Energy Minister Megan Woods is seeking assurances about the Crown's exposure to a troubled Malaysian oil company which she said exposed a "giant loophole" in the Crown Minerals Act when it arrived in New Zealand.
On Monday, the directors of Tamarind Taranaki, the operator of three Tui oil fields, warned the company "may be insolvent" as they placed it in administration so payments to creditors could be suspended.
While the Malaysian company's owners had provided a guarantee, its troubles have raised concerns about its ability to pay.
Tamarind, which focuses on squeezing the final production out of oil fields with depleted reserves, assumed responsibility of most of the costs related to the eventual decommissioning, which could run into tens of millions of dollars.
• Taranaki oil producer Tamarind 'may be insolvent', directors warn
• Taranaki oil and gas producer TAG Oil quits NZ operations
• OMV granted consents for Taranaki drilling campaign
• Austrian oil giant unveils massive oil drilling plans for NZ
The way the company entered New Zealand was seen as a loophole which was inconsistent with the intent of the Crown Minerals Act, prompting a hasty law change in early 2018.
Typically when companies apply to become oil field operators, they must satisfy the Minister of Energy and Resources that they have the financial and technical wherewithal to complete an agreed work programme.
By buying the New Zealand subsidiary of an Australian oil company, AWE, no such checks could take place before Tamarind became operator.
Officials at the Ministry of Business, Innovation and Employment are understood to have had concerns about the deal, prompting them to approach Megan Woods when she became Energy and Resources Minister.
"What was expressed to me very strongly ... was it wasn't just outside the spirit of the Crown Minerals Act, there was a giant loophole that needed to be closed," Woods told the Herald.
Under the agreement the Crown has with the operators of Tui, taxpayers will be responsible for no more than 42 per cent of the decommissioning costs.
Woods said she had asked officials for advice on a number of things related to the Tamarind situation, including the status of the parent guarantee.
"I would find it very concerning if there was a possibility that taxpayers would be on the hook for 100 per cent of the decommissioning costs."
As part of the purchase of the Tui assets, the former owners, including New Zealand Oil & Gas, left millions of dollars behind to cover the cost of decommissioning.
This meant the former owners had effectively paid Tamarind to take the assets off their hands, in return for assuming the liabilities.
Jason Kardachi, from Tamarind's Singapore-based administrators Borrelli Walsh, said the guarantee relied on "whether the parent is able to comply with those obligations or not". As administrator of the New Zealand subsidiary, he did not have information either way.
"That all remains to be seen. There is a parent guarantee. Tamarind Taranaki clearly cannot fulfil those obligations" unless it could secure support to continue production, he said.
The administrators were in talks with the Government about the situation, including the clean-up costs, Kardachi said.
"It's a discussion that needs to be had between Tamarind and the Government and one that I'll be part of and throwing my hands up, unless I can deliver that medium-term funding" for further drilling.
• Oil prices jump 19% in early morning trading
• Oil prices plunge on report Saudi production will be restored sooner than expected
• NZ Oil & Gas urges shareholders to accept takeover proposal
Kardachi is seeking the support of three key creditors to continue production from Tui and potentially to secure funding for further drilling to extend the life of the fields. If the key creditors did not support the plan, Tamarind would be liquidated.
The company had "racked up some substantial creditors" in an unsuccessful drilling campaign earlier this year.
Tamarind has about 100 creditors. Kardachi declined to say how much was owed before a first meeting of creditors next week.