27 Nov 2019

Crown may foot $155m bill to decommission Taranaki oil field

7:47 pm on 27 November 2019

The $155 million bill to decommission an oil field off the coast of Taranaki may end up being covered by taxpayers.

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Photo: 123rf.com

Tamarind Taranaki, which owns the Tui Field, went into voluntary receivership earlier this month, meaning the government could be responsible for plugging and abandoning its wells.

Environmental group Climate Justice Taranaki said it warned regulators about such an eventuality last year.

Once New Zealand's biggest oil producing field, Tamarind abandoned a $300m drilling programme at Tui in September when the first of three planned wells failed to find any oil or gas.

Its voluntary administrators, Borrelli Walsh, declined an interview with RNZ but the Taranaki subsidiary of Malaysian-based Tamarind Resources reportedly owes about 80 creditors close to $190m.

The Crown is one of those to have lodged a claim.

It is already liable for 42 percent of decommissioning costs - estimated in total between $100m and $155m - due to tax and royalty rules.

Tamarind specialises in operating oil fields nearing the end of their life.

But the Ministry of Business Innovation and Employment said in a statement that if the company was not able to cover the costs of abandoning the field, the entire bill may fall to the Crown.

The Tui Field has paid $539m in royalties to New Zealand over its life so far.

Climate Justice Taranaki spokesperson Catherine Cheung said it raised concerns about Tamarind's ability to decommission the field during Environmental Protection Authority consent hearings for the drilling programme.

"At the time of the hearing, we warned 'do they have the financial resources to deal with the decommissioning?' because the application itself gave us no confidence for us to believe that they have the financial [ability] to do it and now they're going."

When Tamarind bought the Tui Field from Australian company AWE in 2016, it avoided checks on its financial and technical ability to decommission the field - a loophole in the Crown Minerals Act that has since been closed.

Ms Cheung said it was essential Tui was wound down in an environment friendly way.

"If they are gone who's going to pay for the decommissioning? And what happens if it is not done properly, so that oil or gas are leaking or a ship runs into the bits of infrastructure under the sea? There's a huge amount of money and liability involved."

Independent researcher and economic anthropologist Terrence Loomis said tax breaks, subsidies, and the government's willingness to split decommissioning costs had attracted fringe players such as Tamarind to New Zealand.

"There's a risk that companies like this do hit the wall, but it's the sort of situation that the governments over the past decade or more have got us into by providing these incentives."

Dr Loomis said more companies could end up leaving the government to foot their decommissioning bill.

"Each particular situation is different but overall the implication is that having the government, previous governments in particular, having entered into these sort of contracts the situation is a kind of a ticking time bomb."

MBIE estimated the Crown would have to pay up to $855m for decommissioning oil and gas fields in New Zealand between now and 2046.

Minister of Energy and Resources Megan Woods has been approached for comment.

National Party energy spokesperson and New Plymouth MP, Jonathan Young, expected other companies operating in Taranaki to do the right thing and pay their share of the total cost.

"The truth is we've got world class operators here around the Taranaki region and offshore. When you think of, you know, Todd Energy and OMV. They are some of the best in the world.

"They all understand the social licence issue. They understand that they operate within a community and so they are very careful to make sure that they tick every box."

Tamarind - whose parent company bought TAG Oil's onshore assets for $48m in September - declined an interview. As did industry lobby group Petroleum Exploration and Production Association of New Zealand (PEPANZ), which said it had nothing to add on the situation with Tamarind.

Tamarind Taranaki's voluntary administrators were expected to announce whether the company had found the money to keep the Tui operation afloat or not in the next week.

But in a market note energy analyst John Kidd said that hope relied on the emergence of an "unlikely white knight".

Abatement notice issued

The Environmental Protection Agency has served an abatement notice to Tamarind Taranaki after it was notified of an oil spill.

The notice means the company can't extract oil from certain wells at the Tui field, off the Taranaki coast, until conditions are met.

The agency said a sheen on the sea surface was reported to regulators last Thursday.

A survey subsequently detected damage to a flowline.

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