risks'. The risk here was attractive to 15 companies though. Providence point to new technologies as being responsible for finding this deposit in a previously capped/unexploitable area. Those technologies will only improve, so our prospects of finding more viable resources is good to excellent, the riskd are therefore diminishing somewhat.

To give some idea of how unattractive Ireland as a prospect is, of the licence blocks offered for exploration in the most recent round, only 6% were taken up. That's not any sort of evidence for oil companies desperate to get into Ireland's offshore.

Well then if that is the consensus then the time is not right, simple as. Our resources belong to us and the 'future us' as well. Bending over and getting shafted now is bad governance of a resource that is only increasing in value.

To be honest, I think it's clear at this stage that we can go round and round here - you won't accept that the low takeup of licences in the Irish offshore is meaningful evidence of little interest, and it also seems you won't accept that such a low level of interest in licences despite what you consider a giveaway tax regime means that a less generous tax regime would result in even less interest.

It is meaningful evidence of little interest for companies who want maximum profit, it is not evidence that the resource(properly managed) cannot be profitable for us though. Outside the 'vested interests' it is the consensus that the net worth of the Corrib field to us will be minimal.

Both of those are very basic commercial points, to which your response appears to be that "oil companies gotta drill" and therefore we can charge what we like.

That is not what I said at all, at any point.

But oil companies don't have to drill here - they want oil and profits, they're not drilling for the fun of it, and they have to balance the risks of exploration against the possible rewards of finding oil. And that they prefer to drill elsewhere, even though our tax regime is more generous than the places they prefer to us, tells you, or should, that the balance of risk and reward is simply not good enough to make them keen to drill here - again, despite the generous tax regime.

That an oil company can't make ENOUGH profit is not the same as saying that the resource isn't profitable though. Despite all the hassle and risk, Shell are happily continuing to exploit the Corrib field. What we have to do, is find a way to make it profitable for us and the current way of doing that is clearly not profitable for us.

And, importantly, it's impossible to claim, as you appear to be doing, that the tax regime has no effect on the calculation of risk and reward - it doesn't change the risk, but it obviously changes the reward. It's possible, of course, that we could change the tax regime somewhat without significantly changing the attractiveness of exploration in Irish waters - and we've done so, most recently in 2007. However, the terms introduced then are a sliding scale based on the ratio of profits to costs for the field, so they don't introduce any additional risk for exploration companies.

Ireland could do the exploration itself, of course. Let's say we'd done Corrib ourselves. Assuming none of our famous cost overruns, you'd be looking at c. €1.5bn in exploration costs and €2.5bn in development costs as per Shell's costs - a €4bn outlay - and a gas worth €9bn in return. Tax wise, we would have got perhaps €1.7bn out of that under the current system, perhaps as little as €0.5bn. Doing it ourselves, we'd be getting the full €5bn in profit, which sounds like a much better deal.

Except that it isn't, really. Corrib has been 14 years now with no gas onshore, and that's not really due to S2S either - it takes time to develop a field (Kinsale, in much shallower water and much closer to shore, took 7 years). It's expected to yield for 15 years once it starts production, so you're looking at 30 years or so for return on investment.

What sort of investment return does that amount to? Roughly 1% annually. And you can beat that with nearly anything. You'd certainly do much better with forestry. The NPRF managed a return of 6% before it was forced to put its money into the banks.

cordially,
Scofflaw

Despite all the risk and the fragile profit margins you allude to, Shell make 18bn a year in 'profits' on worldwide exploits. That's just one private company. Oil/Gas are undeniably lucrative and highly profitable 'investments' for private companies, but as yet we have not found a way to make it highly profitable for us, while others have. There is something wrong there.
It is due to not having the proper deals in place. In the first instance, the licencing model is wrong. Giving away control of what is found is totally wrong and isn't a given, as many other countries maintain control in 'contractual arrangements'. There are many different kinds of deals and many different percentages agreed to around the world, we are second from bottom on that table, that is because our resources are being mismanaged imo. We have to be prepared to leave it in the ground if the deal isn't maximised for us.

endabob1

The issue I have is that it's very easy to avoid corporation tax, move profits to another part of the group, transfer pricing etc.... The likelihood of a multinational actually paying 25% on the profits is next to zero, I would be interested to see the actual corporation tax a company like google pay in Ireland.

