Asia considers Australia project as $ 100 billion oil and gas cleanup looms

MELBOURNE, Sept. 8 (Reuters) – Australia has passed legislation that could set a precedent for who pays to clean up the fossil fuel industry in Asia, making former owners of oil and gas fields responsible for the costs of dismantling of installations in the event of failure of subsequent owners.

The new law provides a model for governments struggling with the oil and gas industry to remove hundreds of obsolete energy facilities, especially as the world shifts to a low-carbon economy.

The cost of dismantling offshore facilities in Australia is expected to reach $ 40 billion, half of which over the next 10 years. For Asia-Pacific as a whole, the cleaning bill is estimated at $ 100 billion by 2050, according to consultants Wood Mackenzie.

Australian law is stepping up controls on asset sales to ensure that any new owner has the financial and technical capacity to handle decommissioning. More controversially, it introduces a follow-on liability, modeled on the UK North Sea regime, holding former owners of assets responsible for decommissioning if a current owner goes bankrupt.

Selling mature oil and gas fields to niche players with low overheads that can cost-effectively extend field life is common practice at aging sites around the world, especially in the North Sea, in the United States. Gulf of Mexico in the United States and off Australia.

However, Australia acted after it was left to handle the estimated A $ 1 billion ($ 725 million) dismantling of the Laminaria-Corallina oil fields in the Timor Sea, abandoned by a small company during its collapse in 2019. read more

Stricter criteria should deter this type of sales in Australia at a time when several oil and gas fields are nearing end of life off South East and West Australia, much to the chagrin of Australia. industry.

“If everything else is correct, it is hoped that you will never find yourself in a position where follow-up responsibility must be exercised,” said Andrew McConville, managing director of the Australian Petroleum Production and Exploration Association, the leading group of industry pressure.

Already, Exxon Mobil Corp (XOM.N) and its partner BHP Group (BHP.AX) have withdrawn the sale of assets in Southeast Australia after a government warning to be cautious in choosing buyers. Instead, last month BHP agreed to merge its oil operations with Australia’s largest independent gas producer, Woodside Petroleum (WPL.AX).

ASIAN FIELDS AGING

Around Southeast Asia, hundreds of rigs are nearing the end of their life, but countries like Indonesia, Malaysia, Thailand and Vietnam do not have general dismantling rules. The companies operate as subcontractors with production sharing contracts with the state.

Older contracts didn’t give much consideration to abandonment, and as those contracts expired or international oil companies pulled out, there was legal uncertainty as to who should pay for the decommissioning, the director said. Mackenzie Wood Researcher, Andrew Harwood.

In Thailand, Chevron Corp (CVX.N) is trying to resolve a dispute that has delayed the transfer of operations from the Erawan gas field in the Gulf of Thailand to Thailand’s PTT Exporation and Production Pcl (PTTEP) (PTTEP.BK). Read more

Thailand wants Chevron to pay the full rehabilitation costs of around $ 2 billion for the Erawan field, including the assets it has to turn over to PTTEP.

“The situation in the Gulf of Thailand is a challenge,” Harwood said. “And that could possibly delay PTT’s efforts to invest in these blocks.”

In Malaysia, if a company’s operating contract has expired before dismantling work is complete, the work is taken over by the state-owned company Petronas, exposing it to problems such as currency risk. , which can cause rehabilitation costs to explode.

“Given the tendency for large oil and gas companies to leave the region and the entry of smaller, less financially secure players… principles such as leakage liability could be something the country and Petronas are exploring in order to mitigate. some of those risks. “said Fariz Aziz, partner at Malaysian law firm Skrine.

Indonesia, the country most proactive in addressing abandonment issues in recent years, requires operators to set aside funds for decommissioning.

The country’s oil and gas regulator SKK Migas said in July it has prepared a roadmap for the decommissioning of 100 platforms that are no longer in use and plans to reuse the facilities, including as reefs, to monitor the weather. or for border security.

WoodMac’s Harwood said Southeast Asia will likely see more examples of arbitration when there is a disagreement over who foots the bill, but follow-up responsibility is expected to become a hallmark of new contracts.

“It can be done and we will definitely see that it will be included in contracts in the future,” he said.

($ 1 = 1.3795 Australian dollar)

Reporting by Sonali Paul; Additional reporting by Rozanna Latiff in Kuala Lumpur and Fathin Ungku in Jakarta; edited by Richard Pullin

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