Our Oil and Gas

Strongbow10

Why do articles that discuss Ireland’s poverty conceal Ireland’s riches?

Ireland has at least € 5.4 trillion euros ($7.38 trillion) worth of oil and gas reserves off its western coast – which is enough to pay off Ireland’s national debt of € 60 billion nearly a hundred times over.

A report by Petroleum Affairs Division of the Department of Communications, Marine and Natural Resources stated: “Volumetric assessment and expulsion modeling shows volumes of over 130 billion barrels of oil, plus 50 trillion cubic feet of gas off Ireland. At minimum, the potential is at least 10 billion barrels of oil, most of it in an underwater ridge known as the Atlantic Margin, which runs parallel to Ireland’s western shore.”

The Dunquin gas field, 125 miles off the coast of Kerry, contains 25 trillion cubic feet of natural gas, plus 4,130 million barrels of oil. This alone would meet Ireland’s gas needs (at present consumption levels) for the next 62 years.

The Spanish Point field, 125 miles off the coast of Clare, has known reserves of 1.25 trillion cubic feet of gas, plus 206 million barrels of oil.

Further north lies the Corrib field, with an estimated value of between € 6 and € 50 billion euros ($8.2 billion - $68.4 billion).

The Lough Allen basin (an inland field) has 9.4 trillion cubic feet of gas, plus 1.5 billion barrels of oil valued at € 75 billion euros ($102.6 billion).

Ireland has so much oil and gas that the masses need not submit to the IMF. So what’s the problem?

The problem is that Irish politicians intentionally locked up this oil and gas wealth by selling contracts to foreign oil companies, which take 95% of the profits, and give kickbacks to the politicians that wrote the contracts.

For example, Exxon Mobil is developing the Dunquin field, while Shell, Marathon and Statoil are developing the Corrib field.

These companies get all the money. Corporations harvesting the Corrib gas fields need pay only 25 percent of the profit to Ireland, and most of that 25% is withheld as exploration and operating costs.

Result: Ireland collects only 5% of the profits from its own oil and gas.

Oil companies whine that they must pay about € 70 million euros each time they do an exploration drill. But if they must drill – say -- 1,000 exploration wells to exploit all of Ireland’s oil and gas reserves, then for € 70 billion they get a 71-fold profit of € 5 trillion. This is like getting $3,550 from an investment of fifty bucks. Not bad.

The Irish masses want the government to re-negotiate its contracts with foreign oil companies – but that would mean less kickbacks to Irish politicians. Hence the politicians (especially those of the ruling Green - Fianna Fáil coalition) insist on taking IMF debt, since politicians will not have to pay for it. The masses will.

Investors see all this, and are buying oil futures, knowing that IMF debt (which taxpayers, not investors must repay) will backstop the investors’ gambles. Consequently the price for West Texas Intermediate crude futures has hit $83 a barrel, and continues to climb.

The Irish masses could demand more money from corporations that are extracting Ireland’s trillions in oil and gas. The masses could also reign in the speculators, and have a genuinely public bank. They could all share in prosperity.

But for that to happen, Ireland would need honest politicians.

Kristopherus

Don't be too worried about all that. The Gov will get plenty back from you and me in duties, VAT, Carbon tax. Thats more than enough for my liking:mad::mad::mad:

Its Shell's oil and gas now..

edanto

Strongbow10, I think you're right. I mean, maybe on a couple of points you might be overstretching it (e.g kickbacks going to current politicians), but on the whole I agree with you that it's a disgrace.

I joined a party to try and make a difference in this kind of thing. Would you be interested in doing the same kind of thing? Just go to a few meetings, Labour/FG/SF, try one each and see which you identify the most with.

For me, I agree most with the Labour party, so I've joined that. But that's just what suits me. From the research you've put into that post, you're certainly interested enough to find out lots about the 3 opposition parties.

Obviously you have to look a bit deeper than what they say on their website - even Fianna Fail have an agreeable looking set of policies on their website, you have to try and get to know the people involved in each and see what motivates them and how they see the world.

Oh, and if you can find any proof of corrupt payments to Ray Burke when he signed over all of our oil and gas reserves during the 80s, that would be a great help! If evidence of that was found, then in theory, it might be possible to have those contracts declared void.

professore

The taxes on the big oil companies are very low. However, if the OP is correct, why has so little of it been exploited to date ? It's either not there or very hard and expensive to mine. So it's a nonsense IMHO.

Spacedog

Concerning Shell and the Corrib field, and using wikileaks documents on Nigeria as a reference. it appears that shell are not afraid to infiltrate a government to secure access to natural resources.

People talk about re-negoating the bad deal with the IMF, but not this deal whith shell which is nothing less than a giveaway. Ray Burke was either paid off, blackmailed, or was not mentally fit when he made this agreement.

Ireland needs to pass law by referendum to restore soverignty over natural resources, land ownership, retroactive financial culpability for failings of banking and property industries, and end the limited liability insurance policy on child sex abuse extended to the catholic church.

...or we can abolish the Seanad... that'll solve everything too. :rolleyes:

Sulmac

At the moment barely any of this (supposed) oil and gas is being exploited because it is either not there or is very difficult to discover and extract (especially in the Atlantic). The process of either discovering or extracting in this location is very expensive at the moment and we do not know if it is 'worth it' yet.

Norway is the best known 'oil-rich' country in Europe and have their state-owned company Statoil, with profits produced being placed in the state pension fund, valued at just over $500 billion in 2010.

Norway didn't establish Statoil until they knew that there was enough oil and gas to justify doing so, and followed a policy not unlike our own until then, by giving exploration rights to private companies to go out and actually 'find' the oil.

North Sea oil

In May 1963, Norway asserted sovereign rights over natural resources in its sector of the North Sea. Exploration started on July 19, 1966, when Ocean Traveller drilled its first hole. Initial exploration was fruitless, until Ocean Viking found oil on August 21, 1969. By the end of 1969, it was clear that there were large oil and gas reserves in the North Sea. The first oil field was Ekofisk, produced 427,442 barrels of crude in 1980. Since then, large natural gas reserves have also been discovered.

