Bill to decommission failed Timor Sea oil vessel tops $600m

The federal government will spend up to $325 million on the next step to decommission the failed Northern Endeavour oil vessel, but under legislation passed last week, the offshore oil and gas industry will foot the entire bill.

The federal government has been responsible for the vessel moored in the Timor Sea 550 kilometres from Darwin since early 2020 when its owner Northern Oil and Gas Australia went into liquidation.

Some estimates of the total cost to Australia’s offshore oil and gas producers to decommission the Northern Endeavour exceed $1 billion.Credit: Boiling Cold

Since then, it has paid $251 million to Upstream Production Solutions, a subsidiary of ASX-listed GR Engineering, to operate and maintain the vessel, according to the AusTender website.

NOGA, a one-man company with no previous offshore experience, bought the vessel from Woodside in 2016 for a nominal amount. Before the sale Woodside had planned to decommission the vessel at a cost it estimated in 2015 to be about $US260 million ($357 million).

The federal government has since tightened legislation governing the offshore oil and gas industry with more stringent checks on the financial strength of new entrants and trailing liabilities that make previous owners liable for decommissioning costs as a last resort.

Under the new regime, it is likely the sale of the Northern Endeavour would not have been approved, and if it had been Woodside and its partner would be liable for decommissioning costs.

Last week, legislation passed by federal parliament imposed a 48 cents a barrel levy on offshore oil and gas production to pay all costs associated with the Northern Endeavour.

Resources minister Keith Pitt said decommissioning the Northern Endeavour was a unique and unprecedented responsibility and the government had ensured that Australian taxpayers were not left with the bill.

On Friday the federal government announced Petrofac, a global 8500-strong UK-based firm, won the contract to complete the first of three phases of work to fully decommission the Northern Endeavour.

Petrofac director of Australia Josie Philips said her company would disconnect the vessel from pipelines and cables, suspend the wells to make them temporarily safe, modify the vessel to make it safe to tow away, and possibly perform the tow.

Two later contacts will cover the plugging of the wells to make them permanently safe and the removal of pipelines and equipment from the seabed.

Ms Philips said it was a complex scope of work and estimating the cost had been difficult without an opportunity to visit the vessel. Petrofac’s contract included rewards for coming under the budget and penalties for exceeding it.

The Northern Endeavour is suitable, or “in class” for its current stationary and non-producing laid up state but needs further work to be safe for towing.

Ms Philips said Petrofac planned to use the contract to build up its decommissioning capability within Australia to win further work.

“Part of the energy transition is cleaning up these old and retired oil and gas facilities,” she said.

A 2021 report commissioned by a federal government agency estimated that clearing Australian waters of disused oil and gas facilities would cost $US40.5 billion ($55 billion) to 2050, with half the work needing to start this decade.

Santos and Woodside both face resolutions at their annual general meetings in May calling for greater disclosure of decommissioning liabilities.