COLUMN | Spraying cash around: Northern Endeavour decommissioning head for $1 billion bill; Britoil newbuilds in China; Nigeria bans cash-throwing at parties as over one hundred drown [Offshore Accounts]

This week, we look at the two cases where cash is being splashed, and one where splashing cash has been declared illegal, plus news that a prominent celebrity has been arrested for throwing around a rain of banknotes at a party.

At least Australian taxpayers have dodged the bullet on a long-lasting saga where the bill just keeps rising, as a confetti of cash falls on an expensive decommissioning project.

The case of Northern Endeavour is a reminder that not only is starting an oil and gas development incredibly capital-intensive, but that ending oil and gas operations is equally complicated, environmentally risky, and costly.

Northern Endeavour disconnected from reality

Five years ago, we highlighted the shocking abandonment of the 234-metre long floating production storage and offloading vessel (FPSO) Northern Endeavour, which has been permanently moored between the Laminaria and Corallina oilfields, about 550 kilometres northwest of Darwin in the Timor Sea, since 1999, when it was installed by Woodside.

As production from the reservoirs fell, and the oil price dropped in 2015, Woodside faced the cost and effort of shutting down production, plugging and abandoning all the wells, and decommissioning and removing the FPSO after sixteen years of production.

The Australian journalist Peter Milne identified that in its 2015 annual report, Woodside had estimated that decommissioning would cost US$156 million for its 60 per cent share in the field, giving a total cost of US$260 million.

Unless… a buyer could be found.

NOGA should have been a no-go

Miraculously, a small, newly created, and hitherto unknown company called Northern Oil and Gas Australia (NOGA) emerged as a buyer. Woodside did not even sell Northern Endeavour and the Laminaria-Corallina oil fields to NOGA in 2015: they simply handed the assets over, along with AU$24 million (US$17.5 million at the time) in cash, which Woodside claimed was sufficient to cover decommissioning.

At this point, the Australian Government should have asked some questions about the capability of the buyer to fulfil its decommissioning obligations and should have set up some mechanism whereby Woodside should step in to foot the bill if NOGA failed.

Surprise! Canberra was asleep on the watch.

Rusty FPSO shut down for safety

Unfortunately, old FPSOs are a maintenance liability.

The combination of low oil prices and rising operational problems killed NOGA. In July 2019, the Australian safety regulator demanded that the FPSO should be down until the operation could be made safe after a string of incidents. The shut-in of production meant that NOGA had no revenue, as the Laminaria and Corallina fields were the company’s only production assets.

NOGA management called in administrators in September 2019.

Liquidation leaves taxpayers on the hook

Surprise! No buyer could be found for a rusty FPSO and a shut-in oilfield, and NOGA was forced to liquidate in 2020. This led to the question of who was responsible for the cost of decommissioning the FPSO and the plugging and abandoning of the field.

The Australian Government was forced to step in. Even putting the FPSO into “lighthouse mode” with skeleton crew and basic maintenance for seaworthiness cost around US$2.5 million a month.

Faced with a billion of hundreds of millions of dollars, the idea that the Australian taxpayers should be on the hook for the problems of the oil and gas industry was politically unpalatable. However, Woodside was adamant that it was not liable, and indeed, the company charged the government for consultancy on the work needed for the decommissioning.

Everyone pays

Eventually a deal was reached. It was agreed that every offshore oil and gas company in Australia should pay for the decommissioning.

The Australian Government passed the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Act 2022 to create the Offshore Production Levy. It took effect on July 2021, and registered holders of petroleum production licenses under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 has to pay the levy.

This is now AU$0.48 (US$0.30) per barrel of oil equivalent, applied to the number of barrels of petroleum recovered, and the levy applies to each financial year from July 1, 2021, to July 1, 2029.

The Australian Taxation Office collects the levy and publishes the amount in its annual report, whilst the Department of Industry, Science and Resources manages and funds the decommissioning.