Against the backdrop of the 1972 Norwegian referendum to not join the European Union, the Norwegian Ministry of Industry, headed by Ola Skjåk Bræk moved quickly to establish a national energy policy. Norway decided to stay out of OPEC, keep its own energy prices in line with world markets, and spend the revenue—known as the "currency gift"—in the Petroleum Fund of Norway. The Norwegian government established its own oil company, Statoil, and awarded drilling and production rights to Norsk Hydro and the newly formed Saga Petroleum.

The North Sea turned out to present many technological challenges for production and exploration, and Norwegian companies invested in building capabilities to meet these challenges. A number of engineering and construction companies emerged from the remnants of the largely lost shipbuilding industry, creating centers of competence in Stavanger and the western suburbs of Oslo. Stavanger also became the land-based staging area for the offshore drilling industry.

If we find enough oil and gas off the coast to justify it, I would be 100% behind setting up an Irish version of 'Statoil'.

Godge

Spacedog wrote: »

Concerning Shell and the Corrib field, and using wikileaks documents on Nigeria as a reference. it appears that shell are not afraid to infiltrate a government to secure access to natural resources.

People talk about re-negoating the bad deal with the IMF, but not this deal whith shell which is nothing less than a giveaway. Ray Burke was either paid off, blackmailed, or was not mentally fit when he made this agreement.

Ireland needs to pass law by referendum to restore soverignty over natural resources, land ownership, retroactive financial culpability for failings of banking and property industries, and end the limited liability insurance policy on child sex abuse extended to the catholic church.

...or we can abolish the Seanad... that'll solve everything too. :rolleyes:

Once we have done all of the above we can welcome all the Eastern Europeans who long for the good old days when they were poor under the Soviet system.

Scofflaw

Hard to know where to start, given how many times this has been covered. Currently, the state of play for the fields valued so highly in the OP are:

1. Atlantic Margin - absolutely nothing has been found. The "potential" to contain oil or gas only indicates that the available data appear to show structures which might contain oil or gas. The PAD is in the business of drumming up interest in exploration.

2. Dunquin - the figures cited are so-called "P10" figures, which means that there's a 10% possibility they're true. No well has been drilled, and the actual size of the resources, and whether anything is actually recoverable, is basically unknown. ExxonMobil, which has the licence for the field, is currently trying to drum up interest in it.

3. Spanish Point - again, no well drilled, estimates only. Providence is a Tony O'Reilly company, and currently needs a boost to its share price after a 31% fall in early 2010.

4. Corrib - at least has relatively constrained reserves, and some chance of actually producing some gas in the next 5 years. The current value of the field is about €6bn, and the costs of development to date are €2.5bn.

5. Lough Allen - that's a hilarious valuation for a field that has been known about since 1960, is very easily accessible, and yet nobody has ever bothered producing from, because it's not economic to do so. The company making the claim is the 100% owner of the licence (which indicates that nobody else could be bothered), and the claim that "new technology" will somehow make an uneconomic field immensely valuable is the oil industry equivalent of claiming you've found a way to extract gold from seawater profitably. The field is described as "unconventional" - and as consisting of "tight gas sandstone reservoirs, which are defined by low permeabilities and porosities relative to conventional fields". That means daily production rates would probably be about enough to run your granny's gas ring.

In summary, these immense amounts of oil and gas collapse down to actual known reserves worth c. €3.5bn net of development costs, and a whole load of share price boosting and talking up of almost entirely unknown prospects.

People talk about re-negoating the bad deal with the IMF, but not this deal whith shell which is nothing less than a giveaway. Ray Burke was either paid off, blackmailed, or was not mentally fit when he made this agreement.

And finally, Ray Burke's deal is no longer applicable, except to fields originally licenced under it, which does not include the newer discoveries or possibilities. Further, it was a reasonable deal at the time, and not dissimilar to the deal initially offered by Norway before the discovery of Ekofisk. Despite Ray Burke's supposed giveaway, nothing was found in Irish waters until Corrib - and Corrib, it's worth reminding people, is only about 70% the size of Kinsale. People act as if it was another Ekofisk - but Ekofisk is the biggest single discovery of all time. The Norwegians won a decade's rolled-over lottery jackpot - we've found a fiver up a wet tree in a high wind.

cordially,
Scofflaw

Retail Hell

ireland was briefed by the norwegians about statoil, but itwas pee Flynn of FF who was part the government team, so any wonder it went tits up

Fussgangerzone

Scofflaw wrote: »

Hard to know where to start, given how many times this has been covered. Currently, the state of play for the fields valued so highly in the OP are:

1. Atlantic Margin - absolutely nothing has been found. The "potential" to contain oil or gas only indicates that the available data appear to show structures which might contain oil or gas. The PAD is in the business of drumming up interest in exploration.

2. Dunquin - the figures cited are so-called "P10" figures, which means that there's a 10% possibility they're true. No well has been drilled, and the actual size of the resources, and whether anything is actually recoverable, is basically unknown. ExxonMobil, which has the licence for the field, is currently trying to drum up interest in it.

3. Spanish Point - again, no well drilled, estimates only. Providence is a Tony O'Reilly company, and currently needs a boost to its share price after a 31% fall in early 2010.

4. Corrib - at least has relatively constrained reserves, and some chance of actually producing some gas in the next 5 years. The current value of the field is about €6bn, and the costs of development to date are €2.5bn.

5. Lough Allen - that's a hilarious valuation for a field that has been known about since 1960, is very easily accessible, and yet nobody has ever bothered producing from, because it's not economic to do so. The company making the claim is the 100% owner of the licence (which indicates that nobody else could be bothered), and the claim that "new technology" will somehow make an uneconomic field immensely valuable is the oil industry equivalent of claiming you've found a way to extract gold from seawater profitably. The field is described as "unconventional" - and as consisting of "tight gas sandstone reservoirs, which are defined by low permeabilities and porosities relative to conventional fields". That means daily production rates would probably be about enough to run your granny's gas ring.

