Shell hope for "20 or more Corribs" in Irish waters - WikiLeaks

digme

A SENIOR OFFICIAL from Shell Ireland told the second-in-command of the US delegation to Ireland that his company thought there may be “20 or more” offshore gas fields of the size of the Corrib Gas development, according to a leaked diplomatic cable.

wikileaks cable

We might get out of this depression yet lads.

FreudianSlippers

digme wrote: »

A SENIOR OFFICIAL from Shell Ireland told the second-in-command of the US delegation to Ireland that his company thought there may be “20 or more” offshore gas fields of the size of the Corrib Gas development, according to a leaked diplomatic cable.

wikileaks cable

We might get out of this depression yet lads.

More likely we've already sold off any interest in these deposits and Shell will post record profits.

Byron85

So much for the "not viable" argument put forth by some on here. Even though they only "hope" for more fields, I presume that they have some solid reasoning for this?

Diarmuid

Did anyone read the actual text?

(C) Ireland’s real hope, however, is to find more gas in the Porcupine Basin in the North Atlantic. Shell reps and Bazilian told the Embassy that 2008 could be a big year for gas exploration in Ireland. Shell’s Cetti said there “could be 20 or more Corribs out there — or very little — depending on how the exploratory drilling progresses this year.” The Irish government just announced the results of the latest round of license tendering for fields in the North Atlantic. ExxonMobil (and partners) won two of the four licenses up for grabs.

So they hoped that exploratory drilling in 2008 would show up 20 more fields but could show up nothing. Considering this is 2011, I take it the latter was the case

Scofflaw

Hope springs eternal, and without necessity of source - oil, on the other hand, has to be found first.

cordially,
Scofflaw

Seth Brundle

Diarmuid wrote: »

Considering this is 2011, I take it the latter was the case

In fairness, and with Shell's alleged record globally I wouldn't assume anything. A conspiracy theorist couls say they may want to keep it all quiet until all planning & construction activities in Mayo have been completely finalised before they announce several more wells.

zig

another shock horror no sh1t sherlock someone stating the obvious wikileaks cable. Its this very hope that the likes of shelltosea and others are getting their extremely over the top 420 billion figures.

I havent seen something taken so out of context for a while now,

Shell's Cetti said there 'could be 20 or more Corribs out there – or very little – depending on how the exploratory drilling progresses this year',

Vehement opposition to shelltosea could come along and post this very same thing saying 'I told you so'.

Leiva

Can somebody please give me a brief explanation on how we (Irish Govt) get paid for such gas/oil .

I have read everything from :
We wont get a penny .
We have sold all our gas and oil already .
etc etc

How can this be and how true are these statements ?

Scofflaw

mixednuts wrote: »

Can somebody please give me a brief explanation on how we (Irish Govt) get paid for such gas/oil .

I have read everything from :
We wont get a penny .
We have sold all our gas and oil already .
etc etc

How can this be and how true are these statements ?

Oil and gas exploration is done under licence from the State. The State auctions the right to prospect for and exploit resources in a delineated area to interested bidders, but the State retains ownership of the resources.

So, once a company has been successful in its licence bid, it can then prospect in the 'block' it has bought the licence for. If it discovers a commercially viable field, it's up to the company whether it exploits the field or sells its licence to another company. The costs of exploration and exploitation are borne by the company, obviously.

Where the State makes its money is once the field is producing. At that point, the State charges, as most states do, corporation tax on the profits of the company accruing in Ireland - 25% (not the standard 12.5% rate) - plus a tax specifically on the profits of the field itself, which varies from 25% to 40% depending on the profit margin of the field (higher rate for more profitable fields).

Corrib, however, falls under an older taxation deal agreed back in the day by Ray Burke, which was a flat 25% tax on profits. That taxation arrangement is often decried as the result of corruption, but is instead very similar to the taxation arrangement the Norwegians first used when they were first trying to get oil companies interested in drilling in Norwegian waters. When I was working offshore (17 years ago!), that deal was still running for the first fields found in Norwegian waters, and still had a few years to run. Our version of it ran until 2007, when Eamon Ryan introduced the new regime. Any discoveries made from that point forward are taxed under the new regime, not the old one.

