Last week, Irish firm Providence Resources confirmed it had made a significant oil discovery near Hook Head off Wexford, which could eventually yield up to 70 million barrels of oil.

However, some observers pointed out that because Providence's exploration licence for the area was issued under the state's new licensing regime, up to 40% of any future profits from the discovery would have to be paid to the government. But the company's chief executive, Tony O'Reilly junior, said that despite this, Ireland remained a hugely competitive exploration location.

"At the end of the day, it is a tax on profits, which means success and that would be a nice problem to have, " he said.

He said it was unclear whether last week's discovery would be liable for the full tax rate because the size of the field was still undefined.

O'Reilly added that, in the minds of the international oil companies that the Irish government was trying to entice, the fact that Providence had found oil would be more significant than the tax issue.

"It's a small step for Providence but a giant leap for Ireland in terms of making oil people think differently about the country, " he said.

Paul Griffiths, chief executive of Island Oil and Gas, which has found gas in the Celtic Sea off the south coast, agreed with O'Reilly. He said the real issue was that the government hadn't done enough to promote exploration.

"In Ireland, the focus had been on increasing taxes but not encouraging exploration, " he said. "For instance, Norway reimburses you up to 78% of the exploration costs if you get a dry well. That encourages exploration and the flipside is that Norwegians take a higher proportion of the tax."

English exploration company Lansdowne Oil & Gas also believes that something needs to be done to help the industry.

"Exploration in Ireland is very much an uphill struggle due to access of equipment issues, " said Dr Stephen Boldy, the company's chief executive. "The equipment we use lives in the North Sea and so seismic boats and drilling rigs don't often come to Ireland because of the costs involved."

He said, by comparison, the new higher tax rates were a minor issue, particularly as the tax terms were unchanged for small, marginal projects.