Oil & gas to get Northern Endeavour bill and trailing liabilities: Pitt

Resources Minister Keith Pitt plans to stop big oil companies passing on decommissioning liabilities and make them contribute to the Northern Endeavour decommissioning bill.

Oil & gas to get Northern Endeavour bill and trailing liabilities: Pitt

Oil and gas companies that sell ageing offshore facilities will retain liability for clean up costs under planned changes to legislation, according to Federal Resources Keith Pitt.

Pitt also told the ABC's Background Briefing that the industry will foot some of the bill to decommission the shuttered Northern Endeavour oil vessel that is now the Government's responsibility after its owner was liquidated earlier this year.

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Before the Northern Endeavour failed, the Government was reviewing its regulation of the decommissioning of offshore oil and gas facilities.

The offshore and onshore cleanup bill to 2050 has been estimated at $76 billion by oil and gas consultancy Wood Mackenzie.

Pitt, speaking on the Background Briefing podcast released this morning, said the Government would release the review before the end of the year.

"There will be legislation that's required which I expect to put up following... all the normal processes that we would go through if we were looking to make changes around trailing liability and of course the role of the regulator," Pitt said.

A report into the Northern Endeavour by experienced UK North Sea regulator Steve Walker recommended trailing liabilities as current Australian regulations did not anticipate operators going into liquidation.

"The adoption of 'trailing liability' whereby a titleholder would be continually liable for the decommissioning and removal of its offshore assets even after selling its interests in a title, was receiving growing acceptance," Walker wrote.

"This is a serious concern, as such events could be repeated as Australia's offshore industry matures and late-life assets are likely to be passed from established majors."

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North Sea expert recommends changes to stop a repeat of Woodside escaping a $360 million cleanup bill by paying a tiny inexperienced company to take an old rusty asset.

Trailing liabilities are likely to put a brake on established producers' plans to sell late-life assets to smaller companies.

Boiling Cold understands the Federal Government's stricter approach to decommissioning was a factor in ExxonMobil announcing a week ago that it had canned efforts to sell its half-share of the vast but ageing Bass Strait oil and gas operation.

Pitt said the failure of the Northern Endeavour was an unprecedented situation.

"We've taken the right and appropriate action and now we'll ensure that it can't reoccur anytime in the future," Pitt said.

The owner of the Northern Endeavour, Northern Oil and Gas Australia, was a small inexperienced company owned by just one person: Angus Karoll.

The Northern Endeavour's initial operator Woodside paid Karoll in 2016 to take the Northern Endeavour. Woodside's alternative was to close the facility and decommission the wells, subsea structures and vessel at a cost it estimated to be about $360 million.

Current legislation did not require the financial strength of the new owner NOGA to be checked before it took over the facility.

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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.

"There are some challenges around the legislation that's allowed this position to become a reality," Pitt said.

"I'm addressing that as the Minister so the taxpayer won't be left on the hook for the full cost of what's necessary to decommission that facility,

"I've told the industry that very clearly.

"We're looking at options now in terms of cost recovery and how that will be done.

"I've been very upfront with industry that they'll be expected to contribute."

Pitt did not say if the industry generally or Woodside specifically would bear the cost.

If Woodside's 2016 deal to move decommissioning liability elsewhere results in stringent restrictions on the sale of assets and an industry levy to pay for the Northern Endeavour clean up, it will not be a popular company amongst its peers.

Main image: Northern Endeavour in early 2018. Source: not disclosed, used with permission.