The Federal Government wants to decommission the liquidated Northern Endeavor without paying for it but first must battle a creditor in court over possession of the oil vessel.
Resources Minister Keith Pitt yesterday announced his decision to decommission the Northern Endeavor "but taxpayers should not be left to bear the costs."
"We have been working closely with the offshore oil and gas industry on proposals to recover the costs," Pitt said.
The ageing vessel has not produced oil since July 2019 when offshore safety regulator NOPSEMA ordered that production cease until safety issues were addressed.
Then owner Northern Oil and Gas Australia lacked sufficient liquidity to fix the problems without constant income, and the single-asset company was liquidated in February.
The Government was left responsible for the facility that has proved to be a money pit.
Since February, the Government has spent $81 million to keep the vessel in so-called lighthouse mode - manned, safe, but not producing oil – and costs continue to accumulate at about $5 million a month.
Pitt's move puts an end to the possibility that the Northern Endeavor and its oil fields could continue to operate under a new owner.
The most significant expense is to come. Woodside, that sold the Northern Endeavour to NOGA in 2016, estimated in 2015 that decommissioning the field could cost about $350 million.
The decommissioning bill will mostly be spent on plugging and abandoning wells drilled by Woodside when it operated the field for 17 years.
There are 22 wells in the titles NOGA owned according to the National Offshore Petroleum Information Management System that does not specify if any wells are already plugged.
Who gets to sell the Northern Endeavour?
As Pitt announced his plan for the Northern Endeavor lawyers for his department were arguing in the NSW Supreme Court with the other big financial loser from the collapse of NOGA: Castleton Commodities International.
CCI subsidiary CCMA bankrolled NOGA's operations and is a secured creditor owed $124 million.
CCMA has sought a court order to force the Government to hand over the vessel it has a secured interest in.
The 274m-long Northern Endeavour can be disconnected and towed away. Boiling Cold understands it could fetch many tens of millions of dollars from a buyer that wants to refurbish it for use elsewhere.
However, the Government argued that it has an equitable lien over the Northern Endeavour: a right to secure debt with a property being looked after that is awarded by the court to achieve fairness.
In simple terms, both the Government and CCMA want to sell the Northern Endeavour to reduce their losses.
The CCMA lawyer argued that the Government should not be awarded a lien, in part because it had contributed to the problem. This likely refers to the Government allowing a small, inexperienced company to take over a complex ageing asset with a sizeable decommissioning liability.
The two sides also differed on timing. CCMA wants the vessel as soon as possible, but the Government does not plan to disconnect it until the end of 2021.
Yesterday's preliminary hearing focused on whether CCMA could view a report into how best to decommission the Northern Endeavor produced for the Government by Woodside for $8.8 million.
The Government lawyer said the Woodside report addressed a significant environmental problem that might happen in the Timor Sea if not handled properly and referred to the risk of discharge of "considerable quantities of hydrocarbons into the ocean."
The Government argued that the Woodside report was used to prepare a submission to Cabinet and is covered by Cabinet confidentiality.
Who pays the clean-up bill?
Arguments over access to the Woodside report will continue later this week.
Even if the Government eventually wins the right to sell the Northern Endeavour, it is likely to be left with an enormous decommissioning bill.
A lead contractor will be appointed through a global open tender process "to achieve the best result at a reasonable price."
Pitt then must work out how that "reasonable price, less anything from the sale of the Northern Endeavour, does not fall on the taxpayer.
When NOGA first failed, an industry levy was raised as a possibility to shield the taxpayer from the expense.
Australian oil and gas producers will be hoping that the Government gets to sell the Northern Endeavour at a good price and the decommissioning contractor is much cheaper than Woodside's $350 million estimate in 2015, otherwise they may be reaching very deeply into their own pockets.
Main image: Northern Endeavour oil facility. Source: Anon.