Taxpayers and creditors deserve answers over how they were left so exposed to Tamarind

Since arriving in New Zealand in late 2016 through its purchase of the offshore Tui permits, Tamarind Resources has racked up hundreds of millions of dollars in debts. Photo / supplied.

COMMENT:

The degree to which Tamarind Resources has managed to wreak havoc in New Zealand's already shrinking oil and gas industry is sufficiently troubling as to warrant an inquiry.

New Zealand's regime for dealing with oil and gas companies is meant to ensure that only companies that are sufficiently capable and capitalised to operate in a complicated and risky industry can do so without exposing the Crown to risks.

Yet despite what appears to have been a clear warning, Tamarind was able to take giant risks on borrowed money.

Taxpayers are left with a likely nine-figure clean-up bill, dozens of businesses large and small are left nursing significant debts, yet across Taranaki, another part of the business is able to continue to operate, effectively controlled by a Singaporean.

This last aspect is especially galling for observers, and how the Government responds to it could be politically delicate. Energy Minister Megan Woods is refusing to comment.

Tamarind exposed a loophole in the Crown Minerals Act to take control of an ageing oil field which was by then more trouble that it was worth.

The three oil groups which have handsomely profited from the Tui fields in offshore Taranaki were able to offload responsibility for cleaning it up and shutting it down at a price which had them running for the door.

Headlines around that deal suggesting Tamarind had paid for the permit were deceptive. Although it paid around US$2 million ($3m) to acquire 100 per cent of the permit, the former owners left US$30m behind to make it worth their while.

They viewed owning the field as a large liability.

Usually companies wanting to produce oil have to prove they have the financial and technical wherewithal but buying a company already operating a permit circumvented this.

No one knew who Tamarind was, but no one could stop them. The loophole has since been closed, but the horse has bolted.

Apparently officials at the Ministry of Business, Innovation and Employment were so concerned that two flew to Malaysia to check out the company, returning with a parent guarantee that Tamarind Taranaki's parent will cover any of its future debts. Whether this guarantee is worth anything remains to be seen.

MBIE had the option to strip Tui from Tamarind but decided not to.

At the time this may have seemed like a sound decision; if they had, responsibility for plugging and abandoning the Tui fields would have fallen on the Crown.

With the benefit of hindsight, it should have done so. Tamarind's drilling campaign was abandoned after the first well went over budget and came up dry.

Not only did MBIE find itself having to explain to Woods that taxpayers will have to clean up Tui, Tamarind has also racked up huge debts in Taranaki, among businesses which were already being forced to "just transition" away from the industry which made New Plymouth the hub of engineering capability in New Zealand.

But the area where MBIE has some real explaining to do was unrelated to Tui or the Tamarind subsidiary which operated it.

A different Tamarind company had applied to take over assets owned by TAG Oil, a Canadian company which had been operating in New Zealand for more than a decade.

This time MBIE (using powers delegated from Woods) did have the scope to reject the transaction.

But rather than take the chance, MBIE talked up Tamarind's international experience and capability, saying the odds of costs falling back on the Crown were low.

This is despite MBIE acknowledging that it received direct industry warning about Tamarind's financial capability back in March.

Exactly what the warning was should come under scrutiny, as MBIE's judgment about the company has proved to be spectacularly wrong.

While MBIE at some point believed the guarantee from Tamarind's parent company provided assurance, it now has to work out whether it can, or should, try to enforce it.

It will be in the position where it may have to sue a Malaysian company, because it does not have security over any of Tamarind's assets.

This is in contrast to OCP, the Singaporean lender which has security over both the parent company's assets, and the New Zealand permits previously owned by TAG.

That the Crown is so out of pocket while Tamarind continues to operate here is deeply embarrassing, putting pressure on officials to act.

There are persistent rumours that MBIE has already served Tamarind notice that it is prepared to consider revoking Tamarind's onshore permits, something the Ministry says it will not discuss.

As attractive as it may sound, doing so is unlikely to help the situation. Not only would it potentially leave the Crown as the operators of onshore permits - and taxpayers, therefore, effectively owning an oil company - it would leave the Crown responsible for cleaning up even more oil and gas wells when production ends.

Whether or not MBIE and the minister may not want to discuss what, if anything, will be done to improve the Crown's position, both taxpayers and Tamarind's creditors deserve clear answers on how things were allowed to get to this point.