I cannot imagine that more responsible Australian offshore operators are happy to be paying extra tax for Woodside’s rather unethical behaviour and for NOGA’s bankruptcy, but that is where we are.

Surprise! Progress has been slow, and the bill just keeps getting larger.

Northern Endeavour finally disconnected

So far, the Department of Industry has awarded contracts worth around AU$850 million (now US$547 million) associated with the decommissioning, as listed on its website.

This is more than twice the original estimate back in 2015, and these costs completely exclude the phase two work to plug and abandon the subsea wells and completely exclude the phase three work, when all equipment would be removed from the seabed.

Troubled UK facilities operator Petrofac has taken over the management of the FPSO at a cost of AU$504 million (US$324 million) and has battled with the problems of a failing and obsolete unit. Peter Milne reported on his excellent BoilingCold website that a power failure forced the evacuation of the crew from the FPSO in mid-May.

The final budget to decommission this single field will likely hit US$1 billion, in effect turning it into a sobering reminder that decommissioning is horribly expensive. Every offshore structure, including wind turbines and fixed oil and gas platforms, will need removal. The global bill will probably stretch into trillions.

But there have been developments.

Skandi Hercules’ ROV makes the cut

In April, DOF’s subsea vessel Skandi Hercules successfully cut Northern Endeavour’s risers and umbilicals with its remotely operated vehicle (ROV).

Now the abandoned unit remains moored on nine anchors, which will be disconnected later this year, and the FPSO will be taken away for scrapping. Cosco has been awarded the AU$32 million (US$21 million) contract to transport Northern Endeavour to an appropriate facility for decontamination, dismantling and recycling, using its semi-submersible heavy transport vessel Hua Ruilong (click here to read Baird Maritime's review of this highly capable vessel).

The billion-dollar costs of this project should remind us that offshore operators should not be allowed to walk away from their decommissioning responsibilities.

Governments should be alert to wily players like Woodside seeking to shirk their liabilities and pass responsibility on to parties unfit to meet those decommissioning liabilities. Ultimately, where companies fail, taxpayers are on the hook.

The Department of Industry has been splashing cash, and every oil producer in Australia has to contribute.

Britoil orders anchor handling tugs in China

The revival of day rates and activity levels in offshore has seen owners confront the challenge of an aging fleet. Industry leader Tidewater re-iterated in its first quarter results presentation that newbuilds are simply not economically viable, using statistics that we have thoroughly debunked several times.

However, we have seen a drip, drip of newbuild orders in platform supply vessels from Seacor, Hercules Supply, Capital Offshore, Costamare and Sinopacific in China, and by Edison Couest, Star Offshore and CMM in Brazil, whilst DOF (for Canada), Rawabi and others have ordered anchor handlers, and a swathe of Norwegian players have ordered subsea, light construction “ocean energy vessels.”

Now the Hartnoll family’s Singapore-headquartered Britoil has added another drip, drip of newbuild orders, signing a contract for six firm plus two option anchor handling tugs (AHTs) at  Jiangsu Zhenjiang Shipyard in China.

These are 45-metre LOA, 80-tons-plus bollard pull AHTs with increased fuel-carrying capacities, targeting the barge towing and pipelay support market in the Arabian Gulf, a segment where Britoil has built an impressive track record and where its competitors Astro Offshore have recently taken ownership of other 80-ton bollard pull vessels.

"This initiative is a strategic move to renew our fleet through a modern and enhanced evolution of the older Britoil AHTs," the company remarked.

Hartnoll family on a roll

After rescuing Britoil from its banks in 2021, the Hartnoll family has invested in the offshore business heavily, buying the 30 offshore support vessels in the Vroon Offshore Services fleet in 2023 for a triple-digit price. Additionally, the company has picked up 100 ton-bollard pull AHTs from shipyards in China.

Now Britoil is joining the newbuild club, splashing cash on the AHT segment, which has been neglected for many years. How long would it be before Tidewater is also compelled to splash the cash on renewing its ageing fleet?

