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Oil and gas industry facing $60 billion clean up costs for their own rigs

New laws to force big gas producers to pay the cost of removing their offshore rigs from the ocean are expected to pass parliament this week, sparking an unlikely division between the federal government and the petroleum industry.

Resources Minister Keith Pitt said the total industry bill for decommissioning oil and gas rigs would hit $60 billion and his reform is needed to prevent a repeat of the Northern Endeavour incident, in which the decommissioning cost for an aging production vessel ended up on the Commonwealth’s books.

Resources Minister Keith Pitt expects his reforms for the petroleum industry to pass parliament.

Resources Minister Keith Pitt expects his reforms for the petroleum industry to pass parliament.Credit:Dominic Lorrimer.

“I’ve been very clear with industry that we need to make sure who is responsible and who is paying [for decommissioning],” Mr Pitt said.

Offshore petroleum companies sign binding decommissioning commitments to gain approval for their developments, but a loophole in the law allows them to pass on the liability if a production facility is sold before their statutory end-of-life.

The small company that was funded by Woodside to take on the title for Northern Endeavour and operate its last years of production entered liquidation in February, after the industry regulator shut down production due to workforce safety concerns.

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Mr Pitt said at the time taxpayers would not foot the clean-up bill and he imposed an unpopular levy on the entire offshore petroleum industry of 48¢ a barrel, payable from July 1.

The Offshore Petroleum and Greenhouse Gas Storage Amendment Bill includes a trailing liability provision that gives government call-back powers to force previous owners of an asset to pay for decommissioning if the current owner cannot – as in the case of the Northern Endeavour.

The peak industry lobby the Australian Petroleum Production and Exploration Association is opposed to trailing liabilities, arguing in consultation it would “potentially encourage the final titleholder … to walk away from the property and reallocate decommissioning costs to former titleholders”. Companies should instead be required to prove financial capacity to pay the cost of decommissioning their offshore rigs, APPEA said.

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