Northern Endeavour headed for liquidation, govt on the hook

The liquidator of Northern Oil and Gas Australia has recommended liquidation, which will leave the Federal Government responsibility for decommissioning its oil vessel.

Northern Endeavour headed for liquidation, govt on the hook

This article was first published in Australian Energy Daily © Peter Milne.

Administrator KPMG has recommended the companies behind the troubled Northern Endeavour oil production vessel be wound up, in a move likely to leave the Commonwealth Government exposed to a A$100 million + bill to make the oil fields safe.

Northern Oil & Gas Australia (NOGA) and two associated companies went into voluntary  administration in September. They ceased production in July when the offshore safety regulator NOPSEMA demanded a suite of maintenance issues be fixed after two dangerous accidents. The companies had already lost a total of US$104 million in the three years to December 2018.

The failure will put a sharp focus on the Commonwealth’s overdue review of offshore oil and gas decommissioning and ExxonMobil’s wish to sell out of its ageing Bass Strait operations.

In the UK decommissioning costs are only borne by the government as a last resort. If the owner of a facility offshore the UK cannot pay for decommissioning the liability first falls to the previous owners.

Woodside Energy, that sold the Northern Endeavour to NOGA, does not face that liability under Australian law.

Castleton Commodities Merchant Asia, that claims to be owed A$108 million by NOGA, funded operations during the administration with a further A$16 million but turned off the tap last week after the Commonwealth Government refused regulatory relief from decommissioning liabilities, according to the administrators’s report.

“In the absence of funding, the Administrators are unable to maintain the Group’s operations or meet the regulatory requirements of NOPSEMA,” the report said.

Castleton had wanted to disconnect and sell the Northern Endeavour vessel but its plan would have left the Commonwealth responsible for the expensive plugging and abandonment of the oil wells in the remote Timor Sea, 550km north west of Darwin.

Creditors will meet in Perth on Friday to vote on KPMG’s recommendation that the companies be liquidated, as action that KPMG expects will lead to the liquidator disclaiming liabilities associated with the assets.

“Given the stringent regulatory requirements to maintain the NE, we expect that the appointed liquidator would have little alternative than to disclaim the NE,” the report said.

“In the absence of continued funding, any liquidator would be unable to satisfy NOPSEMA’s regulatory requirements. In any case, we expect the ABEX (abandonment expense) to be greater than the realisable value of the NE.”

NOGA estimated decommissioning costs to be US$99.4 million (A$147 million) as at December 2018.

KPMG pinpointed the companies’ troubles to undercapitalisation, reliance on funding from Castleton and loss of production after NOPSEMA closed the Northern Endeavour down for maintenance.

Minister for Resources Matt Canavan told Australian Energy Daily that the government’s priority was the safety of workers and the environment

He said that decommissioning was the responsibility of the registered title holder, and it must ensure its obligations and liabilities are met.

“Failure to comply with the property removal, maintenance or repair obligations may attract criminal or civil penalties,” the minister said.

“The government is monitoring the administration process and does not want to pre-judge the outcome. A commercial or industry-led solution to the voluntary administration remains the government’s preference.

“At the same time, the government is considering its options so it is ready to respond if and as needed.”

The government is also considering its long-term policy options after the Northern Endeavour with the Department of Industry’s offshore oil and gas decommissioning framework review expected to release a revised framework in coming months, according to Senator Canavan.

Last month Canavan told the AFR that options to avoid a repeat of the Northern Endeavour included a levy on the industry, changes to transfer dealing decisions, changes to financial assurance requirements and consideration of petroleum resources rent tax credits.

Main image: Northern Endeavour oil vessel in the Timor Sea Source: Northern Oil and Gas Australia