Offshore oil & gas producers to pay for $1B Northern Endeavour cleanup

For every dollar Woodside saved in 2015 selling the Northern Endeavour, the oil and gas industry may have to pay back threefold after the Federal Government moved to protect ordinary taxpayers from the cost of decommissioning the vessel and oil field.

Offshore oil & gas producers to pay for $1B Northern Endeavour cleanup

The Federal Government will levy offshore oil and gas producers the possibly $1 billion cost of decommissioning the Northern Endeavour oil vessel and its oil fields that arose after its owner went into liquidation in early 2020.

The temporary measure announced in tonight's Federal Budget is open-ended in both time and cost.

The levy will end in the financial year "in which all costs associated with the decommissioning have been recovered."

The Government did not publish the likely cost due to "commercial sensitivities."

Independent SA Senator Rex Patrick has estimated the cost could reach $1 billion.

It is unlikely the Government has a firm estimate itself as the Department of Industry, Science, Energy and Resources plans only to start engaging with potential contractors this quarter.

The Government has already committed or spent more than $200 million to maintain the vessel in the Timor Sea and prepare it for decommissioning.

Resources Minister Keith Pitt said the levy was an important measure to ensure taxpayers did not foot the bill for the decommissioning and remediation of the Northern Endeavour vessel, Laminaria-Corallina oilfields, and associated infrastructure.

Industry unhappy with bearing the cost

Chief executive of oil and gas lobby group APPEA Andrew McConville said the levy would see offshore oil and gas companies footing the bill for a project they were never involved in.

The exception to McConville's concern about lack of involvement is APPEA member Woodside that initially owned and operated the Northern Endeavour.

In 2015 the company dropped plans to decommission the oil facility and instead sold it to a small, inexperienced, financially weak one-person company Northern Oil and Gas Australia.

The deal allowed Woodside and its partner to avoid a decommissioning bill the company estimated at about $360 million.

The Government commissioned experienced UK oil and gas regulator Steve Walker to investigate the Northern Endeavour debacle.

Walker heavily criticised current regulation that allowed the sale to occur and recommended the introduction of trailing liabilities that would hold previous owners of facilities liable for decommissioning costs as a last resort.

Federal Govt regulates poorly and gets $360M Northern Endeavor clean-up bill
The Northern Endeavor mess started with Woodside paying to rid itself of a rusty ageing asset, ended with a $362 million liability for the Government and in between was a regulatory shambles.

McConville said he is glad there will be consultation with the Government, and APPEA would propose alternatives to the "blunt instrument" of a levy.

"Tonight's announcement of a new levy on the entire (offshore) oil and gas industry is a terrible precedent," McConville said.

"Everyone agrees that the Northern Endeavour needs to be decommissioned and the costs managed – but there are a number of ways that the government can do so without risking undermining investment confidence in the offshore oil and gas industry."

McConville said options included making the Government's management of the operations more efficient; reducing the cost of decommissioning through working collaboratively with industry; and looking at alternative funding such as selling the asset or accessing Petroleum Resource Rent Tax credits.

There is much industry speculation about why the likely cost was so much more than Woodside's estimate six years ago.

APPEA strongly opposes the introduction of trailing liabilities as well as the Northern Endeavor levy.

Woodside's 2015 decision to sell the Northern Endeavour is unlikely to be remembered fondly by other Australian offshore oil and gas producers.

Main image: Northern Endeavour oil vessel in the Timor Sea. Source: Anon.