View

Well we could have the state just carry out the whole business from exploration through to extraction and sale of the oil and gas off our shores.

We'd probably manage to make massive losses in the process even if we made much larger discoveries than we have to date though. :-)

Happyman42

endabob1 wrote: »

The issue I have is that it's very easy to avoid corporation tax, move profits to another part of the group, transfer pricing etc.... The likelihood of a multinational actually paying 25% on the profits is next to zero, I would be interested to see the actual corporation tax a company like google pay in Ireland.

No transperancy here, it's impossible to get verified final net worth figures. That suits the corporations....again!

itzme

Happyman42 wrote: »

The risk here was attractive to 15 companies though. Providence point to new technologies as being responsible for finding this deposit in a previously capped/unexploitable area. Those technologies will only improve, so our prospects of finding more viable resources is good to excellent, the riskd are therefore diminishing somewhat.

I'm sorry but after this I won't be paying any attention to what you are saying. Where you get the idea that just because technologies are improving that prospects have gone from good to excellent is beyond me.

Happyman42

itzme wrote: »

I'm sorry but after this I won't be paying any attention to what you are saying. Where you get the idea that just because technologies are improving that prospects have gone from good to excellent is beyond me.

Fair enough, it is just an opinion, Providence and the stock exchange seem to share it today, but it doesn't really impact on my overall point.

irelandrover

Happyman42 wrote: »

Fair enough, it is just an opinion, Providence and the stock exchange seem to share it today, but it doesn't really impact on my overall point.

What proof are you looking for that companies won't drill if tax is too high.
Do you want a government document that states that a company didn't drill because they taxed too much?

Happyman42

irelandrover wrote: »

What proof are you looking for that companies won't drill if tax is too high.
Do you want a government document that states that a company didn't drill because they taxed too much?

It's clear around the world that companies are willing to drill under terms that are much, much more beneficial to the owners of the resources.

irelandrover

Happyman42 wrote: »

It's clear around the world that companies are willing to drill under terms that are much, much more beneficial to the owners of the resources.

Can you show where a country has a one in 30 chance of hitting oil and higher tax and a company stilled drilled there?

golden lane

Happyman42 wrote: »

It's clear around the world that companies are willing to drill under terms that are much, much more beneficial to the owners of the resources.

that is what has to be negotiated...........subject to a lot of factors, and i believe ireland needs the oil and gas as soon as possible.....

company's will also go for the easier extraction fields.....that is where the experts come in......and they have to be paid for...

antoobrien

Happyman42 wrote: »

It's clear around the world that companies are willing to drill under terms that are much, much more beneficial to the owners of the resources.

Actually the opposite is true - they will only drill where they do see a decent ROI, it doesn't matter how beneficial the terms are to the owners. The history of Norway's oil industry makes interesting reading.

In the 1950's there was no faith that there was much oil in Norway, until there was a find in Holland that made the oil companies rethink their strategies.

When exploration started in the 1960's initially exclusive contracts were given to companies that were awarded licenses.

After the Ekofisk oil and Frigg gas fields were discovered, the oil companies flocked to Norway knowing the likelihood of finding commercial oil/gas was good. It was only then, when the commercial viability had been established, that the Norweigan government changed the rules and started taxing the hell out of everything.

ressem

Norway Exploration refund: 78% of expenses related to exploration up to PDO are refunded year after spend
The exploration can be financed through bank facilities with pledge in the tax refunds

http://www.noreco.com/en/investors/analytical-information/tax/norway/

The Norwegian government act as guarantors and investment partners and take an equivalent amount of tax return on successful projects.

Providence are looking to drill 10 wells here at a cost of half a billion dollars. I don't think that the public would accept the Irish government refunding 400 million back to major oil companies.

Icepick

OP, what makes you entitled to something?