Obviously, profits being what is taxable means that the company gets to set off its exploration and development costs against tax. In the case of Corrib, those costs are expected to be about €2.5bn (source). The expected size of Corrib is about 1 trillion cubic feet (70% the size of Kinsale), and the expected tax take from Corrib is about €1.7bn at 2008 gas prices.

Assuming the government were using the 2008 gas price heights of about $12.5/mBTU, the field's value would have then been $12.5bn, or about €9.4. Given the capital costs of €2.5bn, that's a profit of €6.9bn over capital, and a tax take of €1.72bn.

Taking, on the other hand, the current price of gas, which is more like $4/mBTU, the field is worth about $4bn, or about €3bn. Given the capital costs of €2.5bn, that's a profit of €500m over capital, and a tax take of €130m.

So, to answer your questions directly, when people say "we won't get a penny", they are talking rubbish. When they say "we have sold all our gas and oil already", they are, again, talking rubbish. If someone says that the tax arrangements for Corrib could have been more advantageous for the State, that's fair enough, although the counter-argument is that we probably wouldn't have seen the exploration that found Corrib.

cordially,
Scofflaw

Leiva

Scofflaw wrote: »

Oil and gas exploration is done under licence from the State. The State auctions the right to prospect for and exploit resources in a delineated area to interested bidders, but the State retains ownership of the resources.

So, once a company has been successful in its licence bid, it can then prospect in the 'block' it has bought the licence for. If it discovers a commercially viable field, it's up to the company whether it exploits the field or sells its licence to another company. The costs of exploration and exploitation are borne by the company, obviously.

Where the State makes its money is once the field is producing. At that point, the State charges, as most states do, corporation tax on the profits of the company accruing in Ireland - 25% (not the standard 12.5% rate) - plus a tax specifically on the profits of the field itself, which varies from 25% to 40% depending on the profit margin of the field (higher rate for more profitable fields).

Corrib, however, falls under an older taxation deal agreed back in the day by Ray Burke, which was a flat 25% tax on profits. That taxation arrangement is often decried as the result of corruption, but is instead very similar to the taxation arrangement the Norwegians first used when they were first trying to get oil companies interested in drilling in Norwegian waters. When I was working offshore (17 years ago!), that deal was still running for the first fields found in Norwegian waters, and still had a few years to run. Our version of it ran until 2007, when Eamon Ryan introduced the new regime. Any discoveries made from that point forward are taxed under the new regime, not the old one.

Obviously, profits being what is taxable means that the company gets to set off its exploration and development costs against tax. In the case of Corrib, those costs are expected to be about €2.5bn (source). The expected size of Corrib is about 1 trillion cubic feet (70% the size of Kinsale), and the expected tax take from Corrib is about €1.7bn at 2008 gas prices.

Assuming the government were using the 2008 gas price heights of about $12.5/mBTU, the field's value would have then been $12.5bn, or about €9.4. Given the capital costs of €2.5bn, that's a profit of €6.9bn over capital, and a tax take of €1.72bn.

Taking, on the other hand, the current price of gas, which is more like $4/mBTU, the field is worth about $4bn, or about €3bn. Given the capital costs of €2.5bn, that's a profit of €500m over capital, and a tax take of €130m.

So, to answer your questions directly, when people say "we won't get a penny", they are talking rubbish. When they say "we have sold all our gas and oil already", they are, again, talking rubbish. If someone says that the tax arrangements for Corrib could have been more advantageous for the State, that's fair enough, although the counter-argument is that we probably wouldn't have seen the exploration that found Corrib.

cordially,
Scofflaw

Scofflaw,
Excellent response (as always) and thanks for taking the time.

With the new arrangements in place for future finds we seem to be up to an international standard , all we need to do now is strike oil and start building up €500billion cash reserve like our Norweigan friends .

May aswell dream here than in bed .

M.

feicim

Scofflaw wrote: »

Oil and gas exploration is done under licence from the State. The State auctions the right to prospect for and exploit resources in a delineated area to interested bidders, but the State retains ownership of the resources.

