Damage to the Tui oil field 2H Flowline (shown) was blamed for an oil spill in 2022 (Image from MBIE tender). Nearly half a million dollars of taxpayers money was set aside for decommissioning the oil field. Photo: Supplied
Minister for Resources Shane Jones was warned by advisers that his plans to limit industry liability for the clean-up costs of oil wells went against international practice.
Energy officials told the minister that the United Kingdom and Australia did not limit trailing liability for oil wells, contrary to what the government is proposing here.
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Trailing liability gives governments the power to go after previous drilling permit holders for the costs of plugging wells, restoring the sea floor and removing equipment at the end of a well's life, if the current owner goes bankrupt.
The law was changed in 2021 after $443 million of taxpayers' money was set aside to decommission the Tui Oil Field. The permit was sold to Tamarind Taranaki shortly before that company's collapse, leaving the Crown with the cleanup costs.
Official advice says the chain of liability matters because larger, more stable companies tend to sell oil fields near the end of their lives to smaller companies with higher risk appetites.
On 18 April, analysts at the Ministry for Business Innovation and Employment told Jones that as well as having unlimited trailing liability, Australia and the United Kingdom "also have trailing liability provisions that are much broader than ours, in that they can target parent companies and associates, including non-permit holders."
A briefing released to RNZ under the Official Information Act shows they offered to draft Jones an option, which would have kept trailing liability the same, in line with other jurisdictions.
Instead, Jones went ahead with a change that stops the chain of liability at the immediate past permit holder.
The government says this provides "greater certainty to previous permit-holders."
Officials have confirmed the proposal means the Crown could end up paying for another clean-up if oil companies don't provide enough financial security, and both the current and previous permit holders go bust.
Jones "wanted to get balance right"
The change is part of Jones' push to entice oil and gas companies to explore for more fossil fuels.
Energy officials told Jones the fossil fuel industry was unlikely to be happy with any level of trailing liability, telling him "...New Zealand sector participants have expressed a view that the combination of broader trailing liability with change of control provisions and the requirement for a financial security make New Zealand's regime onerous and may be a deterrent to investment."
Asked why he didn't go with international practice, Jones said he wanted to "get the balance right between regulatory burden and managing risk to private landowners, the Crown, and ultimately taxpayers."
"I'm not removing trailing liability; I still want those who benefited from an asset to decommission it, but to provide more certainty I am proposing limiting trailing liability to the immediately prior permit-holder and no further back."
"Trailing liability is a backstop measure in the regime. Some of the changes being made limit trailing liability and others extend it," he said.
Nearly half a million dollars of taxpayers money was set aside for decommissioning the Tui oil field. Photo: Supplied / MBIE
In November, Jones introduced last-minute changes to the oil and gas bill.
One of those changes extends trailing liability to "the immediately previous person that had a controlling interest in the current permit holder".
It is intended to cover situations where an oil field owner sells its shares in the oil well's holding company, rather than transferring the permit, in order to offload responsibility for clean-up.
Ministers were warned that not covering shareholder changes exposed the Crown to "significant risk".
Fossil fuel companies also didn't like it, fearing it would make ministers more conservative about approving permit transfers, and more cautious in setting requirements for financial security.
Labour Party energy spokesperson Megan Woods changed the law when she was minister in 2021 to ensure original permit holders could still be held liable for clean-ups if they on-sold wells to companies that went bankrupt.
This week she said: "This is another example of the Government supporting massive offshore oil and gas companies over the interests of New Zealanders.
"Shane Jones is not putting New Zealanders first - he's leaving Kiwi taxpayers exposed to cleaning up, after multinationals have extracted their profits and left our shores."
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