New Standard Energy to leave wells forsaken

ASX-smallcap New Standard Energy will leave five oil and gas permits and four oil exploration wells completely un-rehabilitated after ignoring five directions from the Western Australian Department of Mines, Industry Regulation and Safety.
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Paul Hunt

Senior Journalist: Energy & Commodities

Paul Hunt

In a move that can only reflect badly on the Australian oil and gas industry, the operator of the oil exploration project has deserted its obligations to properly plug and abandon and rehabilitate the wells, at least for the near future. 

Plugging, abandoning and rehabilitation work is undertaken by onshore oil and gas operators to ensure unused wells are safe and not a danger to the environment. 

The company, led by Beijing-based CEO Xiaofeng Liu, released its quarterly activities report to the Australian Securities Exchange this morning, and said it "acknowledged the delay" in rehabilitating its shale gas exploration wells in the Canning Basin. It also revealed just how deep it's financial problems had become.

The company did not give a time frame on when it planned to survey the failed oil and gas development. Furthermore, it said it would not be able to meet its legal environmental obligations until it had "significant funding."

In 2012 New Standard drilled the Nicolay-1 and Gibb Maitland-1 wells in the Great Sandy Desert alongside joint venture partner ConocoPhillips with hopes of finding in excess of 40 billion barrels of oil equivalent. Neither of the wells were considered successful and they have been sitting idle for nearly a decade along with two other wells drilled. 

WA DMIRS had previously issued multiple directions to the company, ordering it to clean up its well sites and rehabilitate the camp, roads and airstrip.

However, it would appear the company has gotten away with a slap on the wrist for ignoring its environmental obligations, after the Department told Energy News it would penalise the company under the Petroleum and Geothermal Energy Resources Act.

Penalisation under the Act would amount to just $10,000 per offence. It would also be liable for a $110,000 fine for putting the physical environment at risk. This is considerably low when the cost of abandonment could reach in the region of tens of millions of dollars, or perhaps even hundreds of millions of dollars.

However, under section 121 of the Act pertaining to continuing offences, New Standard could find itself paying penalties of up to $10,000 per day. Considering the company's current fiscal position, it would be bankrupt before any meaningful costs could be recovered to fund rehabilitation. 

New Standard was suspended from the ASX in October last year after it failed to tell shareholders and the market the cost of properly rehabilitating and abandoning its well sites.

The company remains suspended to this day.

This morning New Standard told shareholders it was "committed" to buying new assets in oil and gas sector and in "other sectors" and had reviewed new opportunities late last year. This comes despite the company's financial position and rehabilitation liabilities.

The WA minister for Mines and Petroleum, Energy and Industrial Relations, Bill Johnston, refused to be drawn on whether he was concerned the wells would remain unrehabilitated, but said the government was still considering a well levy, or adding the oil and gas industry into the Mines Rehabilitation Fund to cover unplugged wells.

"The state government is still considering a rehabilitation fund for the oil and gas industry, it is a relatively complicated issue and the circumstances are very different to mining," minister Johnston told Energy News. 

According to its quarterly cash flow report, New Standard Energy had just $394,000 in the bank.

 This story was ammended to include a clause from the WA Petroleum and Geothermal Energy Resources Act.