The company looking after the shuttered Northern Endeavor oil vessel in the Timor Sea expects to charge the Federal Government $130 million in 2021 with significant costs to come for others to remove the vessel and abandon the subsea wells.
GR Engineering told the market this morning that its subsidiary Upstream Production Solutions had been awarded a one-year contract by the Department of Industry, Science, Energy and Resources to continue operating the vessel.
GR Engineering expects to earn about $130 million from the contract “based on the current budget for core operation and maintenance services and planned pre-disconnection project activities.”
“We are pleased to continue working with DISER and the relevant regulator bodies to safely manage and maintain the FPSO and execute the required pre-disconnect preparation activities to support a safe removal of the FPSO in the future,” GE Engineering managing director Geoff Jones said.
The award means UPS will charge $192 million from February 2020 - when the Federal Government inherited the vessel from liquidated Northern Oil and Gas Australia - to December 2021.
With other costs, mainly insurance and $8.8 million to Woodside for a study, the Federal Government has now committed $209 million to keep the Northern Endeavor safe.
The future bill to decommission the vessel and its oil fields could be much higher than maintaining them. The vessel and subsea equipment must be removed, and most significantly, the subsea wells have to be plugged and abandoned.
Woodside, that sold the Northern Endeavor to NOGA in 2016, estimated decommissioning would cost about $360 million. This would take the total cost to the Federal Government to well over half a billion dollars.
Earlier this month Resources Minister Keith Pitt announced the Government would decommission the Northern Endeavour, ending any prospects that it would be sold to a new owner and return to production.
Pitt said 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 Government's plans are complicated by a court battle with NOGA's principal creditor over possession of the vessel.
Boiling Cold understands NOGA spent about $4 million a month to operate the Northern Endeavour when it was producing oil.
One industry observer said using diesel for power instead of oil produced on-site and flying helicopters from Australia instead of Timor Leste would add $2 million a month to operating costs.
The UPS contract for 2021 averages to about $11 million a month.
The Federal Government may have little choice in what company operates the vessel.
NOGA contracted UPS to operate the vessel and safety regulator NOPSEMA approved the company. No other company has the knowledge of the facility and the systems in place to quickly step in.
Main image: the Northern Endeavour in 2018. Source: Anon.