Two details could make repeal of oil and gas exploration ban even more controversial

Wednesday, 12 June 2024

New oil and gas exploitation permits could be issued without a competitive tender and the cost of decommissioning oil and gas wells could once again revert to the Government under proposals put forward by Resources Minister Shane Jones.

However, Jones’ previous suggestion that oil and gas firms could be awarded compensation if a future government axed their drilling rights has been shelved due to the potential risk to taxpayers.

Jones announced on Sunday that the Government would introduce legislation later this year reversing the former government’s ban on issuing new offshore exploration permits.

Prior to the offshore exploration ban being opposed in 2018, permits could only be issued through a competitive tender.

But Jones told The Post the requirement would be dropped given the potential low level of interest from drillers in returning to New Zealand.

“The market reaction is very tepid in terms of people being willing at this stage to come back to New Zealand. We're going to have big struggles, as it is, to attract investors in any manner or form.

“The big firms are confronting a situation where fossil fuels, over time, will diminish in acceptability and availability.”

Jones defended the move to nevertheless open up New Zealand waters to further exploration.

“New Zealand is looking at a rather dire set of options, because although we're marching on the green journey, if we can't keep the lights on, we won't have the economic dividend to pay for the journey.”

Commenting on the perception of the potential for conflicts of interest if permits weren’t put to tender, Jones said “all such processes and decisions would be dealt with down in the innards of the state”.

“They're highly unlikely to come across the minister's office,” he said.

Labour Party energy spokesperson Megan Woods was concerned by Jones’ proposal to change the rules governing the liability for well clean-ups.

It is not unusual for oil companies around the world to sell wells that are close to the end of their life to operators that specialise in extracting the last oil and gas before decommissioning them.

However, Woods changed the law when energy minister in 2021 to ensure that original permit holders could still be held liable for clean-ups if they on-sold wells to companies that later proved unable to fulfil their decommissioning obligations.

The law change was in response to the Tamarind debacle that is expected to see taxpayers foot a $443 million bill for the clean-up of the Tui oil field, after it was sold to 2019 to Tamarind Taranaki, a company that subsequently collapsed.

Jones has proposed switching to a new system of “trailing liability” that would mean that if a well was sold more than once, liability could only bounce back to the immediate previous owner.

The Ministry of Business, Innovation and Employment (MBIE) confirmed responsibility for decommissioning wells could revert to the Crown if the two most recent permit holders were unable to meet their obligations.

There are other protections.

Permit holders would need to provide a “financial security” of a type and size determined by the Minister of Resources to help ensure costs did not fall back on the taxpayer.

But if those securities failed or proved insufficient to cover costs, “the Crown or a private landowner may be responsible for decommissioning”, the ministry confirmed.

Energy Resources Aotearoa chief executive John Carnegie believed it was “very unlikely” that would lead to a repeat of the Tamarind debacle.

Trailing liability only created an incentive for oil companies to transfers old wells down a chain to businesses that might later fail “if you've got an industry full of charlatans, and that is not our industry”, Carnegie said.

Another significant protection was that permit transfers needed to be approved by MBIE, which “post Tamarind” was exercising a high degree of caution in approving them, he said.

Jones also believed that was more of a protection for taxpayers than in the past.

“The onus is on the Crown now to place a great deal more care and attention on the provenance and credibility of the people making applications,” he said.

MBIE said Tamarind Taranaki assumed control of the Tui oil field before a “loophole” was closed in 2019 that allowed it to do so without the Crown’s approval, and before 2021, when the requirement to also provide a financial security kicked in.

Last year, Austrian oil giant OMV shelved a plan to sell its majority stake in the end-of-life Maari oil field to British company Jadestone amid concerns voiced by Greenpeace over Jadestone’s track record and a delay in regulatory approval for the transfer.

Woods said Jones’ proposals were nevertheless “taking the country to a dangerous place” by loosening protections that had been put in place for “real reasons”.

“It is making it easier for that liability to flow back to the Crown, which would ultimately mean taxpayers had to dip into their pockets.”

In February, Jones floated the idea that drillers could be offered government bonds entitling them to compensation in the event that a future government reinstated the ban on offshore exploration and nixed their drilling rights.

That would have been another part of the effort to entice explorers back into the country , but Jones said that idea had been dropped.

“The Crown is not in a position itself to put its balance sheet at risk to boost the gas exploration sector.”

However, Jones has suggested the Government might be able to achieve the same goal through different means by facilitating long-term contracts for the supply of gas from new “frontier developments”.

“Governments may come and go, but despite the best efforts of the ‘greenies’, there's no government that is going to unilaterally cancel a 20-year gas contract,” he said.