Taxpayers are at risk of inheriting the clean-up bill for a company that experts say is ‘highly unlikely’ to be able to fund environmental rehabilitation of gas fracking exploration wells.
New Standard Energy (NSE) was one of a number of petroleum exploration companies that rode a wave of interest in the potential of shale gas deposits in the vast Canning Basin, which underlies half-a-million square kilometres of the west Kimberley and Great Sandy Desert.
After signing a $110 million deal with ConocoPhillips at its peak in 2012, NSE has since collapsed to a share price of 0.3 cents, and with just $119,000 in the bank.
The Department of Mines, Industry Regulation and Safety (DMIRS) directed the company in mid-2018 to rehabilitate the sites drilled at the height of interest in gas fracking in the Canning Basin.
Unlikely to have resources
But according to Professor Kingsley Dixon from the ARC Centre for Mining Restoration, New Standard Energy was unlikely to have the resources to undertake environmental rehabilitation,
“Whether it’s their turkey dams, their lay-down areas, the donger areas, road infrastructure, drill pad, that piece of desert should look like the rest of the desert,” Dr Dixon said.
“I would guess the budget’s quite short on, in terms of their ability to achieve that rehabilitation.”
Mining analyst Tim Treadgold agreed that the company did not have the resources to meet its environmental deadline.
“They only have a couple of hundred thousand dollars in the bank, and that’s just going to meet their office costs and fees to the stock exchange to stay listed,” Mr Treadgold said.
“The company itself is highly unlikely to rehabilitate what’s happened in the past.”
Dr Dixon said it is an example of a common problem across the industry where environmental restoration is pursued in the dying days of once successful mine and exploration sites.
“Unfortunately, when it comes to finalising a mine and closing it off, that might be years down the track, budgets may have been spent, priorities have changed, and suddenly they’re left with very large liabilities,” Dr Dixon said.
“In the case of this company, the liability may be substantial, it could be in the multiple millions of dollars.”
Dr Dixon said that New Standard Energy was typical of 90 per cent of mining and exploration activities that posed a risk of becoming public rehabilitation liabilities because of inadequate planning and insufficient funding.
“I don’t think it’s a genuine disrespect for the law or the approvals process at all,” Dr Dixon said
“It’s actually a gross misunderstanding of the complexities and the scale of investment that’s required.”
Leaving environmental rehabilitation until it is economically too late is common practice according to Dr Dixon.
“Unfortunately this is more the norm with the industry,” Dr Dixon said.
“We estimate there’s about 20,000, essentially holes in the ground, from various mining activity.”
He points to the Kimberley’s Ellendale Diamond mine which closed in 2015 leaving a large environmental liability.
“The mine went into receivership which then left the West Australian people with a $35-40 million rehabilitation clean-up bill,” he said.
The Ellendale closure came just three years after the mine operator was refunded $12 million in environmental bonds when that policy was largely replaced by the current Mining Rehabilitation Fund (MRF).
The MRF requires all mining tenement holders to pay a levy to fund the rehabilitation of abandoned mines.
The Department of Mines, Industry Regulation and Safety (DMIRS) told the ABC that the balance of the MRF in December 2018 was $149 million.
In response to questions to state parliament from the WA Greens in 2015, the Government said the total rehabilitation liability estimate for mining in WA at that time was $2.6 billion.
“So it’s a significant and large-scale problem that if the state had all of those mines come onto their book for rehabilitation, we’d be in the many billions of dollars in terms of achieving suitable closure on those mines,” Dr Dixon said.
The Australian Petroleum Production and Exploration Association (APPEA) said that rehabilitating operational sites after activities was a high priority for the industry.
“APPEA members take their commitments very seriously,” APPEA external affairs director Matthew Doman told the ABC in a statement.
“New Standard Energy is not an APPEA member and we can’t comment on their specific activities.”
“Regulators must ensure all operators are capable of undertaking their activities safely and sustainably.”
The MRF applies to mining rehabilitation but not the oil and gas industry which includes New Standard Energy’s exploration wells.
A spokesperson for the Minister for Mines and Petroleum, Bill Johnston, said, “the McGowan Government is looking at how to establish a rehabilitation fund for the oil and gas industry.”
Enormous value to Karajarri people
Thomas King, the chairperson of the Karajarri Traditional Lands Association said the desert locations were highly valued by traditional owners.
The association manages environmental and cultural projects in the areas where New Standard Energy is yet to rehabilitate its drilling sites.
“We don’t consider them remote because they’re still Karajarri country, and they still hold enormous value to Karajarri people, spiritually, socially and environmentally,” he said.
Mr King said that traditional owners did not receive any benefits from New Standard Energy, and were calling on the Government to ensure the sites were rehabilitated.
“The Department of Mines have got to take some degree of responsibility for it and explore ways it can be done,” he said.
The DMIRS provided a statement in response to the ABC’s inquiry which in part said:
“Failure to comply with a direction issued under the Petroleum and Geothermal Energy Resources Act 1967 or a non-compliance of an Environment Plan approved under the Petroleum and Geothermal Energy Resources (Environment) Regulations 2012 will incur a penalty.”
Exploration frenzy to failure
New Standard Energy shot to prominence in 2012 when it announced an agreement with global energy company ConocoPhillips to fund up to $110 million of exploration for shale gas in the Canning Basin.
The company’s share price peaked in March 2012 at 64 cents, as NSE drilled two more exploratory wells in the remote west Kimberley.
But the Nicolay and Gibb Maitland wells were disappointing with little found and one drill pipe becoming stuck almost three kilometres under the ground.
The oil price crash of 2014 was the last straw for New Standard Energy and the share price has stayed below one cent since 2015.
In its quarterly report released January 30, 2019, New Standard Energy said that it was obtaining quotes for rehabilitation obligations, which would be met by November this year, subject to funding.
Mr Treadgold said that New Standard Energy was unlikely to ever recover.
“You’ve got a company that really has flown high, come back to ground, and now doesn’t have much of a future,” he said.
The ABC contacted the company for comment, but the telephone number listed on New Standard Energy’s website diverts to Telstra Home Messages, and there was no response to emails.
Originally published by ABC News.
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