In summary, these immense amounts of oil and gas collapse down to actual known reserves worth c. €3.5bn net of development costs, and a whole load of share price boosting and talking up of almost entirely unknown prospects.



And finally, Ray Burke's deal is no longer applicable, except to fields originally licenced under it, which does not include the newer discoveries or possibilities. Further, it was a reasonable deal at the time, and not dissimilar to the deal initially offered by Norway before the discovery of Ekofisk. Despite Ray Burke's supposed giveaway, nothing was found in Irish waters until Corrib - and Corrib, it's worth reminding people, is only about 70% the size of Kinsale. People act as if it was another Ekofisk - but Ekofisk is the biggest single discovery of all time. The Norwegians won a decade's rolled-over lottery jackpot - we've found a fiver up a wet tree in a high wind.

cordially,
Scofflaw

That's all very nice and detailed, but what it boils down to is this: if no other fuel is found, there's only €3.5bn worth. So it sets an absolute minimum value on resources off the west coast.

I'll admit that the it's in the PADs interest to attract exploration, but I imagine their figures have basis in reality, and that if they were in complete piss-take territory, they would have been called up on it a long time ago. They haven't been.

If you take their minimum estimate, we're still talking about over €700bn worth. Costs taken into account we could surely get a quarter of that for fixing the country, even if it would be over a long space of time, were it to be used?

Costs won't be as high for everyone else as they were for Shell, unless they share their disregard for planning law, and conflixt with people living near their infrastructure.

So my question for you is this: is now the time to change the way we deal with fuel companies to maximise the benefit to the state, or should we wait until it's all been found?

Can you make one compelling argument for not revising our share upwards on all future finds?

Overheal

Ekofisk is the biggest single discovery of all time. The Norwegians won a decade's rolled-over lottery jackpot - we've found a fiver up a wet tree in a high wind.

Like.

Chucky the tree

Fussgangerzone wrote: »

That's all very nice and detailed, but what it boils down to is this: if no other fuel is found, there's only €3.5bn worth. So it sets an absolute minimum value on resources off the west coast.

I'll admit that the it's in the PADs interest to attract exploration, but I imagine their figures have basis in reality, and that if they were in complete piss-take territory, they would have been called up on it a long time ago. They haven't been.

If you take their minimum estimate, we're still talking about over €700bn worth. Costs taken into account we could surely get a quarter of that for fixing the country, even if it would be over a long space of time, were it to be used?

Costs won't be as high for everyone else as they were for Shell, unless they share their disregard for planning law, and conflixt with people living near their infrastructure.

So my question for you is this: is now the time to change the way we deal with fuel companies to maximise the benefit to the state, or should we wait until it's all been found?

Can you make one compelling argument for not revising our share upwards on all future finds?

Is there is €700bn worth of oil there why haven't any oil companies started drilling for it?

yosemite_sam

Chucky the tree wrote: »

Is there is €700bn worth of oil there why haven't any oil companies started drilling for it?

They are, oil was found off County Mayo last year.

Scofflaw

Fussgangerzone wrote: »

That's all very nice and detailed, but what it boils down to is this: if no other fuel is found, there's only €3.5bn worth. So it sets an absolute minimum value on resources off the west coast.

I'll admit that the it's in the PADs interest to attract exploration, but I imagine their figures have basis in reality, and that if they were in complete piss-take territory, they would have been called up on it a long time ago. They haven't been.

That's partly because everyone knows they're spinning, but mostly because nobody knows any better.

Fussgangerzone wrote: »

If you take their minimum estimate, we're still talking about over €700bn worth. Costs taken into account we could surely get a quarter of that for fixing the country, even if it would be over a long space of time, were it to be used?

Costs won't be as high for everyone else as they were for Shell, unless they share their disregard for planning law, and conflixt with people living near their infrastructure.

We would get quarter of the profits under Ray Burke's deal, and somewhat more than a quarter under the existing deal, because that goes up to 40% of profits for the most profitable fields. If we assumed the same ratio of costs as Corrib (say €2.5bn on €6.5bn), that €700bn would net us somewhere between €107bn and €172bn. However, long before the stage of having resources worth €700bn, we would have revised the tax share up dramatically.

Fussgangerzone wrote: »

So my question for you is this: is now the time to change the way we deal with fuel companies to maximise the benefit to the state, or should we wait until it's all been found?

Can you make one compelling argument for not revising our share upwards on all future finds?

At the moment, I don't see a compelling argument for doing so, and the argument against it remains the same as ever, which is that without a decent probability of a good commercial find, it's probably going to put off exploration. Personally, I'd wait for a couple more reasonably commercial discoveries before revising the tax upwards.

cordially,
Scofflaw

Duke Leonal Felmet

Ah, another weekly edition of 'There is a trillion trillion dollars worth of oil and gas in Ireland, and Ray Burke sold it all to Shell for a warm pint of Beamish'.

You can't beat the classics.

Mr. Bean.

So can we increase the tax on oil dramatically if we find some? That'd be excellent.

yosemite_sam

Duke Leonal Felmet wrote: »

Ah, another weekly edition of 'There is a trillion trillion dollars worth of oil and gas in Ireland, and Ray Burke sold it all to Shell for a warm pint of Beamish'.

You can't beat the classics.

You should take a spin down to Erris for yourself, Shell are planning for the long hall. Serious money being spent down here

Fussgangerzone

Chucky the tree wrote: »

Is there is €700bn worth of oil there why haven't any oil companies started drilling for it?

Well, what was said to me the last time I was at a meeting of OPEC was, "Get out of our board-room you weirdo". I didn't learn much there. Heavy-handed security.

It's oil and/or gas, the two have common origins. Why aren't they drilling it now? Probably because they have enough for the moment. You know the law of supply and demand? OPEC play it like a banjo. Easier to charge loads of money when you can say you only have so much, now matter how many fields you've earmarked.

Apart from that, there could be a matter of waiting for the optimal time to do the work. There's surely a sweet spot where the cost of drilling, the price of fuel and the global supply of fuel line up to make a good time to drill.

