In the early hours of August 21, 2009, a sea floor well emitted a burp of fluid and gas at the Montara oil field, 690 kilometres off the coast of Darwin.
Two hours later, a column of crude oil shot into the West Atlas drilling rig and continued unabated for 10 weeks.
The result was a calamity: 40 million litres of oil spread over an area of 90,000 square kilometres causing the worst spill of its kind in Australia’s history.
What triggered the disaster was the failure of a cement barrier protecting the integrity of the well. But another factor was a culture within the company operating Montara of prioritising speed over safety.
Much has happened since. A clean up was carried out, at the cost of several hundred million dollars. Another $192 million of compensation was eventually paid to the owners of West Timor’s decimated seaweed farms. And the regulation of offshore gas and petroleum — exposed as feeble and captured by industry — was overhauled.
Now, 14 years later Montara is again under scrutiny.
There are serious questions about the health of its infrastructure, and whether the company currently operating the oil field can meet obligations to safely maintain the facility and eventually clean it up.
Questions for Australia’s offshore oil industry
Some of these same questions loom over much of Australia’s offshore oil industry.
Sitting in waters around our coastline are about one million tonnes of pipelines, moorings, fixed rigs and floating vessels, soon due for “decommissioning”.
The oil giants operating these facilities are contractually obliged to remediate the sites, yet the cost of this work is gargantuan. Not everyone wants to pay it.
Esso Australia, for example, has argued the massive footings cemented into the sea floor beneath some of Australia’s oldest offshore rigs in the Bass Strait should be left permanently. Their safe removal, the company argues, requires engineering so extraordinary no-one is really sure how to do it.
The official cost estimate to decommission Australia’s offshore oil and gas infrastructure is currently $63 billion. More than half of the work is due to be completed within just seven years.
So, will these oil and gas multinationals abide by their contracts and clean up after themselves? Or should we be concerned they’re looking for ways to dodge it?
A history of errors
One reason for concern about Montara, to pick one offshore site, is that it has continued to be the scene of repeated stuff-ups.
The central problem is the ageing barge, or floating production storage and offloading unit (FPSO), which sits above the oil field allowing crude oil to be transferred to waiting tankers.
It’s called the Venture and this 33-year-old, 77,000 tonne behemoth is not in pristine health.
In late 2017 into 2018, the Venture reported serious leaks and dangerous levels of pressure in one of the lines bringing crude to the surface.
When National Offshore Petroleum Safety and Environment Management Authority (NOPSEMA) officials flew to the rig, what they saw prompted immediate action.
A turbine gas compressor, for instance, was being used well beyond its safe limits (at temperatures exceeding 385 degrees Celsius), creating the risk of an ignition “which could result in an explosion, fire and multiple casualties”.
There were other problems.
Critical piping had been rusted beyond acceptable limits, yet the operators could produce no “acceptable repair method” to address it.
Managers of the Venture were not identifying the corrosion of subsea infrastructure, nor were they checking whether it was fit for service.
Risk management documents were lacking, as well as “maintenance history [and] integrity checks”. On and on it went.
NOPSEMA issued a cascade of safety and environmental breach notices to the Montara operators in September and October 2018.
It was at this very time that Thailand’s state-owned petroleum company sold the field, and the Venture, for $305 million to a publicly traded oil and gas company called Jadestone, which is majority-owned by a hedge fund operating out of the French Riviera.
By March 2021, NOPSEMA was once again worried about the extent of corrosion aboard the Venture and the ongoing failure to address it. It demanded action from Jadestone.
Soon afterwards, a marine engineer repairing a boiler suffered severe steam burns to 30 per cent of his upper torso. Days later, another potentially fatal mishap: a worker was struck by a 100 kg steel beam.
In June last year, there was an oil spill at Montara that NOPSEMA feared was “an immediate and significant threat to the environment”. It might have been catastrophic, inspectors later discovered, had it not been for “several chance mitigating factors”. NOPSEMA ordered a halt to production. Jadestone was “failing to identify and control structural integrity risks”.
After a long suspension of operations — and mounting financial pressure on Jadestone — the tanks were finally fixed in March this year.
But in July, production ceased once again: a gas alarm indicated yet another leak.
The Venture, it seems clear, is on its last legs.
‘The clock is ticking’
Last month, environmental campaigners rang the alarm.
“The clock is ticking,” Friends of the Earth said, because “the company [is] facing possible bankruptcy in coming weeks”.
Jadestone had only $11 million cash and $55 million in working capital, and if it collapsed — according to the NGO — Australians risked being lumped with a clean-up bill of $1 billion.
Jadestone rubbished the claims, calling them inaccurate and exaggerated, and said it had a growth strategy to deliver “substantial cash flow generation in 2024 and beyond”. Indeed, it recommenced production aboard the Venture on September 1.
What is undeniable, however, is Jadestone has been gripped by a slowly closing vice: intermittent production, soaring maintenance and repair costs, and interest bills coming due.
Earlier this year, it warned investors that a shutdown any longer than 60 days would mean potential repercussions with its lenders.
The decommissioning problem, meanwhile, is only growing more urgent.
Jadestone estimates the cost of decommissioning Montara, as well as its other offshore assets, at more than $770 million. Of this, the company recently told me it had already put aside $194 million, leaving a touch more than half-a-billion dollars worth of liabilities on its books.
Jadestone expects to clean up at Montara in 2033. A London-based spokesperson told me the company is “highly confident” it will have the money by then.
The problem is real
None of this is academic.
In 2020, a former Woodside FPSO called the Northern Endeavour was abandoned when its new operator went bust. The clean-up bill is estimated at $1.2 billion and, for a time, it looked as though taxpayers would be on the hook. (It will now be paid for by a levy on oil and gas producers.)
When Jadestone took over Montara, and another oil field operation called Stag, it was required to sign a contract with Canberra that affirms the company will put money under the mattress for the cost of decommissioning.
If cash flow drops too low before then, it must “provide a financial security” to the federal government.
In fact, the company’s unaudited accounts for the 2022 financial year reveal the government is already concerned about Jadestone meeting these commitments.
The accounts revealed discussions with the regulator about “maintaining sufficient financial capacity to ensure Australian asset restoration obligations can be met when due”.
In March, changes were agreed to the contract which, the company told me, had been “requested by the Australian government [and] which were in its favour”.
The Montara Venture is just one of 11 floating facilities around Australia needing to be towed away and scrapped or recycled. So, too, a further 57 “fixed facilities”, comprising 755,000 tonnes of concrete and steel. Eight thousand kilometres of piping is to be salvaged from the ocean. More than 1000 wells must be plugged.
The previous government introduced a trailing liability law which stopped the industry selling ageing assets to avoid the burden. Oil and gas giants are now on the hunt for other ways to escape it.
Their ideas included being permitted to sink these colossal eyesores to the seabed. Not because it’s cheaper, of course, but to attract scuba-diving tourists.
The industry has even put forward a proposal to keep some infrastructure in place, not in order to offset billions of dollars in liabilities, but to offset global warming. The exhausted oil fields are perfect for the storage of carbon emissions.
In May the federal government welcomed the idea, nominating seven oil fields as potential sites.
If it wasn’t so laughable it would be funny.
#Decommissioning #Australias #offshore #oil #gas #infrastructure #expensive #safety #concerns #oil #spill #risks #remain #real