Taxpayers on the hook for $500m to clean up Chevron oil field and that is just the start

The refund for Barrow Island is small compared to what will be triggered by the decommissioning of Australia’s offshore oil and gas sector, estimated by the Centre of Decommissioning Australia to cost $US40.5 billion ($58 billion) to 2050.

The first big effort will be in the Bass Strait where in 2021 offshore regulator NOPSEMA ordered ExxonMobil to seal 180 wells and dismantle 10 platforms by 2027 as the initial step to wind down Australia’s oldest offshore operation. CODA estimated the bill for decommissioning all infrastructure in the area, which is predominantly ExxonMobil’s, at $15 billion.

Loading

Like the Barrow Island royalty, the federal Petroleum Resources Rent Tax for oil and gas extracted offshore refunds at 40 per cent of decommissioning costs up to the total PRRT paid, but with no four-year limit.

Decommissioning refunds from the federal budget to ExxonMobil and its 50 per cent partner Woodside are unlikely to hit the cap of total PRRT paid. ExxonMobil has paid $15 billion of PRRT from its share of the Bass Strait operation, a company spokesman said.

A Treasury spokesman said it regularly updated revenue forecasts and allowed for expenditure on resource projects.

The Treasury will not need to reimburse some companies for decommissioning as they are unlikely to pay any PRRT in the first place, effectively extracting oil and gas for decades without paying for it.

The complex PRRT that applies differently to each owner of a project has been criticised for excessively generous deductions for expenditures that escalate with time.

In 2021 Shell’s accounts revealed it never expects to pay PRRT on the gas it extracts from its 25 per cent share of the $US54 billion Gorgon LNG project or its 68 per cent of the $US17 billion Prelude LNG vessel.

A 2017 ACIL Allen analysis of the $US45 billion Ichthys LNG project for operator Inpex concluded PRRT would never be paid.

The Australia Institute advisor Mark Ogge said it was scandalous that global oil and gas producers get much of the Australian gas they export for free.

“Now we find out if they do pay any royalties or resource rent tax, taxpayers will be required to return much of it to pay for their immense decommissioning costs,” he said.

“We need a thorough inquiry to understand how and why Australians are receiving so little return for the sale of our gas resources, while being left to pay for much of the clean-up.”

The $58 billion cost to clean up Australian waters when oil and gas projects come to the end of their lives assumed full removal of all infrastructure, consistent with regulatory requirements.

If this cost is reduced so will refunds from the Treasury to the industry. Decommissioning costs also reduce company tax as they are a deductible expense.

Regulator NOPSEMA will accept some structures and equipment being left in the ocean forever if it would result in an equal or better environmental outcome than complete removal. The assessment is often a balance between the structure’s value as a marine habitat, dubbed “rigs to reef” by the industry, and the longer-term risk of chemicals leaking into the environment as the structure corrodes.

Oil and gas lobby group APPEA declined to comment.

The Morning Edition newsletter is our guide to the day’s most important and interesting stories, analysis and insights. Sign up here.