Also, because they hate the baby jesus.

Duke Leonal Felmet

yosemite_sam wrote: »

You should take a spin down to Erris for yourself, Shell are planning for the long hall. Serious money being spent down here

Wake me up when they find something.

supersean1999

Sulmac wrote: »

At the moment barely any of this (supposed) oil and gas is being exploited because it is either not there or is very difficult to discover and extract (especially in the Atlantic). The process of either discovering or extracting in this location is very expensive at the moment and we do not know if it is 'worth it' yet.

Norway is the best known 'oil-rich' country in Europe and have their state-owned company Statoil, with profits produced being placed in the state pension fund, valued at just over $500 billion in 2010.

Norway didn't establish Statoil until they knew that there was enough oil and gas to justify doing so, and followed a policy not unlike our own until then, by giving exploration rights to private companies to go out and actually 'find' the oil.



If we find enough oil and gas off the coast to justify it, I would be 100% behind setting up an Irish version of 'Statoil'.

is it to late to do this say in 5 yrs or so, have we not gave away everything or am i missing something

Fussgangerzone

Scofflaw wrote: »

That's partly because everyone knows they're spinning, but mostly because nobody knows any better.

Yeah, well I don't think they're spinning as hard as you let on, but all either of us have there is idle conjecture.

We would get quarter of the profits under Ray Burke's deal, and somewhat more than a quarter under the existing deal, because that goes up to 40% of profits for the most profitable fields. If we assumed the same ratio of costs as Corrib (say €2.5bn on €6.5bn), that €700bn would net us somewhere between €107bn and €172bn. However, long before the stage of having resources worth €700bn, we would have revised the tax share up dramatically.

The bad news is, they can put 100% of their costs that against tax. So if you're accurate about the profit/loss on the Corrib field, our take there will be 0. Civilised countries claim ownership of a percentage of the resource as well as the profits, and we should do the same.

At the moment, I don't see a compelling argument for doing so, and the argument against it remains the same as ever, which is that without a decent probability of a good commercial find, it's probably going to put off exploration. Personally, I'd wait for a couple more reasonably commercial discoveries before revising the tax upwards.

I think that's a terrible idea. Say the next three finds are the last three finds? That would leave us completely screwed. If we're dealing with an unknown quantity of fields, as we are, we should treat every find like it's our last. Because it could be.

Chucky the tree

Fussgangerzone wrote: »

Well, what was said to me the last time I was at a meeting of OPEC was, "Get out of our board-room you weirdo". I didn't learn much there. Heavy-handed security.

It's oil and/or gas, the two have common origins. Why aren't they drilling it now? Probably because they have enough for the moment. You know the law of supply and demand? OPEC play it like a banjo. Easier to charge loads of money when you can say you only have so much, now matter how many fields you've earmarked.

Apart from that, there could be a matter of waiting for the optimal time to do the work. There's surely a sweet spot where the cost of drilling, the price of fuel and the global supply of fuel line up to make a good time to drill.

Also, because they hate the baby jesus.

What about the members outside of OPEC? IF there is so much oil I'd thought there be a gold rush to get the contract for it.

Scofflaw

Fussgangerzone wrote: »

Yeah, well I don't think they're spinning as hard as you let on, but all either of us have there is idle conjecture.

Eh, I have a fair idea of how much data they can have, and it's not enough to make the kind of predictions they're making in terms of value. They could equally well say that the amounts could be next to rock-all, because that would be an equally valid prediction on the basis of available data. That's why their values are always hedged with 'could be' and 'might contain' - and when you say "such and such a structure could contain x amount of oil and gas" you're pretty much putting a maximum number on that, because it's based on the extent and capacity of the structure.

Fussgangerzone wrote: »

The bad news is, they can put 100% of their costs that against tax. So if you're accurate about the profit/loss on the Corrib field, our take there will be 0. Civilised countries claim ownership of a percentage of the resource as well as the profits, and we should do the same.

Shell has claimed expenses of €2.5bn against Corrib, and Corrib hasn't ever been valued at less than about €7bn. If production costs add another €0.5bn, I have no idea where you'd come up with zero tax, because the tax take would actually be 25% of the €4bn profit.

Fussgangerzone wrote: »

I think that's a terrible idea. Say the next three finds are the last three finds? That would leave us completely screwed. If we're dealing with an unknown quantity of fields, as we are, we should treat every find like it's our last. Because it could be.

Not at all, otherwise our next find would be our last, because the oil companies won't bother to drill. We could probably raise taxes a bit (after all, we already did), but not too much.

cordially,
Scofflaw

Fussgangerzone

Chucky the tree wrote: »

What about the members outside of OPEC? IF there is so much oil I'd thought there be a gold rush to get the contract for it.

My second and third points still stand for this one.

Fussgangerzone

Scofflaw wrote: »

Eh, I have a fair idea of how much data they can have, and it's not enough to make the kind of predictions they're making in terms of value. They could equally well say that the amounts could be next to rock-all, because that would be an equally valid prediction on the basis of available data. That's why their values are always hedged with 'could be' and 'might contain' - and when you say "such and such a structure could contain x amount of oil and gas" you're pretty much putting a maximum number on that, because it's based on the extent and capacity of the structure.

Thank you for your more in-depth conjecture. That will get me far.

Scofflaw wrote: »

Shell has claimed expenses of €2.5bn against Corrib, and Corrib hasn't ever been valued at less than about €7bn. If production costs add another €0.5bn, I have no idea where you'd come up with zero tax, because the tax take would actually be 25% of the €4bn profit.

Their costs, €2.5bn, are greater than the governments projected tax revenue from the gas, €1.7bn. It cancels it out.

Scofflaw wrote: »

Not at all, otherwise our next find will be our last, because the oil companies won't bother to drill. We could probably raise taxes a bit (after all, we already did), but not too much.

We can take a cut of the find and still have them coming in, like every other country in the world. Except for Cameroon, the only country with a worse deal.

Scofflaw

Fussgangerzone wrote: »

Thank you for your more in-depth conjecture. That will get me far.

