View from Dublin: the real price of Cor­rib

Belfast Telegraph - Business Telegraph - - Economy Watch - BY RICHARD CUR­RAN

The Ir­ish state could be a big loser from Shell’s heavy fi­nan­cial hit on the Cor­rib gas field. If tax losses racked up by Shell are car­ried over to the new own­ers, it will re­duce cor­po­ra­tion tax re­ceipts on what will be a prof­itable ven­ture for some share­hold­ers in the years ahead.

So how did Shell man­age to lose nearly $1bn (£0.8bn) on the enor­mous com­mer­cial gas find off the west coast? One easy but rather sim­plis­tic ex­pla­na­tion is that the protests not only de­layed the project but ended up cost­ing Shell a for­tune.

The real rea­son is some­what more nu­anced. There is no doubt the de­lays added mas­sively to the over­all cost, but there have been dif­fer­ent es­ti­mates of the true value of the field for a very long time.

In 2008, Ea­mon Ryan, the then Min­is­ter for Com­mu­ni­ca­tions, En­ergy and Nat­u­ral Re­sources, an­swered a Dail ques­tion on the value of the field to the ex­che­quer.

At the time, it was be­lieved Cor­rib would de­liver its first gas in 2010. In fact, it took a fur­ther five years. But Ryan said that based on de­vel­op­ment and pro­duc­tion costs of €3bn (£2.6bn), the tax rev­enue would be in the or­der of €1.7bn (£1.5bn). The es­ti­mate put a value on the field of around €9.5bn (£8.3bn) at that time.

In 2001, the field was es­ti­mated to be worth €2bn (£1.8bn), based on a price of its 800m to 900m cu­bic feet of gas. But it was sold to Shell in 2002 for €7bn (£6bn).

Now, as Shell ti­dies up its in­ter­na­tional gas as­sets fol­low­ing a ma­jor global ac­qui­si­tion, the bal­ance sheet on Cor­rib isn’t look­ing so good. In this new deal, in which it is sell­ing its stake to a Cana­dian pen­sion fund, Shell is tak­ing an im­pair­ment charge of around $350m (£368m) and a write-off of $400m (£306m) be­cause of cur­rency move­ments, par­tic­u­larly in re­la­tion to the dol­lar and the euro.

The field is de­liv­er­ing rev­enues of around $589m (£517m) per year. It may well de­liver a sub­stan­tial profit for its new own­ers, which should in turn mean cor­po­rate prof­its tax rev­enue for the ex­che­quer.

How­ever, with all of those losses racked up by Shell, the deal may be quite le­git­i­mately struc­tured in a way whereby tax losses are in­her­ited by the new own­ers, which would sub­stan­tially re­duce the money end­ing up with the state.

There are clear mes­sages in this story for other op­er­a­tors, who might ac­tu­ally find some­thing by way of oil or gas out there.

It will prob­a­bly take longer than you think to re­alise it. Don’t make the mis­takes that Shell made in the early days in terms of how it ap­proached the con­cerns of the lo­cal com­mu­nity.

And even find­ing a gusher off the west coast of Ire­land is no guar­an­tee of big prof­its.

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