The Government will assess whether it is in a position to recover a hefty future clean up bill after a meeting of creditors to a troubled oil company on Thursday.
Administrators of Tamarind Taranaki are holding a watershed meeting in New Plymouth, which will determine whether to attempt to continue production or possibly place the company into liquidation.
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After cost overruns in an unsuccessful drilling campaign which was halted in September, directors in the company warned in November that Tamarind Taranaki "may be insolvent" as it was placed in voluntary administration.
The company's debts are reported to be close to $350 million, close to half of this in the form of a liability to the Crown to decommission the well when production ends.
Although the guarantee had been referred to in documents, the Government had not confirmed it and it remains to be seen whether the money can be recovered.
"Work by officials has confirmed there is a parent company guarantee and the Crown will assess its position under the guarantee following the watershed meeting of creditors," a spokesman for Energy and Resources Minister Megan Woods said.
The spokesman declined to say whether the Government backed continuing administration or liquidation.
While Tamarind's administrators hoped to continue to produce oil from the Tui fields to help cover some of its debt, the Environmental Protection Authority served it an abatement notice to halt production on November 27 after an oil sheen was spotted on the ocean's surface. Production has not resumed.
Malaysian-owned Tamarind arrived in New Zealand in 2017 by buying the New Zealand operations of Australian oil and gas company AWE, the operator of the Tui permits.
The purchase exposed a loophole in the Crown Minerals Act , because it meant officials were not able to test its financial and technical capability as they would if they had applied to take over as Tui's operator.
In a report briefing Energy Minister Megan Woods on why the Crown Minerals Act needed to change to close the loophole, officials at the Ministry of Business, Innovation and Employment said that while if they had been in a position to they would have sought more financial information from Tamarind.
Nevertheless they were "satisfied that it is capable of operating, and then decommissioning, the Tui offshore assets".
The briefing added that "a guarantee has now been provided by Tamarind's parent company to cover future liabilities, which provides an additional level of financial assurance".
Later, officials suggested a collapse of Tamarind may push the costs entirely onto the Crown, documents released under the Official Information Act warned.
In early November, around six weeks after Tamarind cancelled the remainder of its drilling campaign on the Tui fields after the first well was unsuccessful, officials warned Woods that the company "is now in significant debt" and was considering voluntary administration.
Crown Law had offered legal advice, while Treasury had been warned of the potential fiscal impact.
The cost of decommissioning the well was likely to be around US$100m ($152.4m), although in any case the tax arrangement of the permit meant the Crown was effectively obliged to pay 42 per cent of this in the form of a tax rebate.
"If Tamarind were to be liquidated, it is likely that the entire cost of decommissioning could fall to the Crown by default.
MBIE has also confirmed that officials were given some warnings about the financial capability of Tamarind, months before the drilling campaign.
"A concern about the financial capability of Tamarind was expressed by representatives of another permit holder during a meeting in March 2019," a spokesman for MBIE confirmed this week.
MBIE, which has declined to discuss the Tamarind situation, did not provide further details of the nature of the concern or whether it acted on it.
On several occasions in 2019, officials at MBIE expressed confidence in Tamarind's financial capabilities.
MBIE officials recommend approving a separate Tamarind company be granted the right to act as operators of oil permits, as part of its purchase of onshore Taranaki assets from Canadian operator TAG Oil .
In doing so, MBIE expresses optimism that Tamarind's drilling campaign at Tui could reduce the Crown's potential decommissioning costs.
"If the Tui development campaign yields favourable results and a significant increase in reserves, this may mitigate the Crown's exposure and increase Tamarind's future cash flows," an MBIE official wrote.
"The likelihood of project failure, and the Crown being burdened with liabilities, is considered to be low ... Officials consider it unlikely that the phase 3 development at Tui will negatively impact the transferee's capability to meet its obligations to the permit."