Senator Rex Patrick has labelled the Northern Endeavor oil vessel becoming the responsibility of the Australian taxpayer as a "major screw up" and a failing of Government.
"I think major mistakes have been made here," Patrick said yesterday at a meeting of the Senate Economics Estimates committee.
The Northern Endeavour vessel in the Timor Sea was to be decommissioned by Woodside in 2016 after many years of oil production. Instead, Woodside changed its plan and in late 2015 agreed to pay a small one-person company with no offshore oil and gas experience $US21.9 million to take the vessel and oil fields.
The deal with Northern Oil and Gas Australia allowed Woodside to avoid a decommissioning bill estimated in its 2015 annual report at $US156 million for its 60 per cent share. If that estimate was still valid, the full cost of decommissioning is $US260 million ($371 million).
NOGA was liquidated in February after offshore safety regulator NOPSEMA ordered a halt to production in 2019 until the vessel was made safe.
The vessel and subsea wells are now the responsibility of the Australian Government and the Department of Industry, Science, Energy and Resources has a 13-strong Northern Endeavour Taskforce managing the problem until a decision on the long-term future of the vessel is made.
Taskforce head Shanan Gilles told the Senate committee $75.3 million is allocated to June 2021 for the operation of the Northern Endeavour.
Since February DISER has committed $73.6 million to Northern Endeavor contracts, almost the entire budget. Upstream Production Solutions has contracts worth $57.9 million to operate the vessel, but the allocation only lasts until the end of November.
Patrick queried whether the Government had paid UPS too much compared to what it received from NOGA to operate the facility when it was in production.
"We understand the funding we are providing under the contract reflects current market rates and is reasonable for the services provided," Gilles said.
"When the Commonwealth Government took possession of the facility in February this year, we inherited an extensive backlog of maintenance."
The Taskforce is considering both decommissioning the Northern Endeavor and the commercial viability of a return to production.
The South Australian Senator tackled DISER on the payment of $8.8. million to Woodside for advice on decommissioning, first revealed by Boiling Cold.
"Now there is a certain irony in this because Woodside sold this vessel to NOGA and some people might observe that they knew what was coming and they've offloaded the asset, and now the Department is paying them," Patrick said.
"Yes, there is a certain irony in that, and we as a Department understand that," DISER secretary David Fredericks said.
"Please tell me you're not going to go and sole source Woodside to clean up the mess they should have done in the first place," Patrick said.
There is no suggestion that Woodside's sale of the Northern Endeavour was not fully compliant with the law.
NOPSEMA chief executive Stuart Smith said the regulator recognised NOGA could fail financially after it took enforcement actions against it.
"We also recognised that safety concerns should override any economic concerns and it's important that we take action to ensure the safety of the worker and the community and that's what we did," Smith said.
Smith said he did not recall telling his Minister, at the time Senator Matt Canavan, about the risk of liquidation.
"This is a major failing of government,…it was a foreseen event, and we've just heard that NOPSEMA didn't feel they were obliged to inform the Minister of something that they knew was going to happen," Patrick said.
Loophole spotted and left open
The independent senator also queried the National Offshore Petroleum Titles Administrator Graeme Waters about the transfer of titles to NOGA in 2016.
NOGA gained complete control over the Northern Endeavor and associated oil fields by first buying a subsidiary of Talisman that owned 40 per cent of the asset: Talisman Oil and Gas Australia Pty Ltd. TOGA then purchased the remaining 60 per cent from Woodside.
NOPTA had no legislative authority to investigate the suitability of NOGA as the ultimate owner as no new company names appeared on the titles.
"I might call it a loophole, where if you're changing from one titleholder to the next you do a bunch of due diligence but if someone simply buys out the company that owns the title that limits what you can do," Patrick said.
Waters said the Act was deficient and concerns were first raised in 2015 in the context of another transaction. The so-called loophole remains in the legislation.
Patrick left Waters with a question on notice about when NOPTA informed the Minister of the concerns. The Resources Minister at the time of the NOGA purchase was current Treasurer Josh Frydenberg.
The Government commissioned UK oil and gas regulator Steve Walker to investigate the failure of the Northern Endeavour. One of Walker's recommendation was for the Government to consider trailing liabilities, where if an owner fails financially decommissioning liabilities are borne by the previous owner, not the Government.
DISER offshore resources branch general manager Marie Illman said trailing liabilities were being considered as part of a review of the whole approach to decommissioning that the Department hopes to deliver to the Government in coming months.
Main image: Northern Endeavour in early 2018. Source: not disclosed, used with permission.