Ireland to hike oil tax after bumper offshore licensing

--UPDATE, ADDS FURTHER DETAIL--

The Irish government is set to announce a 15% increase in the rate of tax on future oil and gas production, according to reports in Dublin.

The Irish Times reports that a new petroleum production tax, at 55% rather than 40% previously, is designed to ensure the Irish government sees increased financial returns earlier than before.

It comes just over a month since Ireland closed its most successful offshore licensing round to date.

In September the government received a total of 43 licence applications, three times more than in 2011.

The apparent attraction has been the acreage off Ireland’s west coast where modern 3D seismic exploration has in recent years provided better insight in the subsurface geology.

Successes on the other side of the Atlantic, with analogous geology in places such as Nova Scotia – part of what is more broadly known as the Atlantic Margin play – are also understood to have piqued industry interest.

Last month it was rumoured that a broad spectrum of applicants had sought the new licences including majors and national oil companies, as well as smaller independent companies.

Names such as ExxonMobil, StatOil and China’s CNOOC were speculated to be among the applicants.

Whether such demand played a role in the Irish government’s thinking as it mulled over higher tariffs on future production is not known.

The new tax legislation, first mooted in June 2014, will apply only to new licences.

It is understood that oil companies applying for new acreage in the 2015 licensing were aware of the proposed changes to the tax rates and as such would be factored into any applicants bidding strategy.

Low oil prices have significantly clipped the wings of once free spending oil executives, and in an environment where investment funds are routinely culled to protect ailing dividends sweet spots for exploration spending are very few and far between.

Shares in Providence Resources (LON:PVR), which is working to attract a partner for the undeveloped Barryroe field, fell 10% on Thursday morning following the reports in the Irish press.

For Providence’s existing projects the newest tax rates won’t apply.

Future production from licences issued before 2008 – such as Dunquin, Hook Head, Spanish Point and Dragon – would be taxed at a flat rate of 25%, a company source confirmed.

Meanwhile, future production from existing licences issued after 2008 - which includes Barryroe – would pay a base rate of tax at 25% plus up to 15% of what’s called profit resource rent tax (or PRRT).

New licences will be subject to 25% plus up to 30% PRRT.

Barryroe, the key focus for investors in Providence, would not be directly affected by the proposed tax changes.

Aside from Barryroe, Providence has also staked a considerable amount of the existing licence area off the west coast, and it is likely to have been among the applicants for new territory last month.