Ireland revamping fiscal regime for offshore licenses

Ireland is revamping its fiscal and licensing regime for oil and gas and soon will invite operators to bid for Porcupine basin blocks on its challenging Atlantic margin.

Uchenna Izundu
International Editor

LONDON, Aug. 3 -- Ireland is revamping its fiscal and licensing regime for oil and gas and soon will invite operators to bid for Porcupine basin blocks on its challenging Atlantic margin.

The government has added a "profit resource rent tax," graded according to profitability, to the 25% corporate tax already in effect. Changes apply to licenses awarded after Jan. 1, 2007.

Grades for the new tax depend on "profit ratio," defined as "rate of profits less 25% corporate tax divided by the accumulated level of capital investment."

On licenses where the profit ratio is less than 1.5, there will be no change in the tax rate beyond that of the corporate tax. The tax rate will increase by 5% where the profit ratio is 1.5-3.0, by 10% for 3.0-4.5, and by 15% for more than 4.5.

The government also is reducing the lengths of some licenses, requiring operators to surrender acreage earlier than before, increasing all fees in line with the consumer price index, and reducing the confidentiality period on data acquired by license-holders and furnished to the Department of Communications, Energy, and Natural Resources.

Only 23 wells have been drilled in Ireland under the previous fiscal regime introduced in 1992. Energy minister Eamon Ryan, said, "The difference now is in prospectivity, price, and profitability." Previously, Ireland has been known for having low taxes.

Ryan noted improved seismic technology, the availability of data, and high energy prices over the past 15 years.

The period of deepwater licenses will fall from 12 years to 9 years, and the minimum period for a frontier license will be reduced to 12 years. At the end of the first phase of all exploration licenses, operators will also be automatically required to give up 50% their acreage and surrender a further 50% at the end of the second phase of deepwater and frontier licenses, regardless of drilling commitments.

The confidentiality period for data submitted to the government will decline to 4 from 5 years.

The Irish energy department stressed that work programs for the licenses must give time schedules but added that there is no change in drilling obligations for standard and frontier exploration licenses. However, with deepwater licenses companies must drill wells earlier. The first well must be drilled in the first 3 years of the license (4 years at present) and a second well by the end of the 6th year (8th year at present).

Under the revamped licensing regime, operators must submit a development plan within a year of signing the petroleum lease instead of 2 years at present.

Details of the licensing round will be published in the EU Official Journal in September.

A spokesman from the Irish energy ministry told OGJ it was unclear how many blocks would be offered. Earlier this year, the energy ministry said it expected to award acreage covering 63,500 sq km in the basin. Five exploration wells have been drilled in the Porcupine basin area over the last 20 years.

Contact Uchenna Izundu at uchennai@pennwell.com

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