May 12, 2021
Illustration only – An FPSO – Credit: SimonPeter/AdobeStock
Australia has stunned the oil industry with a levy to cover the estimated $200 million cost of removing facilities and cleaning up the area around an oil field off northwest Australia after the small company that owned the project collapsed.
The move, announced in the government’s 2021-22 budget on Tuesday night, came as a surprise as it was not flagged in a proposed new framework for decommissioning rules set out last month.
The government was left with the task of removing the massive floating production storage and offloading (FPSO) vessel and rehabilitating the Laminaria-Corallina oil fields in the Timor Sea after the fields’ owner, Northern Oil & Gas Australia (NOGA), went into liquidation in 2019.
The oil industry’s lobby group had pushed the government to find other ways of recovering the estimated A$250 million ($196 million) decommissioning costs and said the levy could deter new investment in the oil and gas industry.
“Tonight’s announcement of a new levy on the entire (offshore) oil and gas industry is a terrible precedent and could have serious repercussions to Australia’s economy and to jobs,” Australian Petroleum Production and Exploration Association Chief Executive Andrew McConville said.
The government did not provide an estimate of how much decommissioning would cost as the work has yet to go out to tender, but said the levy would remain in place until all costs have been recovered.
“This will ensure taxpayers are not left to pay for the decommissioning and remediation,” the budget papers said. Further information on how the levy will be collected would be announced after consultation with the industry, the papers added.
NOGA bought the aging Laminaria-Corallina oil fields from Woodside Petroleum and Talisman Energy in 2016.
Problems with corrosion on the Northern Endeavour FPSO and worries about the owner not having the right financial assurance for potential oil spill liabilities prompted Australia’s offshore regulator to shut down the operation in 2019. As income evaporated, NOGA went into liquidation.
($1 = 1.2760 Australian dollars)
Reporting by Sonali Paul; Editing by Shri Navaratnam