There's conjecture, and then there's educated conjecture. The original claim, which is that they'd be "called" on the figure if it was wrong, remains rather less than a confirmation.

Fussgangerzone wrote: »

Their costs, €2.5bn, are greater than the governments projected tax revenue from the gas, €1.7bn. It cancels it out.

Y...no. The revenue from the field is, say, €7bn . The costs are €3bn. The profits are therefore (7-3) €4bn, because profits are the amount of revenue left after costs. Tax is levied on the profits. Tax @ 25% on €4bn would therefore be €1bn.

The phrase "costs are set off against tax" does not mean that first the tax is calculated, and then costs are subtracted from that, although I can see how one might read it that way.

Fussgangerzone wrote: »

We can take a cut of the find and still have them coming in, like every other country in the world. Except for Cameroon, the only country with a worse deal.

We already do take a cut of the find. We take 25% of profits.

cordially,
Scofflaw

Chucky the tree

Fussgangerzone wrote: »

My second and third points still stand for this one.

So there's €700bn worth of oil there an no oil companies will go near it "because it's not the right time"? I find it strange oil companies are happy to risk losing out on that much oil to rivals. At the very least I'd expect them to be all over signing the deal to drill for it and then delaying drilling.

Fussgangerzone

Scofflaw wrote: »

There's conjecture, and then there's educated conjecture. The original claim, which is that they'd be "called" on the figure if it was wrong, remains rather less than a confirmation.

Correct. I could have asked, "Why haven't they been called on it?". But we don't have to go into semantic overdrive.

Scofflaw wrote: »

Y...no. The revenue from the field is, say, €7bn . The costs are €3bn. The profits are therefore (7-3) €4bn, because profits are the amount of revenue left after costs. Tax is levied on the profits. Tax @ 25% on €4bn would therefore be €1bn.

The phrase "costs are set off against tax" does not mean that first the tax is calculated, and then costs are subtracted from that, although I can see how one might read it that way.

I'm wrong here. You're not exactly right though. Going away and doing my homework, the way it works is, they make back their set-up costs, then they get charged 25% of profits.

However, that isn't equal to 25% of the value of remaining gas once costs have been recouped. To say so is to assume that their staff and suppliers both serve them for free from then on, which of course isn't the case.

So they pay some tax. But no way is it a billion euro. It's 25% of the operational profit of an established gas field extracting €4 billion worth of gas. What is that, you ask? I don't know.

According to this http://www.stock-analysis-on.net/NYSE/Company/Royal-Dutch-Shell-PLC/Ratios/Profitability Shells operating profits are about 5%. Let's say, for the sake of conversation, we say that's the expected profits from Corrib.

5% of €4bn = €200mill.
25% of €200mill = €50 million.
From €7 billion worth of gas? Is that a good deal?

Scofflaw wrote: »

We already do take a cut of the find. We take 25% of profits.

Not the same thing. Sensible governments demand both.

Scofflaw

Fussgangerzone wrote: »

Correct. I could have asked, "Why haven't they been called on it?". But we don't have to go into semantic overdrive.

I'm wrong here. You're not exactly right though. Going away and doing my homework, the way it works is, they make back their set-up costs, then they get charged 25% of profits.

However, that isn't equal to 25% of the value of remaining gas once costs have been recouped. To say so is to assume that their staff and suppliers both serve them for free from then on, which of course isn't the case.

Mm, no - I added half a billion to the set-up costs (€2.5bn according to Shell) to cover running costs.

Fussgangerzone wrote: »

So they pay some tax. But no way is it a billion euro. It's 25% of the operational profit of an established gas field extracting €4 billion worth of gas. What is that, you ask? I don't know.

According to this http://www.stock-analysis-on.net/NYSE/Company/Royal-Dutch-Shell-PLC/Ratios/Profitability Shells operating profits are about 5%. Let's say, for the sake of conversation, we say that's the expected profits from Corrib.

5% of €4bn = €200mill.
25% of €200mill = €50 million.
From €7 billion worth of gas? Is that a good deal?

Sigh. Shell's operating profits as a company are entirely different from the profits of the field. The profits of a field are very simple - revenue minus costs for the field and only the field. What's left after tax is fed into Shell the company, and goes to pay for the expenses of the company - but the costs of the company are not deductible from the field's revenues.

It's all in the various tax analyses.

Fussgangerzone wrote: »

Not the same thing. Sensible governments demand both.

Governments with provable reserves, sure. Given you didn't even know how tax is calculated in general, never mind on a particular field, I'm slightly disinclined to take your advice on economic incentivisation of exploration companies, if you'll pardon my saying so.

cordially,
Scofflaw

Fussgangerzone

Scofflaw wrote: »

Mm, no - I added half a billion to the set-up costs (€2.5bn according to Shell) to cover running costs.

Based on what exactly? Show me your figures, Captain Expert. Don't come over like you have all the facts, if you can't present them.

Scofflaw wrote: »

Sigh. Shell's operating profits as a company are entirely different from the profits of the field. The profits of a field are very simple - revenue minus costs for the field and only the field. What's left after tax is fed into Shell the company, and goes to pay for the expenses of the company - but the costs of the company are not deductible from the field's revenues.
It's all in the various tax analyses.

Toffee! (I was going to try a glib counter-point to "sigh" but I do like toffee. Who doesn't?) Yes I know. You know why I didn't bother adjusting for that? Becuase only Ireland lets a company recoup 100% of the set-up cost before profits are taxed. Didn't think I had to spell it out but hey-ho.

Scofflaw wrote: »

Governments with provable reserves, sure. Given you didn't even know how tax is calculated in general, never mind on a particular field, I'm slightly disinclined to take your advice on economic incentivisation of exploration companies, if you'll pardon my saying so.

Neither do you, pal-o-mine, based on what you've typed on this thread. And I'm not asking you to take my advice (unless you're secretly running the country). Just pointing out that there our governments out there overseeing functional economies, who we should seek to emulate, and not just in terms of their fossil fuel policy.

But hey, if you want to play the "you don't know what you're talking about I don't have to justify anything to you" card, stump up some figures. Any figures.