So, once a company has been successful in its licence bid, it can then prospect in the 'block' it has bought the licence for. If it discovers a commercially viable field, it's up to the company whether it exploits the field or sells its licence to another company. The costs of exploration and exploitation are borne by the company, obviously.

Where the State makes its money is once the field is producing. At that point, the State charges, as most states do, corporation tax on the profits of the company accruing in Ireland - 25% (not the standard 12.5% rate) - plus a tax specifically on the profits of the field itself, which varies from 25% to 40% depending on the profit margin of the field (higher rate for more profitable fields).

Corrib, however, falls under an older taxation deal agreed back in the day by Ray Burke, which was a flat 25% tax on profits. That taxation arrangement is often decried as the result of corruption, but is instead very similar to the taxation arrangement the Norwegians first used when they were first trying to get oil companies interested in drilling in Norwegian waters. When I was working offshore (17 years ago!), that deal was still running for the first fields found in Norwegian waters, and still had a few years to run. Our version of it ran until 2007, when Eamon Ryan introduced the new regime. Any discoveries made from that point forward are taxed under the new regime, not the old one.

Obviously, profits being what is taxable means that the company gets to set off its exploration and development costs against tax. In the case of Corrib, those costs are expected to be about €2.5bn (source). The expected size of Corrib is about 1 trillion cubic feet (70% the size of Kinsale), and the expected tax take from Corrib is about €1.7bn at 2008 gas prices.

Assuming the government were using the 2008 gas price heights of about $12.5/mBTU, the field's value would have then been $12.5bn, or about €9.4. Given the capital costs of €2.5bn, that's a profit of €6.9bn over capital, and a tax take of €1.72bn.

Taking, on the other hand, the current price of gas, which is more like $4/mBTU, the field is worth about $4bn, or about €3bn. Given the capital costs of €2.5bn, that's a profit of €500m over capital, and a tax take of €130m.

So, to answer your questions directly, when people say "we won't get a penny", they are talking rubbish. When they say "we have sold all our gas and oil already", they are, again, talking rubbish. If someone says that the tax arrangements for Corrib could have been more advantageous for the State, that's fair enough, although the counter-argument is that we probably wouldn't have seen the exploration that found Corrib.

cordially,
Scofflaw

Hi Scofflaw, you seem to know your onions with regard to shell etc.

Can you tell me the truth of each of these statements (source) (shell to sea website)

The Great Oil & Gas Giveaway
Ministers Ray Burke and Bertie Ahern changed Irish law in 1987 & 1992 so that multinational oil companies:

1. own 100% of the oil and gas they find under Irish waters;

2. pay no royalties on it;

3. can write off 100% of their costs against tax, even costs incurred in other countries;
(this would be a worrying loophole).

4. have profits taxed at 25%, compared to an international average of 68% for oil-producing countries;

5. Green Party minister Eamon Ryan has continued to issue licences to multinationals on these terms.

Grassroots_FF

feicim wrote: »

Hi Scofflaw, you seem to know your onions with regard to shell etc.

Can you tell me the truth of each of these statements (source) (shell to sea website)

The Great Oil & Gas Giveaway
Ministers Ray Burke and Bertie Ahern changed Irish law in 1987 & 1992 so that multinational oil companies:

1. own 100% of the oil and gas they find under Irish waters;

2. pay no royalties on it;

3. can write off 100% of their costs against tax, even costs incurred in other countries;
(this would be a worrying loophole).

4. have profits taxed at 25%, compared to an international average of 68% for oil-producing countries;

5. Green Party minister Eamon Ryan has continued to issue licences to multinationals on these terms.

We have to offer generous terms to corporations so that will will come in and invest and create jobs.

Scofflaw

feicim wrote: »

Hi Scofflaw, you seem to know your onions with regard to shell etc.

