Blowout - The billion-dollar Tui oilfield debacle
Friday, 3 November 2023
**The Tui Oilfield earned New Zealand royalties of $539 million and netted **its owners billions. But creditors and taxpayers are now looking at a billion-dollar loss. How did this happen? Martin van Beynen drills down.
The job of decommissioning the once lucrative Tui oilfield is almost done.
Texas-based Helix Energy Solutions plugged the last of the eight wells in the field, about 50km off the coast of Taranaki, in September, and is now recovering eight wellheads.
These are basically 3 metre high 40-tonne taps, sometimes called Christmas trees, controlling the flow of oil, gas, and liquids coming up from the well below.
After that two jobs remain. One is to remove the field’s four mid-water arches - buoyancy devices tethered under the water to support the flow pipe - and the other task is to count up the enormous final cost.
The field’s operator, Tamarind Taranaki, went bust in November 2019. Current figures show it owes about $600m to secured and unsecured creditors. Due to the company collapse, the Crown was left with the responsibility of decommissioning the field at an expected final cost of $443m.
A nice little earner for some
The oilfield was developed and operated until 2017 by permit holders Australian Worldwide Exploration (AWE), Japanese conglomerate Mitsui and NZ Oil and Gas. It began pumping in 2007 and produced about 40 million barrels (a barrel is about 160 litres) for the permit holders, with output as high as 50,000 barrels a day.
The Tui oil was pumped to a moored floating tanker which burnt off the gas, separated the water and then pumped it to a waiting tanker for delivery to various destinations.
By 2017 the field was nearing the end of its life, although it still had an estimated five million barrels left. The consortium needed to start planning the field’s decommissioning, which involved plugging the wells and removing all the below water infrastructure and pipes.
It was always going to be an expensive exercise but nobody knew just how much. A new player on the scene saw an opportunity.
Malaysia-based company Tamarind Energy was formed in 2014 with the idea of acquiring end-of-life oilfields which it could exploit with more adventurous prospecting and more advanced technology. It thought it could save money by driving harder bargains with processors and spend less than thought necessary on decommissioning.
The company had the backing of the US wealth management firm Blackstone Energy Partners, which committed to injecting about $US800m into the venture.
Tamarind chief executive Ian Angell, a Canadian, said at the time: “The Tamarind team has always welcomed the opportunity to develop and improve performance of fields which others put in the ‘too-hard’ basket.
“Given our approach, which begins with a regional geological perspective, we are able to pursue innovative reservoir management with fit-for-purpose facilities to find and develop reserves. We then knit this together with creative commercial solutions that can add significant value for our partners and host governments.”
Tamarind’s first setback was in August 2016 when Blackstone pulled out as Tamarind had failed to secure deals of sufficient interest to it. Tamarind was forced to seek other funding, which it found at lender OCP Asia in Singapore.
The company had already looked at the Tui oilfield and was negotiating to buy out the existing permit holders. AWE said at the time that Tamarind had the ability to “maximise value from late life assets” and had experience in decommissioning offshore oil projects.
Angell was keen to show his investors how savvy his company was and the Tui oilfield was a good opportunity to make an impression. By March 2017, it had bought all the shares in AWE Taranaki and renamed it Tamarind Taranaki. As part of the deal it received US$30 million from the sellers as working capital.
The Tamarind Taranaki directors were Angell, Queensland-based lawyer Murray Norman Arnett (also a director of the Reds rugby franchise) and Kiwi oil engineer Jason Peacock.
Peacock had worked for AWE and he and his 15-strong team were transferred to Tamarind to carry out the day-to-day operations of the company and supervise its drilling programme. Arnett and Angell flew in occasionally for meetings but Peacock and his staff had no input into financial arrangements.
A loophole
Under the Crown Minerals Act (CMA) of the time, Tamarind did not have to get the approval of the relevant minister to complete the deal. Notification was all that was required.
The transaction highlighted a loophole in the CMA that allowed a company to sidestep the tests that would normally be applied to a new operator of a petroleum permit.
(The loophole was subsequently closed on February 19, 2019, via the Crown Minerals Amendment Act 2019 (2019 No 2).)
The situation set alarm bells ringing within the Ministry of Business, Innovation and Employment (MBIE).
