asked the Minister for Energy the level of drilling of exploration wells in Irish waters in 1987 to 1989, inclusive, which he regards as representing a satisfactory level in the wake of his recently announced offshore terms.

18.

asked the Minister for Energy the reason further major concessions have been granted to companies involved in oil and gas exploration in Irish waters; the reason he has decided to abolish the requirement for royalty payments; his views on whether royalty payments are necessary to ensure an adequate return for the Irish people; and if he will make a statement on the matter.

27.

asked the Minister for Energy the estimated financial yield to the State from a commercial discovery of 50 million barrels of oil in the Irish offshore, as a result of the terms anounced by him on 30 September last; and if he will make a statement on the matter.

44.

asked the Minister for Energy if, in addition to the oil and gas licensing terms announced on 30 September 1987, the proposals, if any, he has specifically to encourage gas exploration; and if he will make a statement on the matter.

46.

asked the Minister for Energy if he will confirm that any person, company or enterprise outside his Department did not have advance notification of the terms of his announcement of 30 September last; that any person, company or enterprise was not consulted by him, or by his officials acting on his authority, as to the terms of that announcement; that he did not enter into negotiations with any person, company or enterprise over the terms of that announcement, or authorise any of his officials to do so; and if he will make a statement on the matter.

I propose to take Questions Nos. 13, 18, 27, 44 and 46 together.

The reason for revising our offshore licensing terms was that I was gravely concerned about exploration prospects. Given the continuing low price of crude oil, recent disappointing drilling results and the small number of commitment wells in the next few years, radical action was called for. Our existing licensing terms were unattractive to the exploration industry and there was the distinct possibility that our drilling programme would dwindle away to nothing over the next few years, unless we made the changes which I have announced.

I decided to abolish royalties because such a measure was essential in order to make our terms competitive with the best currently available in Europe — that is, in the UK and Spain both of which have abolished royalties in recent years. Even the Norwegians, who traditionally apply the severest terms of all have also abolished royalties. That left us with no option but to follow suit if we were to remain competitive. One must bear in mind that these other countries, unlike Ireland, are oil producers so that expenditure on exploration can be set off against tax liabilities.

While as a method of taxing developments, royalties may be attractive to the State, I am convinced that if royalties were not abolished, drilling would quickly come to an end with little hope of a discovery being made, and the collection of royalty and any other form of income from a development would become academic. I believe that the Irish people would prefer to have the prospect of an income from developments through the corporation tax system than to have no developments at all.

The yield from any particular commercial field that may be discovered will, as under any fiscal regime, vary considerably depending on the circumstances of that field. Before announcing the new terms, I had my Department carry out an analysis involving a wide range of scenarios to measure the effect on different fields at different price levels. Without going into these in detail, the results were that in broad terms the State take, for most sample fields, would be about 50 per cent before taking into account the allowances which individual companies can claim for exploration expenditures. The actual amount realised by the State in an individual case will depend heavily on such factors as world oil prices, the capital cost of developing the field, and the tax allowances available to the companies, both in terms of development costs and previous exploration costs.

While certain oil companies were informed of the new oil concessions shortly before the announcement on 30 September, I want to make it clear that there was no negotiation as to the content of these terms or as to what the companies would wish to see embodied in the terms by myself or by my officials acting on my behalf. This was in contrast with the procedure adopted in connection with the adjustments to licensing terms published in 1986 and the clarification announcement in 1985. In 1985 detailed discussions were held with a particular company before the clarification formula was finalised and the final form of the clarification took account of suggestions made by that company. In 1986 detailed discussions with certain companies took place in London regarding the contents of the proposed measures, and their reactions were taken into account in finalising these proposals.

With reference to the level of exploration which I would consider satisfactory, my intention in announcing the new terms was to encourage the drilling of sufficient wells in the Irish offshore to ensure that if there are commercial quantities of oil or gas out there, they are found as quickly as possible. However, one cannot command dramatic results instantly. Prior to the announcement, I was faced with a situation where deferment of the two obligation wells listed for 1987 was being sought on technical grounds and where there were only two firm drilling commitments for the next five years; one for 1988 and one for 1991.

There can be no guarantee that the revision will immediately produce a dramatic increase in drilling activity but, since the announcement of the new terms, in company with senior officials of my Department, I have been meeting on a systematic basis the companies with existing interests here and also, I am glad to be able to inform the House, that the terms have prompted interest on the part of potential new operators. I will be meeting these also. It is my intention as well to go to the UK and the US to promote as aggressively as I can the potential of the Irish offshore in the light of the new terms. Already, I have been able to announce a new well in the Porcupine area to be drilled in 1988 by BP and there is a strong possibility that a second well will also be drilled in that area. I am confident that the cummulative knock-on effect of these various initiatives will be very beneficial in terms of total exploration endeavours.

With regard to specific measures to encourage exploration for gas, negotiations are in progress with certain oil companies with a view to having identified gas prospects explored and in this context the potential market for additional supplies of gas in the future is being reviewed. No conclusions have yet been reached.

Will the Minister say why he did not enter into negotiations to get firm commitments from the oil companies to match these terms? Was the Minister suggesting in his reply that it would be wrong to seek in negotiations firm commitments to exploration? Does the Minister not accept that reducing our position to raising corporation tax without any firm commitments was an error?

I do not see anything wrong in that at all. I was answering the suggestion made in Question No. 46. I do not see anything wrong in the policy of negotiations with the companies that was followed by my predecessor. However, that was not the road I decided to take.