Can you tell me the truth of each of these statements (source) (shell to sea website)

The Great Oil & Gas Giveaway
Ministers Ray Burke and Bertie Ahern changed Irish law in 1987 & 1992 so that multinational oil companies:

1. own 100% of the oil and gas they find under Irish waters;

There's a couple of different things that can be owned here - the resource itself (ie the actual reservoir), and the oil or gas produced. In every petroleum fiscal regime worldwide, the company owns at most only what they produce from the reservoir - the State always continues to own the resource, which is exploited by the company only under licence. This is the case in Ireland - the Irish State owns the reservoir. So, in that sense, the claim is untrue.

When it comes to the oil or gas actually produced from the reservoir, there are two main types of fiscal regime - 'concessionary' and 'contractual'. In the former type of system, the company with the licence owns the oil/gas they produce, whereas in the latter they're producing the oil/gas on behalf of the state as a contractor. In the former case, therefore, they can do what they like with the oil/gas once they've produced it - in the latter, they can't.

Ireland has a concessionary system, which means that the oil company owns 100% of the oil or gas it produces, so in that sense, the claim is true.

Is a concessionary system unusual? Not even slightly - Australia, NZ, Argentina, Turkey, Canada, the US, Ghana, Dubai, Abu Dhabi, and nearly every EU country uses a concessionary system, for example. The contractual system is more typical of countries with authoritarian governments - Russia, China, Iran, Saudi, etc.

The way the claim is worded is unsurprisingly fuzzy - the implication, that we've literally sold our oil and gas to oil companies and now have no further stake in it, is certainly untrue, but there is a sense in which the statement can be justified, despite the falseness of the implication.

2. pay no royalties on it;

In the sense that 'royalties' mean a tax on production - that is, gross income rather than net income (profits) - that's true.

3. can write off 100% of their costs against tax, even costs incurred in other countries;
(this would be a worrying loophole).

They can certainly write off allowable costs against tax, and some of those costs will presumably be incurred in other countries - however, they have to relate to the reservoir in question. I would imagine that a lot of the work that goes into developing the field will actually be done in places like Aberdeen, and a lot of the wages being paid to contractors will be happening there too, because there isn't the expertise here to do it - and the money spent on that is certainly money spent on developing the field.

Again, in a sense, the 100% of costs is true, if (and only if) you include the qualifier "allowable" as in "allowable costs". Irish tax legislation provides for a 100% allowance for capital expenditures incurred for production and development with a relevant field - and this, I suspect, is where the "100%" thing comes from. However, the legislation excludes from development expenditure anything spent on vehicles, land, buildings, machinery, plant, or structures for processing or storing any oil or gas produced - that is, storing the stuff or processing it isn't regarded as part of developing the reservoir.

So, again, the statement is literally true with some added caveats, while the implication is false - because to me, that statement reads as if the oil company could just charge losses in Angola against production in Ireland, which is completely false. Oil companies in Ireland aren't even allowed to offset losses incurred in another part of their Irish business against the tax due on a field - each field is treated essentially as a single business. Wherever costs are incurred in developing that field, they can be set off against the income from that field, but no costs outside the costs of the field can be set off against it.

4. have profits taxed at 25%, compared to an international average of 68% for oil-producing countries;

That's the corporation tax rate for the company, and is also the base rate for the 'resource rent tax' (the tax on the profits from the specific field). It's fuzzy, again, which they're referring to - if it's the corporation tax rate, then they should really compare it to the 12.5% Irish corporation tax rate!

Further, it's uncertain whether they're referring specifically to the regime under which Corrib is taxed, or to the current regime.

However, assuming it's the current regime (because otherwise one cannot claim that Eamon Ryan is still awarding licences under 'this' regime), first, that's the lowest rate of field profit tax (it rises to 40%), and second, those two are cumulative. If we take a field like Corrib under the current licensing regime, and do the costings as above, we get the following:

1. value of field: €9.4bn
2. allowable development costs: €2.5bn
3. pre-tax profit on field: €6.9bn
4. field profitability ratio: (6.9/2.5) 2.76
5. applicable resource rent tax rate: 30%
6. resource rent tax: €2.07bn
7. company's post-resource-tax profit on field: €4.83bn
8. company's pre-tax corporate profit in Ireland: ??
9. corporation tax @ 25%: ??