K-9

Fussgangerzone wrote: »

Toffee! (I was going to try a glib counter-point to "sigh" but I do like toffee. Who doesn't?) Yes I know. You know why I didn't bother adjusting for that? Becuase only Ireland lets a company recoup 100% of the set-up cost before profits are taxed. Didn't think I had to spell it out but hey-ho.

General Accounting principal is that Profit equals Revenue less Expenses.

Certain capital expenses are allowed as tax deductible, normal procedure.

Sometimes countries allow tax breaks, they aren't necessarily bad just because they are called tax breaks!

Considering that area was unexplored the opportunity cost may well cover it.

Scofflaw

Fussgangerzone wrote: »

Based on what exactly? Show me your figures, Captain Expert. Don't come over like you have all the facts, if you can't present them.

I don't have facts for Shell's running costs, but they're not needed, because what I was giving was an example calculation to help you understand calculation of profit. The actual value of the gas being pumped out will vary over time, as will the running costs.

Fussgangerzone wrote: »

Toffee! (I was going to try a glib counter-point to "sigh" but I do like toffee. Who doesn't?) Yes I know. You know why I didn't bother adjusting for that? Becuase only Ireland lets a company recoup 100% of the set-up cost before profits are taxed. Didn't think I had to spell it out but hey-ho.

But you didn't "adjust" for anything. You just claimed the profit margin on the field would be the same as the profit margin on the company's total operations.

Let's try this again. An oil company operates oil and gas fields. Those are the revenue sources from which most of the company's income is derived, because fields in and of themselves are profitable as an operation.

So if we take an oil company with two fields - call them Corrib A and Corrib B, the we have the following rough structure for the company and its income over the ten-year lifespan of the fields:

Unit Type|Unit|Setup Costs|Running Costs|Income|Profit Net of Tax|Profit Tax Rate|Tax Payable|Profit After Tax
Revenue Generator|Corrib A|2.5|0.5|7|4|25.00%|1|3
Revenue Generator|Corrib B|1.5|0.3|8|6.2|25.00%|1.55|4.65
||||||||
Cost Centre|Company HQ|0|7|7.65*|2.65|||

So the two fields each generate a certain amount of income over and above their setup and running costs. Those are the profits of the fields, and those are taxable under the Irish petroleum tax regime at 25% (actually, now 25-40%, but 25% under Burke's regime).

So the fields yield after-tax profits of €7.65bn - which is income that accrues to the company. Since the company has operating costs of €7bn, it makes a profit on its total operations of €0.65bn, which is derived from the fields.

Yes, those are entirely made-up figures to illustrate how the taxation works.

What you claimed as being the tax payable on the fields is the profits of the company, but the fields are taxable ventures in themselves - they're not taxed as part of the company's overall profits, but directly, as fields. Only after that tax is paid do the profits from the fields accrue to the company.

Fussgangerzone wrote: »

Neither do you, pal-o-mine, based on what you've typed on this thread. And I'm not asking you to take my advice (unless you're secretly running the country). Just pointing out that there our governments out there overseeing functional economies, who we should seek to emulate, and not just in terms of their fossil fuel policy.

But hey, if you want to play the "you don't know what you're talking about I don't have to justify anything to you" card, stump up some figures. Any figures.

There are governments with entirely different petroleum tax regimes, because they have entirely different petroleum prospects. We have a particularly friendly regime, because there has been little interest in drilling offshore Ireland over most of the last 30 years, and what little there has been has resulted in relatively little in the way of finds. It's unrealistic to start talking about a Norway-style tax regime when we don't have a hundredth of Norway's proven reserves.

cordially,
Scofflaw

Fussgangerzone

I understand what you're saying, but where we reach an impasse is that we have opposing opinions of how much money is out there, and what the profits will be.

We don't know what the operating costs and profits will be. I haven't been able to find a definition of "profits on a field" that determines what it means. I don't know which of the following are considered operating costs, for example: staffing the well, transport costs, the processing plant, maintenance, security, hr, admin, pr, etc. It makes sense for the operators to factor all of those things into their cost for that operation, and haven't seen anything that says they can't do that.

Profits on a well doesn't appear to be exclude any national costs of selling the fuel as far as I've seen.

I hope you're right and we do get a good chunk of money back, but for Shell, etc it makes financial sense to localise every cost they can to maximise their profits, and that's what I'd expect them to do. On that basis, I think it's reasonable that their Irish operation would no greatly exceed their global operation in terms of profitability.

For example, their costs for environmental considerations and wages will be a lot higher in Ireland than they would in Nigeria for example. It's places like that where their profits are highest, not in a country like Ireland.

(Sorry about the delayed response, it's not my intention to make a zombie)

Scofflaw

Fussgangerzone wrote: »

I understand what you're saying, but where we reach an impasse is that we have opposing opinions of how much money is out there, and what the profits will be.

We don't know what the operating costs and profits will be. I haven't been able to find a definition of "profits on a field" that determines what it means. I don't know which of the following are considered operating costs, for example: staffing the well, transport costs, the processing plant, maintenance, security, hr, admin, pr, etc. It makes sense for the operators to factor all of those things into their cost for that operation, and haven't seen anything that says they can't do that.

Profits on a well doesn't appear to be exclude any national costs of selling the fuel as far as I've seen.

I hope you're right and we do get a good chunk of money back, but for Shell, etc it makes financial sense to localise every cost they can to maximise their profits, and that's what I'd expect them to do. On that basis, I think it's reasonable that their Irish operation would no greatly exceed their global operation in terms of profitability.

For example, their costs for environmental considerations and wages will be a lot higher in Ireland than they would in Nigeria for example. It's places like that where their profits are highest, not in a country like Ireland.

