Woodside dumped its oil rig into a $2 company to dodge a big clean-up but Exxon canned the $3bn sale of its Bass Strait oil and gas assets after a warning from Resources Minister Keith Pitt to ExxonMobil chief executive Darren Woods. Peter Milne from independent resources media company Boiling Cold has the story.
ExxonMobil abandoned the sale of its Bass Strait operation just two weeks after the Australian Government told the US oil major it would be liable for decommissioning its 50-year-old operation if a new owner failed to commit to proper decommissioning.
Resources Minister Keith Pitt told ExxonMobil chief executive Darren Woods in November 2020 that he would crackdown on the sale of offshore oil and gas assets, a month before the policy change was made public.
In the letter obtained by Boiling Cold after a freedom of information request (full letter below) Pitt laid out his expectations of ExxonMobil including that any new owner must have the financial and technical capacity to decommission the ageing Bass Strait facilities.
Pitt also told ExxonMobil he would introduce trailing liabilities that hold previous owners liable for decommissioning costs as a last resort to avoid the burden falling on Australian taxpayers.
Industry behaviour prompted crackdown
Three days after giant ExxonMobil announced it would sell its 50 per cent share of the Bass Strait in September 2019 an oil and gas minnow Northern Oil and Gas Australia operating in the Timor Sea entered administration.
The big players in Australian oil and gas may not have realised it then, but the window of opportunity would soon close to cut and run by selling late-life assets to small players and escape decommissioning costs.
Two companies – Hess and Woodside – had already made the jump.
In late 2017 Hess sold its Equus fields to newly-formed Western Gas after its 10-year $US1.8 billion effort to develop an LNG project failed. A fifteen-day old company now had the rights to develop Equus, but it came with the liability to plug and abandon five wells in remote deep water at the cost of about $US100 million. Boiling Cold understands Western Gas paid $US2 for Equus.
In 2016 Woodside had gone further than selling as asset for next to nothing to avoid decommissioning costs: it paid NOGA $US16.5 million to take the ageing Northern Endeavour oil production vessel.
The Federal Government allowed a tiny inexperienced undercapitalised company to buy a poorly maintained vessel with dwindling reserves and a decommissioning cost Woodside in 2015 estimated to be $362 million. Unsurprisingly the lack of regulatory oversight did not end well.
A routine review of offshore decommissioning regulation launched in October 2018 now had real importance. Cleaning up after Australia’s oil and gas industry was estimated to cost $76 billion to 2050, with much of that offshore.
Pitt did not appear happy with how ExxonMobil engaged with the Federal Government over the sale of its share in 23 platforms and 600km of pipelines in the Bass Strait.
ExxonMobil had to make sale documents and schedules available and promptly responded to queries, Woods was told.
When a Federal Minister writes to the chief executive of a $US190 billion company about tardy paperwork, the relationship is not going well.
To make it clearer, Pitt wrote that government agencies would “closely scrutinise any transaction to ensure my expectations are met.”
Fifteen days after Pitt signed the letter, ExxonMobil abandoned the sale process it announced 14 months before.
ExxonMobil told Boiling Cold the introduction of trailing liabilities did not affect its decision not to sell its Bass Strait interests.
“Following a marketing process, ExxonMobil has determined it can secure more value by continuing to operate the assets,” an ExxonMobil spokesperson said.
Long-term players may become stayers
Woodside’s opportunistic sale of the Northern Endeavour let hundreds of millions of dollars of decommissioning costs flow from producers to taxpayers, but it triggered regulatory reform intended to stop that happening again.
A sale of an older asset will still be possible but the pool of buyers acceptable to the Federal Government will be similar large companies who also do not want to invest in late life assets.
A few weeks after ExxonMobil cancelled the sale it promoted that its work decommissioning projects overseas “demonstrate that our company has the knowledge, expertise, experience and skill to achieve similar success in Bass Strait.” Unwittingly ExxonMobil had advertised precisely why the Federal Government wanted it to stay.
Neither reported potential buyers – Macquarie and Beach Energy – could offer this capability.
ExxonMobil has already plugged and abandoned wells on the Blackback, Whiting, Seahorse, Tarwhine and Mackerel fields.
“Over the next few years, we will continue to progressively plug and abandon wells as they reach the end of their production life, while we continue to progress the extensive planning and preparation of our final decommissioning program,” an ExxonMobil spokesperson said.
Pitt told ExxonMobil he had also written to BHP about its proposed sale of the other half of the Bass Strait operation.
BHP chief executive Mike Henry announced the “relatively clear-cut decision” in August 2020.
“We are clear on the future for Bass Strait… there’s not a lot of upside there, in terms of exploration,” Henry said, adding that BHP preferred oil to the mainly gas production of the Bass Strait.
A BHP spokesperson said the Bass Strait sale process was ongoing but declined to comment specifically on the effect of the introduction of trailing liabilities.
In January, Italian ENI was reported to have called off the sale of its Australian assets after receiving unsatisfactory bids. However, Boiling Cold understands the introduction of trailing liabilities and tough action by offshore safety regulator NOPSEMSA in December killed any deals on the table.
Chevron, that launched the sale of its one-sixth interest in the North West Shelf LNG project in June 2020, will also be hit by the Government’s new approach.
BHP is not considering a sale of its North West Shelf stake, the BHP spokesperson said.
Letter from Boiling Cold freedom of information request
Resources Minister Keith Pitt to ExxonMobil chief executive Darren Woods
This article was republished from Boiling Cold.