Nigeria ravaged by floods in Niger State

Once again, the rainy season has claimed a grim toll in Nigeria. Pulse Nigeria reports that more than one hundred people have been confirmed dead as a result of the devastating floods that ripped through Niger State last Wednesday.

The Niger State Emergency Management has confirmed that 115 bodies have so far been recovered, with the death toll expected to rise further, and reports on Sunday suggested that over 150 had perished.

Emergency workers are still conducting rescue operations, continuing the search for residents who went missing following the torrential rains that washed away and inundated dozens of homes in and around the city of Mokwa.

Abuja needs to get its priorities straight

This weekend also saw nine feared dead in a bomb attack in Borno. So, in light of the ongoing problems impacting the safety of Nigerians, whether from floods, bombs or bandits, what has the government decided to do?

Surprise! There is a crackdown on those celebrating by throwing around the local currency at weddings, funeral and parties, a practice known as “spraying”. The Central Bank of Nigeria (CBN) views the spraying of naira notes at celebrations as, "abusing the country’s symbol of sovereignty," and has taken to enforcing laws under Section 21(3) of the CBN Act:

“For the avoidance of doubt, spraying of, dancing or matching on the naira or any note issued by the bank during social occasions or otherwise howsoever shall constitute an abuse and defacing of the naira or such note and shall be punishable under subsection one of this section.”

Social influencer charged

In April, the Economic and Financial Crimes Commission (EFCC) announced the arrest of the “flamboyant” Lagos socialite, social media figure, and crossdresser Idris Okuneye, better known as Bobrisky, for abusing naira notes at a party. They face the punishment of either six months imprisonment or the option of a fine of NGN300,000 (US$189 at current exchange rates), if found guilty.

Bobrisky was previously arrested when trying to leave the country in 2024.

Trinity Spirit shows where priorities should lie

Honestly, does the Nigerian Government not have anything better to do?

In February 2022, the unflagged, unclassed, 1976-built FPSO Trinity Spirit, owned by a bankrupt local oil company under receivership, exploded, spilling 60,000 barrels of oil. This was Nigeria’s equivalent of Northern Endeavour, a reminder that the only thing more expensive than correctly decommissioning an old FPSO is not decommissioning the said FPSO.

The fate of the ten crewmembers onboard was unclear after the accident, and later reports suggest that only three survived and the remaining seven were killed in the blast.

There were promises from the Nigerian Upstream Petroleum Regulatory Commission that it had commenced an investigation into the circumstances surrounding the explosion of the FPSO off Warri, Delta State.

So far, however, we have not seen any report from any Nigerian agency as to causes of the accident, nor have we seen any accountability for the loss of the vessel and the associated pollution and loss of life, neither from the managers nor from the owners.

Instead, two of the surviving crew were initially accused by the bareboat charterers of illegally storing oil on the ship, though criminal charges were later dropped. How this disaster unfolded and what failures occurred should be publicised so that other operators can avoid the same mistakes.

Soft targets don’t solve hard problems

Fighting culture war battles about spraying naira notes at parties is pathetic. A stronger statement of sovereignty would be protecting Nigerian citizens from floods, fires and crime, clamping down on oil theft and corruption, and ensuring that vessels operating in Nigerian waters are properly certified, insured and operated to a high standard.

That goal is worth spraying some naira notes into, but fighting corruption and rooting out entrenched habits of political is hard, as the EFCC itself has acknowledged.

So, I guess those scattering naira notes at weddings have more to fear than corrupt ministers and thieving military officers in Lagos and Abuja.

Background reading

Everyone interested in the Australian oil and gas industry should subscribe to Peter Milne’s excellent BoilingCold website. Mr Milne has the inside track on stories like the Northern Endeavour decommissioning and shenanigans on St George’s Terrace in Perth at Woodside's headquarters. His tenacious reporting is an inspiration to us all.