(Sorry about the delayed response, it's not my intention to make a zombie)

You could ask the Revenue, who unsurprisingly go into very boring detail on the subject. For example, in the very exciting Notes for Guidance – Taxes Consolidation Act 1997 – 2008 Edition Part 24, which goes into a lot of detail on the ring-fencing of petroleum activities:

A number of definitions are connected. These are “petroleum activities” which include “petroleum extraction activities” which, in turn, include “initial treatment and storage”. The purpose of these definitions is to define the scope of the activities embraced by the “ring-fence” provisions. Broadly, these activities are any activities related to the exploration for and exploitation of petroleum resources in the State or a designated area (other than in areas covered by a Marathon licence) up to the point where crude oil is available for supply to a refinery.

The purpose of the “ring-fence” is to segregate all receipts and expenditure (and, therefore, all profits and losses) of petroleum activities from receipts and expenditure (and profits and losses) of other activities, so that the tax on profits from petroleum activities is not diluted by losses from other activities and losses incurred in relation to petroleum activities are not available for offset against profits of other activities for tax purposes.

The “ring-fence” isolates trading profits, non-trading profits or income, chargeable gains and the corresponding losses.

And so on. The rules are, in fact, pretty detailed - those are just the guidance notes - and intended to stop exactly the kind of setting off of other losses that people here are worried about.

People really should not mistake the level of detail found in press releases for the reality of taxation rules.

cordially,
Scofflaw

dynamick

Chapter V1 of the Finance Act 1992 explains how profits from oil and gas fields are defined for the purposes of the 25% tax rate. (later amendments have been made to close loopholes)

2009 UK: 350 applications for oil/gas exploration licences. 145 issued
2009 Ireland: 2 applications for oil/gas exploration licences. 1 issued.

The combination of the tax rates and the likelihood of finding resources in Irish waters is too low to attract interest. 23 exploratory wells have been drilled in the past 19 years since the 0% royalty/ 25% profit rate was set and only one was worth extracting. Each well costs around $50-100m to drill.

Other countries with zero rated royalties for oil or gas finds include France & Spain.

Einhard

I think this thread proves conclusively that people will always believe what they want to believe, regardless of the facts and evidence to the contrary, and will selectively mine data to support their argument, whilst completely ignoring everything that militates against them. It'd nearly put one off trying to engage in debate.

meglome

Einhard wrote: »

I think this thread proves conclusively that people will always believe what they want to believe, regardless of the facts and evidence to the contrary, and will selectively mine data to support their argument, whilst completely ignoring everything that militates against them. It'd nearly put one off trying to engage in debate.

Hardly a week passes without 'our' fish or gas or oil coming up. Bad enough when the exaggerations were in the 100's of billions but now we're into trillions. The thing that annoys me is it's often the same people who have already been shown with figures they are mistaken.

Sulmac

Read this article in today's Irish Times, pretty much saying the same as what has been said in this thread:

Could oil and gas be Ireland's big dig-out?

Sat, Mar 19, 2011

Ireland’s oil and gas deposits could make us rich, but finding them is hard, extracting the stuff is tricky and as for making money . . . don’t hold your breath, writes RONAN McGREEVY

FOUR YEARS AGO the Department of Natural Resources published Atlantic Ireland: An Exciting Petroleum Province, a report about the potential for fossil fuels in Ireland’s territorial waters.

Oil and gas are found in sedimentary basins on the ocean floor where the detritus of plants and animals decomposes over millions of years. Ireland is surrounded by such basins with potential for gas and oil. There is the vast Rockall Basin, 200km off the west coast; the Porcupine Basin, off the southwest; the Celtic Sea Basin, off the southeast coast; the Slyne Basin, where the Corrib gas field is located; the Donegal Basin, off the north coast; and the Kish Basin, off Dublin.

The report concluded that these basins alone could contain 10 billion barrels of oil. At current market prices that amounts to €850 billion worth of oil, about 10 times the size of the EU-IMF bailout fund. There is also an unquantifiable amount of gas. With such riches Ireland is a bit like a man whose home is about to be repossessed who cannot find his winning lottery ticket down the back of the sofa.

Fergus Cahill, the chairman of the Irish Offshore Operators’ Association, wrote to economists and opinion formers this week urging them not to forget oil and gas as a potential source of revenue. He notes, though, that we do not have the natural advantages of some other countries. “Historically, about one well in 25 drilled in Ireland is commercial,” he says. “It is one in two off the coast of Angola, one in five in Norwegian waters and about one in seven in British waters. We are in a worldwide competition for exploration.”

Providence Resources is Ireland’s largest indigenous exploration and production company. Its chief executive, Tony O’Reilly jnr, was in the US this week for Ireland Day at the New York Stock Exchange. He says many in the audience were dumbfounded that Ireland had such potential in traditional hydrocarbons. On the other hand, he admits that in 30 years exploring off the coast of Ireland “we haven’t made a penny out of it as a company”.

But he cites the spike in oil prices and new technology as game-changers. Later this year Providence is going to drill an appraisal well, to see if oil already found is available in commercial quantities, in an area called Barryroe in the Celtic Sea, where it believes it can find 60 million barrels of recoverable oil. Oil was first found there in 1990 but was not commercially viable because the price then was only $35 a barrel. It is going to be comfortably above that for the foreseeable future. The company hopes to make a “declaration of commerciality” this year, which would make it Ireland’s first commercially successful oil field.

A similar appraisal well will be drilled in Hook Head. Bigger still is Spanish Point, 200km out to sea off the west coast, where gas was first discovered in 1981. O’Reilly says it is another example of a large field that has become potentially commercially viable. “When it was first discovered, you might as well have found gas on the moon,” he says. “The infrastructure wasn’t there, the price wasn’t right or there wasn’t the technology. All those things that worked against us in the past are working favourably for us now. The market has moved to us.”

But the experience of the Corrib field, where gas was discovered in 1996 but has still not started to flow, shows that, even when hydrocarbons are found, processing them is another matter. Though O’Reilly maintains Corrib has never been an issue for his investors, Fergus Cahill of the operators’ association says it caused many in the industry to ask questions about Ireland’s planning system. Investors need certainty and “Corrib has not been a help”, says Cahill.

