Tony O'Reilly: more mega millions

Tony O'Reilly is set to add to his fortune a further €1.4 billion from the development of oil and gas prospects off the west coast of Ireland, a resource given to him for virtually nothing by the State and from which the Exchequer will gain almost nothing. By Frank Connolly

Following the recent decision by Exxon Mobil to finance the exploration and development of a major oil and gas prospect in the Porcupine Basin off the west coast of Ireland, Tony O'Reilly stands to make more than €1.4 billion from the project.

Less than two years after obtaining the exploration licence to explore the Dunquin Prospect through his company, Providence Resources, O'Reilly signed a farm-out agreement with Exxon Mobil, the world's largest oil and gas producer. Under the deal, the oil giant will spend up to €100 million developing the prospect which analysts believe could contain up to 25 trillion cubic feet of natural gas and four billion barrels of oil, with an estimated value of more than €20 billion at current prices. O'Reilly joined the board of Mobil Oil in the 1980s, although he is no longer a director of the company. O'Reilly personally holds a 45 per cent stake in Providence Resources.

Under the current Irish Exploration and Production fiscal regime, the Irish taxpayer will gain little or no revenue from this valuable oil and gas reserve, while O'Reilly stands to make a massive fortune from a resource given to him for virtually nothing by the State.

The Department of Communications, Marine and Natural Resources charges €11,000 for a licence and then annual rental of €27 per square kilometer. Providence Resources, which has contributed no added value to the field, stands to make billions through retaining what is called a "carried interest".

What is extraordinary about this arrangement is that it could have been done by the State itself (ie it could have retained the "carried interest" itself and earned the billions expected to accrue to Providence Resources), bringing at least some return from the development of Irish offshore oil and gas resources. At present, under a fiscal and licensing regime introduced by Ray Burke in the late 1980s and further refined by Bertie Ahern in 1992, the State has conceded all ownership rights over the country's oil and gas reserves. A tax rate of 25 per cent is written off against all exploration, development and shut down costs while royalties were abolished. The changes were made to an earlier restrictive regime after lobbying of Ray Burke and then Taoiseach Charles Haughey by major oil companies in the 1980s. They promised on their return to office in 1987 that they would change the licensing regime which had resulted in no prospecting for several years previously.

A spokesman for the Department confirmed to Village that the licensing and fiscal regime introduced in 1992 does not provide for State participation or royalties.

"These terms take account of the prospectivity and challenging environment of the Irish offshore. If the terms provided for the State taking a stake then it would also have to bear that much of the exploration costs. The Atlantic margin is a high-risk, high-cost environment. Government policy is that public resources should not bear either the cost or the risk," he said.

Tony O'Reilly has had an interest in oil and gas since the early 1970s, when his company Atlantic Resources sought to develop reserves off the southeast coast. The company failed to produce any significant finds and investors lost heavily despite the hyping of its prospects in O'Reilly's newspaper outlets. Atlantic was eventually taken over by Providence, whose chief executive is Tony O'Reilly Junior.

In an interview with Forbes magazine in September 1983, O'Reilly remarked that his ability to secure potentially lucrative blocks for exploration was in no small part due to his influence as the country's largest media owner. He told Forbes that his geologist had chosen six blocks of sea bed for exploration.

"Since I own 35 per cent of the newspapers in Ireland I have close contact with the politicians. I got the blocks he (the geologist) wanted," O'Reilly said. The seismic material which identified areas of potential finds was provided initially by State geologists.

According to Ivan Fallon's biography, The Luck of O'Reilly, O'Reilly believed that there was a simplistic public notion in the 1970s that "Irish oil and minerals belonged to the Irish people at large". He argued that generous incentives were needed to attract oil and gas exploration, a view shared by governments from the late 1980s.

Just over a year ago, the Government gave Providence and a Scottish-based company, Sosina Ltd, an exclusive licence to explore and develop the Dunquin field. Now Providence, after sitting on the licence, can reap in super profits from its current 16 per cent stake (giving O'Reilly 7 per cent personally of the total value of any find) with Sosina holding 4 per cent while Exxon Mobil bears all the costs of exploration and development in return for its 80 per cent stake. This latest deal also sparked a sudden jump in the share price of Providence, which had been languishing at a couple of cents per share for some considerable time.

Recently, Providence chief executive Tony O'Reilly junior remarked that he viewed his company strategy as similar to that of a property developer.

"I view it as type of offshore property company. Our focus is to create more value tomorrow than we have today. There is no doubt that this is the best time to be in the oil and gas industry," he told the Irish Independent in October last. Providence also holds licences for the Ardmore, Hook Head and Helvick prospects in the Celtic Sea as well as other blocks in the Porcupine Basin.

Escalating oil and gas prices and dramatic improvements in technology have made it more attractive for the oil and gas majors to explore the previously more hostile waters off Ireland's west coast.

Last week, the Minister for Communications, Marine and Natural Resources, Noel Dempsey, told the Dáil he was seeking tenders for a review of the proposed changes to the fiscal regime, but said that he would not be introducing any changes in the immediate future. He did not say what these proposed changes were or from whom they had emanated.

A Department spokesman clarified to Village that the Minister had mistakenly referred to "proposed changes" and said that the review was intended to establish whether changes were necessary.

In the meantime, he is planning to issue a fresh round of frontier licenses in the Slyne, Erris and Donegal basins off the north west coast. The spokesman said that a decision will be announced in mid-June. There were five applications from four companies which applied for various blocs in the licensing area. The applicants were Statoil and Shell E&P; Serica Energy (UK); Island Oil & Gas with Lundin Exploration BV and Endeavour Energy (UK) Ltd as partners; and Grianan Energy Ltd, an Irish-based company which has promised to re-invest significant profits in the north west.p

What O'Reilly owns

Tony O'Reilly was ranked at 562 in the Forbes rich list of March 2006, with a fortune worth $1.4 billion US. His shareholding in Independent News & Media, 27 per cent, is worth over €440m, and the company has interests in Australia, Ireland, New Zealand, South Africa, the United Kingdom and most recently, India, where the company acquired a 26 per cent stake in Jagran Prakashan, which publishes Hindi newspaper Dainik Jagran. The London Independent will produce an Indian edition this summer. In Ireland, Independent News & Media controls the Irish Independent, the Sunday Independent, the Evening Herald, the Sunday World, and has a controlling stake in the Star. It also controls a very large number of regional newspapers. Independent News & Media also owns the distribution company Newspread. As well as publishing, the company has interests in radio and outdoor advertising. It has over 175 individual titles and employs over 10,400 people.

Aside from publishing, Tony O'Reilly is the principal shareholder in Providence Resources, with a 45 per cent stake, an oil and gas company which is involved in Ireland, the United Kingdom and Nigeria. He also owns 65.17 per cent of the mining company Arcon, and controls the company Waterford Wedgewood with his brother-in-law Peter Goulandris.

He is also the current chairman of Eircom, and has been since 2001, when Valentia, the consortium he led, and owned five per cent of, bought Eircom for €3billion. Eircom was then taken private. The borrowings Valentia made to buy Eircom were then refinanced, which saw a significant payout to shareholders, including around 20 million for Tony O'Reilly. The company said at the time that the restructuring had been undertaken to avail of low interest rates, rather than to pay a dividend. When the company was refloated, Valentia members Tony O'Reilly, George Soros and Providence Equity sold shares worth a total of €500 million. With his wife, he owns the Castlemartin Stud, a horse-breeding farm situated on 850 acres in Co Kildare.

John Byrne