They came, they drilled, they left: Fears over Kimberley gas wells as explorer bows out​on February 8, 2025 at 6:00 pm

An ASX-listed petroleum company is attempting to offload stricken oil and gas infrastructure in Western Australia’s north for a fraction of its original value after numerous safety and environmental breaches were identified.

King Sound is a huge gulf in the famed Kimberley region, expanding from the mouth of the mighty Fitzroy River and opening to the Indian Ocean.

The Dampier Peninsula forms its western shore, and on its eastern shore lies the port town of Derby.

With its mudflats, globally significant range of mangrove species, dense wet rainforest and habitat for dolphins, whales and sawfish, it is part of the West Kimberley National Heritage area.

Partly in and partly adjoining this National Heritage area are three gas exploration tenements hosting three gas wells.

In August, Rey Resources announced to the ASX a “disposal deal” of these assets and its subsidiary which owns them, Gulliver Productions.

It plans to offload these to a company called China Guoxin Investment Holdings, after writing their value down from nearly $5 million to $400,000.

Regulator documents obtained by environmental protection organisation Environs Kimberley under Freedom of Information laws have revealed that in 2021, the three wells represented 44 possible breaches.

Government regulators identified the wells’ being corroded, poorly maintained, oil-stained and with blow-out preventers being incorrectly positioned; wellhead sections being buried and not accessible for integrity checks; and an oil storage tank half full of waste oil with an unsecured cap.

Corroded and improperly secured gas wells have been associated with high risks of bushfire, groundwater contamination and air pollution.

The area is also already a volatile environment, with the highest tides in the world, and high flood and cyclone risk.

The breaches also included erosion and invading weeds becoming established; drilling muds discharged towards creeks and vegetation; and plastic and other waste strewn around the sites, including pipes, plastic bags and black rubber thongs.

Inspectors recommended issuing nine ‘directions notices’ including to plug and close the wells and rehabilitate the sites.

The Department of Energy, Mines, Industry Regulation and Safety issued a notice of intent to issue the directions, but due to “the title-holder’s response” did not proceed with formal directions.

It asked the titleholder to submit an independent report on its work but no report or further information has been made public.

“To the best of our knowledge, the only on-ground action taken by the company … was the removal of [the half-full, open] oil storage tank – although how and when it was removed and where it was removed to remains undisclosed,” Environs Kimberley’s executive director Martin Pritchard said.

Pritchard said the sites had now deteriorated to the point at which one was now inaccessible by vehicle and the department must helicopter in staff to investigate, saying that to close the well it would first be necessary to fix the causeway so heavy equipment could reach it.

Rey Resources has not responded to requests for comment.

The department’s other stated reason for not issuing directions notices is that it has been for four years unable to determine whether it’s Gulliver Productions or parent company Rey Resources that is legally liable.

“DEMIRS is still actively considering enforcement options,” the government stated to Greens MP Brad Pettitt last June. When he asked in October on whether any progress had been made, the response in November was “no.”

While the government has not provided an estimate of the likely cost involved if rehabilitation ends up falling to the taxpayer, and did not respond to questions about what it cost to helicopter staff out there, previous examples suggest the total costs would be in the millions.

New Standard Energy’s four exploratory wells in the Kimberley were abandoned when the subsidiary was delisted in 2019 and folded in 2022, with neither liquidators or government able to contact it by the time the government issued its ‘directions’.

The likelihood reported at the time was that the taxpayer would be on the hook for an estimated $1.5 million cleanup costs in 2019 dollars, but the government would not provide an update as it was in caretaker mode ahead of the March state election.

This masthead is also aware of another oil and gas company’s subsidiary in the Kimberley which did not comply with directions from the regulator to close old gas wells. The WA government has now had to take responsibility.

The WA fracking inquiry report released in 2018 recommended petroleum companies active in the Kimberley contribute to a pooled rehabilitation fund to protect taxpayers from this sort of disaster, but the government in 2021 ruled this out.

