Taxpayers face potential $500m clean-up bill for Chevron's Barrow Island oil and gas project

Taxpayers face a potential $500 million bill to clean up aging oil and gas infrastructure left by Chevron on Barrow Island off Western Australia's Pilbara. The oil and gas giant is decommissioning its WA Oil project, which ceased production in May after 60 years of operation. The cost of safely closing down the facility is estimated at $2.3 billion, with state and federal governments contributing at least half a billion dollars. The liability stems from a 1985 agreement allowing Chevron to be refunded royalties to cover 40% of the cost of the first four years of decommissioning.

Western Australian and federal governments are poised to refund Chevron approximately $500 million to offset the costs of decommissioning the oil field on Barrow Island off the Pilbara coast. This decision stems from a 1985 agreement that allows Chevron to be refunded royalties to cover 40% of the cost of the first four years of decommissioning [1].

The decommissioning process, estimated to cost more than $2.3 billion, is expected to take several years and involves plugging and abandoning wells, removing equipment, and addressing contaminated areas. The southern half of Barrow Island, once a pristine nature reserve, is now classified as a contamination site due to extensive environmental degradation caused by Chevron's operations [2].

The refund mechanism is based on a unique royalty regime established in 1985 for the project. From May 2025 to December 2028, Chevron and its partners will be refunded 40% of their decommissioning costs, with the governments paying in the same ratio as they received royalties. The total refund is capped at the value of all royalties received [1].

The WA government has estimated that it will refund about $129 million in royalties, implying the federal government will pay $387 million, with Chevron and its partners receiving a total of $516 million. However, the actual refund could be higher, as the cost of decommissioning is now estimated to be more than $2.3 billion [1].

The refund is a significant liability for taxpayers, but it is not the only decommissioning cost. Santos, Chevron's partner in the Barrow Island venture, will also have to contribute to the cleanup. The total bill to 2050 to clean up after Australia's offshore oil and gas industry was estimated to be $52 billion four years ago, with onshore operations incurring additional costs [1].

The situation highlights the complex and costly nature of decommissioning aging oil and gas infrastructure. The process involves old equipment with uncertain levels of contamination and structural integrity, leading to costs often exceeding expectations [1].

References:

[1] https://www.boilingcold.com.au/governments-set-to-refund-chevron-500m-for-barrow-island-oil-field-clean-up/
[2] https://www.miragenews.com/aussie-govts-return-royalties-to-big-gas-amid-1501317/