Outside the industry, others say there is a more general problem: Ireland’s low taxes on exploration, and how little the State stands to make from natural resources. Campaigners say the 25 per cent corporation tax on profits from the Corrib gas field are too low, amounting to a giveaway to exploration companies and too little income to the public. Many on the left want a state exploration company to be set up and a rate of taxation applied that is more than 50 per cent of profits.

Fine Gael has held out the possibility of the State taking an equity share in new finds but acknowledges that this would mean the State meeting some of the investment costs. Its election manifesto did not suggest changing the licensing terms. Labour, on the other hand, made the revision of the terms granted to Shell for the Corrib gas field a manifesto commitment, as part of a general review of the taxation regime for oil and gas. There is no mention of oil or gas in the programme for government.

The previous minister for energy Eamon Ryan upped the State’s take from 25 per cent to 40 per cent for the most profitable fields. By contrast Norway has a tax take of 78 per cent of profits, but it has proven reserves. O’Reilly says Norway was able to set up a state oil company, Statoil, and a sovereign wealth fund only after it had found substantial reserves of oil and gas. “They got that after private companies went and invested and had success. Over years the tax revenue came in and allowed them to underpin their sovereign wealth fund.”

Irish licensing terms are “absolutely fair” and competitive, according to Pat Shannon, professor of geology at UCD. “If they were overgenerous we would have every big company in the world in here. The fact that we don’t have companies queuing up means that they don’t see Ireland as a giveaway. To me that is the bottom line.”

Last year the government announced a new round of Atlantic licences, which will be the most comprehensive round to date. They cover an area of 250,000sq km and, crucially, allow exploration firms a two-year licence for the first time, so they can assess if their blocks are worth further exploration. The uptake will be known later this summer.

Along with offshore developments, there are two significant onshore prospects. Last month the government gave onshore petroleum licences to two companies, Lough Allen Natural Gas Company (Langco) and the Australia-based firm Tamboran Resources, to look for gas reserves in Lough Allen, Co Leitrim, where previous studies have found the equivalent of 9.4 trillion cubic sq ft of gas worth the equivalent of €108bn at today’s prices.

Langco’s chief executive, Martin Keeley, says the two companies will spend millions investigating the site’s prospects with no guarantee of success. Previous studies found gas, but in rock formations that made it hard to extract commercially. The companies are hopeful new technologies will make the gas extractable. A similar licence was given to look for gas in the Clare Basin, an area comprising Co Clare, north Kerry and west Limerick.

Pat Shannon says, “There is a huge element of luck. If nobody drills any wells we won’t find any oil, but if we have a reasonable number of wells, say five to 10 wells drilled every year for four or five years, I would be very disappointed if we did not find anything.”

© 2011 The Irish Times

xclw

http://www.youtube.com/watch?v=76VOnzXQMsU

watched this video today, had no idea we had so much natural resources until I saw it, think thats the problem though, this should be all over the papers and everyone should know about it!

Scofflaw

xclw wrote: »

http://www.youtube.com/watch?v=76VOnzXQMsU

watched this video today, had no idea we had so much natural resources until I saw it, think thats the problem though, this should be all over the papers and everyone should know about it!

It's a work of fiction, I'm afraid. The figure of €540bn was dreamed up by a journalist by the name of Prendiville, and has no solid foundation in fact whatsoever.

Norway's first strike was the Ekofisk field in 1969, to this day one of the largest fields ever discovered - that discovery essentially created the Norwegian oil industry. It's important to know that Ekofisk was found after only three years, and three years later the Norwegian government instituted Statoil, and began to require 50% state ownership. They didn't do their own exploration, and the original terms under which Philips Petroleum exploited their Ekofisk licenses were not dissimilar to ours.

The Norwegian model, then, was based on building an oil industry when they knew they had oil - and a lot of it - three years after exploration started. By comparison, Ireland's known commercial oil reserves are non-existent, and our known gas reserves are trivial in world terms, nearly 30 years after exploration started.

However, the State owns the resources, and licenses are not perpetual. Nobody is ever sold Irish resources - they remain the property of the State. Instead, they are given the right to explore and exploit in a specified area, for a specified period under specified conditions, conditions which, at the moment, are as generous as they have to be to encourage companies to do so - and which may not be generous enough, given that in the most recent licensing round, no oil major bothered to bid for Irish licenses.

If we find something along the lines of Ekofisk, then the game will change, and because we own the resources, we can change the rules pretty much as we like. Until then, this kind of wishful thinking is the equivalent of expecting mining companies to bid millions to prospect in your back garden, and about the only thing sillier than dreaming about it is taking it seriously.

cordially,
Scofflaw

Waestrel

Scofflaw wrote: »

It's a work of fiction, I'm afraid. The figure of €540bn was dreamed up by a journalist by the name of Prendiville, and has no solid foundation in fact whatsoever.

Norway's first strike was the Ekofisk field in 1969, to this day one of the largest fields ever discovered - that discovery essentially created the Norwegian oil industry. It's important to know that Ekofisk was found after only three years, and three years later the Norwegian government instituted Statoil, and began to require 50% state ownership. They didn't do their own exploration, and the original terms under which Philips Petroleum exploited their Ekofisk licenses were not dissimilar to ours.

The Norwegian model, then, was based on building an oil industry when they knew they had oil - and a lot of it - three years after exploration started. By comparison, Ireland's known commercial oil reserves are non-existent, and our known gas reserves are trivial in world terms, nearly 30 years after exploration started.

However, the State owns the resources, and licenses are not perpetual. Nobody is ever sold Irish resources - they remain the property of the State. Instead, they are given the right to explore and exploit in a specified area, for a specified period under specified conditions, conditions which, at the moment, are as generous as they have to be to encourage companies to do so - and which may not be generous enough, given that in the most recent licensing round, no oil major bothered to bid for Irish licenses.

If we find something along the lines of Ekofisk, then the game will change, and because we own the resources, we can change the rules pretty much as we like. Until then, this kind of wishful thinking is the equivalent of expecting mining companies to bid millions to prospect in your back garden, and about the only thing sillier than dreaming about it is taking it seriously.

cordially,
Scofflaw

Scofflaw to the rescue of reason again.