Also, calling 25% return on €0 and 0 risk investment nothing is ridiculous.

Lantus

antoobrien wrote: »

Actually the opposite is true - they will only drill where they do see a decent ROI, it doesn't matter how beneficial the terms are to the owners. The history of Norway's oil industry makes interesting reading.

The minute its costs more to recover a barrel of oil than its value it is essentially worthless.

The cheapest oil is on shore and humanity has cherry picked all the good stuff. It is virtually all gone. Next you go off shore which costs roughly around 10 times as much to recover as onshore. After that your into deep water and extreme climates like under ice which is another magnitude of expense to recover. The rising cost of oil doesn't and will never outstrip the rising scarsity and its increasing recoverable cost. It's a resource that is in decline and cannot be replaced.

The fact that such a tiny field is being considered as even having an ROI is insight into the oil companies desperation given the fact that a lot (some might argue virtually all) of our oil has now gone and we are just scapping the bottom of the barrel for the last few drops.

It's not good news this find, it's another indication that the oil age is at an end and civilsation has some very tough times ahead.


edit: just to add context the world biggest oil field Ghawar has allready produced 65 billion barrels, produces about 5 million bbls a day and may well have 20 to 50 billion barrels still left in it, although production has dropped year on year for at least 10 years now.

creedp

Lantus wrote: »

The fact that such a tiny field is being considered as even having an ROI is insight into the oil companies desperation given the fact that a lot (some might argue virtually all) of our oil has now gone and we are just scapping the bottom of the barrel for the last few drops.

A little bit on the sensatalist side don't you think.. ps don't tell the Saudi's that their oil has virtually gone or they will only put the price up again. Having said that they might be like Irish politicians and are therefore only worried about tomorrow

Fendt712

I can't believe this whole "it's our oil and gas" s**t is raising its head again. We should be delighted this resource was found but of course in true Irish style we're still not happy.

As far as I know in Norway if you drill for oil at least one in five returns a positive result. In Ireland, as a poster originally said, we have two finds one producing in kinsale the other the Corrib which is over 8 years behind schedule and still wont have first gas for probably another 2 years.

To say why don't we set a tax rate of forty or fifty per cent is a load of BS.. If you were the CEO of a large company and seen those figures of the ratio of holes to finds looking at Ireland it makes for light reading. Or go to Norway and yes of course pay their larger rates BUT statistically one in every five holes drilled will return a positive result.

We need incentives for these companies to come and explore.. Like Barryroe, that's a massive step in the right direction. It's time we realised that tourism is a small fish when the energy sector kicks in. Barryroe alone is estimated to bring €500m in tax take a year that's without all income tax etc. that's from one field. It brings huge investment, infrastructure and in my opinion most importantly JOBS..

But again of course because of all the delays caused on the Corrib project (costing the state millions in deploying gardai etc) 8 years behind schedule and €2bn cost blowout we won't have to worry about that. Providence have said it will be all offshore. Basically go to Korea build an FPSO and moor it at sea and fly guys in and out. This should not be the case.

If Corrib had gone to schedule (in or around as these projects rarely come in on time or budget but nothing near what's happened on Corrib) I think that would have been a huge stepping stone for more onshore refining. The likes of a plant to deal with the size of Barryroe is massive creating thousands of badly needed jobs. But as I said this will prob never happen because we f**ked that up too.

Basically we could be doing so much more than worrying about upping the tax rates on a few small oil fields, like inviting these companies in try to find as much as they can, Build onshore refineries, spend their money get the country working and try to get Ireland back on track....

n900guy

zing zong wrote: »

all the same, does any one know any of the actual details of whatever arrangements we have with this company?

I believe the agreement was written by the Minster for Finance without any Dail consultation; it can be found in the Irish Statute book under Paying Tuesday For Hamburgers Today Act (2011).

[Jackass]

As the oil is in our territory, we get 40% of the profits, we may also get 20% corporation tax on top of that. So a total take of between 40 - 60%. I'd say that's more than a fair return for zero risk.

Chazz Michael Michaels

It amuses me how many people get sucked into Providence Resources biannual fantasy.