Australian oil & gas sector sees new decommissioning levy as ‘terrible precedent’

As new details have emerged, APPEA, an Australian oil and gas industry association, has labelled a new levy by the country’s government related to decommissioning costs for Laminaria-Corallina oil fields as over the top, extreme, and a terrible precedent.

The Laminaria-Corallina oil fields are located in the Timor Sea and were producing through the Northern Endeavour FPSO until its operator, Northern Oil & Gas Australia (NOGA), went into liquidation in 2019.

As a result, the government was left with the task of decommissioning the FPSO vessel and the abandonment of oil fields. In May 2020, it was agreed for GR Engineering Services’ Upstream Production Solutions to operate and maintain the FPSO in lighthouse mode, which is the minimum required for safe operations, with no production and a small crew until a longer-term solution is determined.

Come May 2021 and the government stunned the oil industry with a levy to cover the estimated $200 million cost of removing facilities and cleaning up the area.

The move was announced in the government’s 2021-22 budget in mid-May 2021, but further details were revealed by the Department of Industry, Science, Energy, and Resources on 24 June, stating that the levy will apply at a rate of $0.48 per barrel of oil equivalent (BoE) produced, as measured at the well-head. The levy will start on 1 July 2021.

All entities with an ownership interest in a petroleum production licence issued under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 will be liable for the levy.

APPEA said on Tuesday that the new levy of $0.48 per barrel on all offshore oil producers was over the top and extreme.

APPEA Chief Executive, Andrew McConville, said the proposed Laminaria-Corallina oil fields and associated infrastructure levy will see a number of offshore oil and gas companies footing a massive bill for a project they have never been involved in, never benefitted from, and up to 3,500 kilometres away from their operations.

“To slug an entire industry $0.48 per barrel and not put an end date on it is over the top”, McConville said.

“Any levy is unreasonable in any form but one being so extreme will be a major disincentive for investment at a time when policy stability and certainty is critical.

“This is a terrible precedent and could have serious repercussions to Australia’s economy, to jobs and to our attractiveness as an investment destination when, as the global economy recovers, competition for investment capital will intensify.

“The government should systematically consider alternatives to reduce the costs of its own current management of the project, overall decommissioning costs and look at alternative decommissioning and cost-recovery measures.

The government also said that the levy will be paid on an annual basis, in arrears, and that the first payments, for the 2021-22 financial year, will be payable in the first half of 2022-23.

McConville added: “The Government should not be washing its hands of this through a blunt instrument like a levy, but working constructively and collaboratively with industry to minimise costs and explore all options being put on the table to get the best and most economically efficient outcome for the environment, the industry and the community”.

“More broadly the industry remains committed to working with the government the sensible development of a new decommissioning policy framework”.