16 Sep 2020

Drilling companies should need guarantee from banks, New Plymouth mayor says

11:04 am on 16 September 2020

Drilling companies hoping to enter the oil and gas industry in Taranaki should have their business case stress-tested by banks, says the Mayor of New Plymouth.

Oil storage tanks

Photo: 123rf

An industry whistleblower yesterday warned that if Singapore's Jadestone Energy is allowed to buy into the Maari Oil Field - offshore from Taranaki - the taxpayer could end up paying for decommissioning the site.

Malaysian energy firm Tamarind Taranaki went bust and abandoned the Tui Oil Field in December, leaving the taxpayer with a decommissioning bill of at least $155 million.

Now there's concern that Singapore's Jadestone is basing its Taranaki venture on oil that might not be there - putting public cash at risk again.

New Plymouth mayor Neil Holdom said that shouldn't be allowed to happen again.

And he reckoned a visit to the bank could sort it.

"Essentially a bank guarantee involves a business approaching a bank, giving them the business model, and showing them what security, assets and backing they have.

"And then asking the bank to write them an insurance policy that says if the business can't do this the bank will pay.

"And look this is common practice in business when you've got high value transactions and you're looking to manage risk, you bring in another party."

Neil Holdom.

New Plymouth Mayor Neil Holdom. Photo: RNZ / Robin Martin

Holdom said third-tier oil and gas companies now entering the region were an unknown quantity.

"Surely, if they want to come into the market and there's value there for them to extract then they can come in and prove to us and to the New Zealand taxpayers that they are capable of doing the job.

"And if they can bring a bank with them that says 'hey, we'll guarantee them if things go wrong' then the risk sits with them, which is where it should sit, as opposed to the taxpayer."

Holdom said it was important that lessons were learned from the Tamarind debacle.

"And make sure we do protect the environment once these assets have come to the end of their life.

"They are appropriately decommissioned and all of the environmental risks are mitigated, and people can sleep at night and know we are not going to have damage on the coastline, out at sea or even on land."

National MP Jonathan Young chairs the Transport and Industrial Relations Committee.

National MP Jonathan Young. Photo: VNP / Phil Smith

But New Plymouth MP and National Party energy and resources spokesperson, Jonathan Young, was not sure a bank guarantee was the way to go.

"It's very difficult to go to a banker and say 'will you write a bond certificate for this?' They don't understand the industry.

"Things do go wrong and in terms of the Tamarind situation, they just hit a dry well, and you can't guarantee that won't happen. The chances of a drilling campaign being successful is less than 10 percent, and it will be pretty hard to find a bank who'll get behind that."

Not that Young was happy with the status quo.

"No, I'm not because the taxpayer has ended up paying $100 million more than it ordinarily would not have had to.

"I think what we have to do is we have to be very robust in our assessments, and I think in this case - in the case of Tamarind offshore - the assessments were not as strong as they should have been."

The Crown Minerals Act already requires oil and gas companies to demonstrate they have the financial capability to clean up sites when their work is done.

But the Act is currently being reviewed with an eye to tightening those rules further.

In the case of Maari, its current owner OMV, says Jadestone has been chosen as its successor because it has the capability to run the field effectively and safely, including cleaning up the site.

Jadestone, which is still awaiting regulatory approval for the purchase, has assured the Crown it will meet those commitments.

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