The loophole meant its officials could not assess the new operator’s technical and financial capabilities. If the venture collapsed, who was going to pay the huge cost of decommissioning the oilfield? What would stop Tamarind from siphoning the US$30m supposed to be spent on decommissioning into other projects or pockets? Would it have the insurances in place to pay for a major oil spill?
An article in the Listener magazine in late 2021 by journalist Richard Woodd says MBIE’s national petroleum manager, Josh Adams, emailed Tamarind in January 2017 asking for assurances.
He threatened revocation of the permit if Tamarind came up short but, at the time, the Tui field had negative value. It would not have been possible to get another permit holder and Tamarind would have kept the US$30m, leaving the Crown to decommission the field.
Documents obtained by Woodd show MBIE officials and Tamarind executives met in Kuala Lumpur in March 2017, and MBIE also asked accountancy firm PwC to assess the deal. It concluded Tamarind looked like a genuine buyer.
Further comfort was provided by a guarantee from Tamarind’s parent company, promising the venture would meet all its obligations. In November 2018 Tamarind agreed to buy another six oilfields in Taranaki.
A perfect storm
Things went badly for Tamarind from the start.
It planned to drill three new wells, thereby extending the life of the Tui field to 2025. The first well wasn’t completed until early September 2019 and while the drilling rig was in place it prevented full production and reduced cashflow.
The new well was a fizzer and cost far more than expected. At the same time the price of crude oil was dropping to low levels. By the end of September 2019, Tamarind’s financiers had called it quits, an unusual move because normally a few hurdles would not scuttle a planned drilling programme.
Tamarind struggled on, but in November 2019, the Environmental Protection Agency forced a halt to production after an oil sheen caused by a gash in the pipeline was seen.
Receivers were appointed shortly afterwards and Tamarind Taranaki Ltd went into liquidation on December 19, 2019.
The Crown was left holding the baby and then Energy Minister Megan Woods had to get Cabinet to approve funds for decommissioning the field. The bill was initially estimated at $155m but by May 2021, $443m was allocated to finish the job.
Tax Rebate
Liquidators’ reports show the company’s main potential asset is a tax rebate derived ironically from the costs of decommissioning.
The rebate, estimated at between $30m and $40m, is based on an accountancy exercise. Before its collapse, Tamarind decommissioned some of the wells itself, thereby incurring costs. Such costs can’t be claimed as operating expenses because they are not viewed as costs of generating income.
The company therefore paid tax on income that would have been lower if the decommissioning costs were taken into account. A rebate, calculated by averaging out the decommissioning costs over the years of production, is then payable.
IRD is close to setting the amount of the rebate but, with the taxpayer forking out $443m for decommissioning, the Crown will be loathe to hand it over to Tamarind’s receivers and liquidators. Expensive legal action is expected.
Creditors want investigation
In another development, at the request of some creditors, the liquidators have reviewed the validity of lender OCP’s position and issued a “Notice to set aside Voidable Charge and Transaction”, effective from January 8, 2021, to OCP. The notice gives OCP time to object, which it has.
The notice is a manoeuvre to get control of the tax rebate.
Creditors have also asked the liquidators to review the actions of the directors of Tamarind.
“The initial view of the liquidators is that the possible claims need to be investigated further,” the liquidators’ reports says.
Neither Angell nor Arnett responded to approaches from The Press. Ian Angell’s LinkedIn page suggests he is currently a professor in residence at Trinity Western University and a corporate adviser at Hanky Panky Ltd, a New York-based lingerie company.
Trinity Western is a private Christian liberal arts university in British Columbia.
The page says he “founded, financed, led and grew Tamarind from start-up to pre-IPO maturity by instilling and ensuring an ethos of savvy technical and commercial approaches to finding and building assets with innate intrinsic value”.
The profile makes no mention of the Tamarind Taranaki debacle.
Michael Norman Arnett, 61, continues as executive chairman of NRW Holdings, a public company based in Australia which provides services to the resources and infrastructure sector. It has a workforce of 7200 people.
Nearly four years after Tamarind’s collapse, unsecured industry creditors owed $485m will have moved bitterly on, although some will hope some of the tax rebate will end up in their pockets.
The Crown, meanwhile, has already forked out $208m (up to September) towards the decommissioning, of that projected cost of $443m. The taxpayer will be feeling the pain for some time to come.