Rusting oil platform in Timor Sea could cost taxpayers $1 billion

Rusting oil platform in Timor Sea could cost taxpayers $1 billion

A rust-riddled oil vessel anchored in the Timor Sea has cost Australian taxpayers $86 million since February 2020, and independent Senator Rex Patrick believes the final price tag for its clean-up could spiral to $1 billion.

Key points:

  • Rex Patrick says the government should never have taken responsibility for the Northern Endeavour
  • Costs are spiralling out of control and the Commonwealth is being sued by a creditor of its former owner
  • Senator Patrick says the government would have been better off paying the former owner to deal with the issue

“This is a government bungle that will make the Leppington Triangle saga look like pocket money,” Senator Patrick said.

“There are just so many strange aspects to this particular saga … it warrants much, much closer observation by the parliament.”

The Northern Endeavour is a floating oil production storage and offtake facility connected to the Laminaria and Corallina oilfields 550 kilometres north-west of Darwin.

The vessel was owned and operated by Woodside until 2015.

After extracting about 200 million barrels of oil, the company decided to shut the Northern Endeavour down and remediate the oil fields.

Then Woodside changed tack and sold it to a small, inexperienced company called Northern Oil and Gas Australia (NOGA).

Why is the government  responsible?

NOGA continued oil production on the Northern Endeavour for a few years but was issued a number of prohibition and improvement notices by the federal government’s offshore energy regulator, the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA).

In July 2019, NOPSEMA issued a final prohibition notice to NOGA and forced the Northern Endeavour to shut down, citing environmental and safety concerns.

The Northern Endeavour was found to be riddled with rust, lacking a proper fire suppression system and “risks of a major accident event occurring”.

An aerial view of an oil platform.

Senator Rex Patrick says the government would have been better off handing over a large sum to NOGA and letting it deal with the problem.(

Supplied: Northern Oil and Gas

)

Senator Patrick believes NOPSEMA “drove NOGA into liquidation”.

Responsibility for the Northern Endeavour fell to the federal government in February 2020.

“There were some small issues with the vessel – they were legitimate – but NOPSEMA worked against the operators, basically shutting down the platform,” Senator Patrick said.

“[This put] the taxpayer in the position where they are now operating a vessel off the coast of Darwin, with huge expense, and there’s no end in sight for this.”

In December 2020, federal Resources Minister Keith Pitt made the decision to decommission the Northern Endeavour and its associated oil fields, “to remove potential risks to the environment”.

A map showing the tip of northern Australia and East Timor.

The Northern Endeavour is anchored about 550 kilometres north west of Darwin.(

suppied: NOPSEMA

)

$200m to be spent

During Senate Estimates last month, the head of the Department of Industry’s Northern Endeavour Taskforce, Shanan Gillies, confirmed more than $200m in contracts had been committed to maintaining the vessel.

“To date, the value of these contracts is $231m,” she said.

Ms Gillies said the bulk of the contracts, worth $209m, were awarded to Upstream Production Solutions (UPS) to manage the vessel in “lighthouse mode” and move towards decommissioning.

UPS is the same company that managed the Northern Endeavour for NOGA when it was issued prohibition notices by the government regulator.

“The cost of employing them [UPS] — the cost to the taxpayer — is more per month than the cost [for UPS’s management] when the facility was in full production,” said Senator Patrick.

The government has also paid $7.2m to Woodside for “the provision of expert advice” in relation to the vessel.

Creditor sues Commonwealth

In addition to the mounting costs of maintaining and decommissioning the Northern Endeavour, the Commonwealth is being sued by one of NOGA’s creditors, which could cost taxpayers millions in legal costs alone.

Castleton Commodities Merchant Asia (CCMA) – a company registered in Singapore – is suing to take control of the Northern Endeavour and to appoint a liquidator to sell the vessel off and recoup the debt owed by NOGA.

In its statement of claim, CCMA said it was owed “in excess of $135m” by NOGA and a subsidiary.

CCMA is arguing that Woodside should never have been able to be sold to an inexperienced company like NOGA:

“The Commonwealth brought about a situation where a substantial and experienced offshore company (Woodside), which was preparing for orderly abandonment and decommissioning:

  • Was able to rid itself of the decommissioning liabilities and obligations
  • Has had its decommissioning obligations in respect of the Laminaria and Corallina oilfields assumed by a small, inexperienced private company, NOGA, which was significantly under-capitalised and whose eventual insolvency led to default on its significant abandonment and decommissioning liabilities.”

The Commonwealth denied these claims in its defence filed to the New South Wales Supreme Court.

The defence also outlines a large number of issues with the Northern Endeavour, including faults in its firefighting systems, seawater cooling, ballast water systems and high voltage power supply.

“Structural issues exist due to advanced corrosion in multiple areas onboard the Northern Endeavour (with approximately 6,200 structural anomalies being actively managed and 138 recommended for repair) and a structural assessment and repair of key anomalies will be required prior to disconnection of the Northern Endeavour from its mooring,” the Commonwealth’s defence said.

‘Comedy of errors’

Senator Patrick said the federal government should never have taken on the responsibility and that a “comedy of errors” had led to taxpayers footing the bill.

“I know that the owner of NOGA went to the government and said, ‘Help me out with a loan and I will take care of the defects on the vessel,'” he said.

“We could have had Australians being employed in the production of oil.

“We could have had an oil storage facility that would have contributed to our fuel security and our department effectively shut them down.

“We would have been better off just giving NOGA $50 million to take care of the problem.

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