Step 8 is obviously tricky, since it depends on the company's other costs and income in Ireland. If we assumed that the company in question has business activities in Ireland that produce another €1bn in income, and costs of, say, €730m, then the Irish activities will produce a taxable profit for the company that's dominated by the profits from the field:

8. company's pre-tax corporate profit in Ireland: €5.1bn (€4.83bn + €0.27bn)
9. corporation tax @ 25%: €1.276bn

Since that last number is dominated by the field profits (94.7% of the corporate profit), the total tax take on the field is €2.07bn from the resource rent tax and €1.208bn from the field's contribution to corporation tax. That gives you a tax take on the field's profits of €3.28bn, which is 47.5%, not 25%.

Further, you have to consider that (a) Ireland is not an "oil-producing country"; and (b) that the comparison perhaps ought to be with the 12.5% corporation tax rate we charge other companies.

I'm not sure how the figures that make up the "international average of 68% for oil-producing countries" are derived. I somehow doubt it includes all the world's countries, and I suspect that the ones left out were countries in a similar position to Ireland - that is, having a largely unknown petroleum resource which is either technologically or politically difficult to explore or exploit. If you included just the countries with large proven reserves, who are in a position to charge much higher taxes without any fear of putting off the oil companies, then I'm sure you can come out with 68%.

We do have a very attractive petroleum tax regime - deliberately so, because the Irish offshore is, as I said, largely unknown territory in difficult conditions, and existing exploration hasn't painted a terrifically attractive picture of what's out there so far. At the moment, you'd have to call our petroleum resources "marginally attractive" - that is, worth chucking a small exploration effort at, but not some kind of crock of gold whose owners can charge what they like for access. And that's with our current attractive fiscal regime - if we upped our tax take to the kind of levels Norway has, we'd be a very long way below "marginally attractive" - somewhere between "utterly repulsive" and "last-throw gambling only".

So that statement is accurate if you take it to be a reference to the 25% base resource rent tax rate, and aren't particularly fussy about how they came to the 68% figure.

feicim wrote: »

5. Green Party minister Eamon Ryan has continued to issue licences to multinationals on these terms.

If that's taken to imply 'the same terms as Corrib' - that is, the 1992 fiscal regime, then no. As far as I know, any licensing round undertaken while Ryan has been Minister has been undertaken under the new regime rather than the 1992 regime.

If, on the other hand, it's taken to mean 'on the same terms as we have rather inaccurately and tendentiously alluded to here', then yes.

A clever set of claims, really. Each one can be defended as being a reference to some literal truth or other, but each one quite falsely implies vastly more than that. If we take the implications as I would see them, we get:

1. own 100% of the oil and gas they find under Irish waters;

OMG they've given away our oil and gas, because I sure as heck haven't heard of any tax being paid on it!

2. pay no royalties on it;

They don't have to pay anything for it! I knew it!

3. can write off 100% of their costs against tax, even costs incurred in other countries;
(this would be a worrying loophole).

They can write off losses on fields in Angola against Irish tax!

4. have profits taxed at 25%, compared to an international average of 68% for oil-producing countries;

We're giving this stuff away for next to nothing! Everyone is laughing at us!

5. Green Party minister Eamon Ryan has continued to issue licences to multinationals on these terms.

They're still giving it away for nothing! Obviously he's as bent as Burke!

Note that the implications are often partially contradictory - if we're giving it away for nothing, why would the company need to write off losses in Angola anyway? Funnily enough, though, that's often one of the marks of good propaganda, along with the way every statement, however wild the implications, contains a defensible point of truth. In a public debate, therefore, your opponent is going to have to agree with at least one basic fact in your claim - usually the figure is best - and then resort to a lot of "however, that's not quite the case" plus long and detailed blah blah blah that goes in one ear and out the other after what sounds like a capitulation.

Good stuff.

cordially,
Scofflaw

sceptre

A 2008 cable that said “could be 20 or more Corribs out there — or very little — depending on how the exploratory drilling progresses this year.”...

That's a prime example of why posting only half a quote in an opening argument is pretty goddamned misleading.