Chevron slams Canberra over clean-up bill
The issue of abandonment liabilities has caused considerable tension in Australia’s energy sector.
The local boss of US energy producer Chevron said the imposition of a clean-up levy on the oil and gas industry has been his biggest frustration since taking the top job, with the move tarnishing Australia’s sovereign risk.
The issue of abandonment liabilities has caused considerable tension in Australia’s energy sector after the Morrison government set out a $325m industry levy to fund the clean-up of the Northern Endeavour oil vessel in the Timor Sea.
The entire oil and gas industry will pay the temporary levy, a major source of contention within the industry, with a number of players privately believing the costs of the Northern Endeavour clean-up should fall to Woodside Energy which owned and operated the vessel before selling it to privately owned minnow Northern Oil and Gas Australia in 2016.
Chevron Australia managing director Mark Hatfield, appointed in March 2021, said he was disappointed with the decision and had a difficult time explaining the impost to the company’s US headquarters.
“It was an awful discussion. There was a lot of frustration not just in our office in Perth, but certainly a very frustrated group back in our headquarters in the US,” Mr Hatfield told a Credit Suisse energy conference in Sydney.
“When I think about the things that have frustrated me since I moved into the role, that would probably be the number one. It seemed arbitrary with the decision and how it was set up and it certainly violated that core principle of having a stable fiscal environment.”
The impost is expected to cost $367m a year with the total cost up to $1bn meaning the nation’s biggest suppliers may foot the bill for up to three years.
Some of Australia’s top producers and biggest foreign investors will shoulder the hit with Chevron and Shell in line for an $80m annual bill, according to industry sources, while Woodside and ExxonMobil may both be required to fork out $40m a year.
“Being the largest investor and the largest producer, we are the most penalised,” Mr Hatfield said.
Northern Oil and Gas Australia was forced to shut down production over a safety issue and subsequently went into voluntary administration.
The government now faces legal action from a commodities player owed money from the demise of an offshore oil platform as the industry braces for a significant rise in the costs of a clean-up bill for the Timor Sea project.
The issue raised concern about who pays for abandoned facilities if companies go bust with several operators privately suggesting Woodside should foot the bill.
Australian energy producers were slugged with new decommissioning rules last year which would see the seller of offshore oil and gas operations liable for its clean-up even after it has been offloaded to a new buyer.
Chevron said trailing liability rules were not perfect, but a workable solution for the industry. “The trailing liability works and it’s not good but in terms of what’s a better alternative, it’s hard to find one,” Mr Hatfield said.
The rules were sparked over concern that taxpayers could be left to foot the bill for massive remediation costs if the new owners of assets were unable to pay for hefty decommissioning bills.
Some $52bn of decommissioning work on offshore infrastructure needs to be completed.