Oil and gas industry facing $60 billion clean up costs for their own rigs

New laws to force big gas producers to pay the cost of removing their offshore rigs from the ocean are expected to pass parliament this week, sparking an unlikely division between the federal government and the petroleum industry.

Resources Minister Keith Pitt said the total industry bill for decommissioning oil and gas rigs would hit $60 billion and his reform is needed to prevent a repeat of the Northern Endeavour incident, in which the decommissioning cost for an aging production vessel ended up on the Commonwealth’s books.

Resources Minister Keith Pitt expects his reforms for the petroleum industry to pass parliament.Credit:Dominic Lorrimer.

“I’ve been very clear with industry that we need to make sure who is responsible and who is paying (for decommissioning),” Mr Pitt said.

Offshore petroleum companies sign binding decommissioning commitments to gain approval for their developments, but a loophole in the law allows them to pass on the liability if a production facility is sold before their statutory end-of-life.

The small company that was funded by Woodside to take on the title for Northern Endeavour and operate its last years of production entered liquidation in February, after the industry regulator shut down production due to workforce safety concerns.

Mr Pitt said at the time taxpayers would not foot the clean-up bill and he imposed an unpopular levy on the entire offshore petroleum industry of 48¢ a barrel, payable from July 1.

The Offshore Petroleum and Greenhouse Gas Storage Amendment Bill includes a trailing liability provision that gives government call-back powers to force previous owners of an asset to pay for decommissioning if the current owner cannot – as in the case of the Northern Endeavour.

The peak industry lobby the Australian Petroleum Production and Exploration Association is opposed to trailing liabilities, arguing in consultation it would “potentially encourage the final titleholder … to walk away from the property and reallocate decommissioning costs to former titleholders”. Companies should instead be required to prove financial capacity to pay the cost of decommissioning their offshore rigs, APPEA said.

Mr Pitt ultimately rejected this proposal but agreed with another industry concern to limit trailing liabilities to transactions made from January this year.

“The reform is not retrospective and we are striking the right balance,” he said, adding that the vast schedule of decommissioning work due by 2040 “will be $60 billion worth of work for Australia”.

Labor Resources spokeswoman Madeleine King said Labor will support the “pivotal reform” but criticised the government’s “lackadaisical approach to decommissioning”. She said it had resulted in more than $200 million of taxpayer money being spent to keep the Northern Endeavour from becoming a marine hazard before the industry levy was imposed.

“This is necessary reform to genuinely regulate the safe removal of all equipment, infrastructure and wells,” Ms King said.

Wilderness Society policy and strategy manager Tim Beshara said the industry had “brought this on themselves” by failing to meet decommissioning responsibilities.

“I don’t think there’s much that I’ve heard or seen from Keith Pitt that the Wilderness Society could support, but we support his bill to overhaul Australia’s offshore oil and gas decommissioning laws,” he said.

Labor, the Greens and the Crossbench may have the numbers to delay passage of the Bill in the Senate but will face scrutiny due to broad support for the reform.

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