When assets become liabilities

The devaluing of the assets did not escape the notice of the ASX, which wrote to Rey Resources in October asking if its financial condition was sufficient to warrant its continued listing given independent auditors had noted a loss of more than $9 million in FY 2023-23 and that its liabilities exceeded its assets, with uncertainty over “the group’s ability to continue as a going concern.”

The ASX asked if Rey would be able to pay its debts, and whether it considered the writedown of the assets by $4.7 million to be “information a reasonable person would expect to have a material effect” in its stock value.

It noted Rey had less than six months’ funding available should its loans expire and not be renewed, threatening to suspend trading if Rey did not respond by the given deadline.

Rey responded that it should maintain its listing and could pay its debts.

“Rey, being an oil and gas exploration company, does not have regular recurring income and thus incurred negative operating cash flows,” it wrote.

“Rey expects it will continue to have negative operating cash flows for the time being until … realising its investments (through locating meaningful quantities of oil and gas), joint venturing, farming-out or commencing mining operations.”

It stated it had access to a combined $8.55 million in loans, from two substantial shareholders, was primarily debt financed, and drew down only a low cash balance to avoid interest charges.

Rey told the ASX it only became aware of the “impairment factor” affecting Gulliver after finalising the agreement to offload it to China Guoxin Investment Holdings, and decided to write down the assets afterwards.

The government told Pettitt in parliament that if Guoxin acquires the company it will become liable for the breaches and nearly $30 million in documented exploration work commitments. This masthead has contacted Guoxin asking if it is aware of these liabilities.

The Lock the Gate Alliance fears if Rey Resources sells these assets they will be abandoned and the rehab bill will fall to the taxpayer.

Environs Kimberley has contacted the Foreign Investment Review Board urging it to investigate the deal before any signoff. The board told this masthead it could not comment on foreign investment screening arrangements.

Environs Kimberley has also met with WA Resources Minister David Michael asking him to issue the company with directions notices and intervene in the deal, stating, “we are gravely concerned that Rey Resources is using this deal with an unknown overseas entity, and other delaying tactics, in order to evade its rehabilitation obligations.” The minister was unable to comment due to the caretaker period.

Plans for the Kimberley

Shortly before announcing the plan with Guoxin, Rey Resources lodged state petroleum exploration applications to clear more than 3000 kilometres of grid lines across these tenements for seismic testing.

Lock The Gate Alliance spokesperson Claire McKinnon fears these are in bad faith, saying, “We suspect the applications are to fulfil the ‘use it or lose it’ criteria to make this company seem more of a going concern.”

Environs Kimberley wrote to Minister Michael that it did not believe Rey or Gulliver had the capabilities to safely carry out such work in this high value, high risk location.

“The minister must not reward a company which appears to routinely breach its operating conditions, and a regulator that is incapable of regulating, by granting new exploration approvals,” said Pritchard.

If the applications are proceeded with, that carries its own concerns for environmental organisations.

Guoxin has no track record in WA, and does not hold or operate any other petroleum tenements.

Whether any approved exploration would result in conventional gas operations or unconventional (fracking) operations is an open question, with other contenders in the region having differing approaches – Australia’s Buru is pursuing conventional gas, while the US company Black Mountain is pursuing approvals for fracking.

The high cost of fracking means a company would likely need to drill many hundreds if not thousands of wells to justify the expense of a pipeline to the state’s Pilbara region – wells the government would have to monitor for compliance.

The Greens have made banning fracking a key pillar of their platform for March’s election, promising that in a balance of power position they would negotiate to ban fracking across the whole of the Kimberley, which along with the Mid West is currently excluded from the WA fracking ban.

“Fracking in these areas would be an absolute disaster when the government departments can’t manage three wells and make companies accountable for poor practices,” said Pritchard.

The department disputes this reading, saying it continues to engage with all parties to address the liability.

A spokesperson said the complexity of ownership and operational history at particular sites across WA often required “thorough due diligence to resolve liability, which DEMIRS prioritises to ensure effective compliance and enforcement.”

“DEMIRS emphasises the need for petroleum title holders to meet statutory obligations and title conditions, including implementing satisfactory remediation plans,” they said.

“When considering dealings and transfers, DEMIRS assesses the technical and financial capability of operators to ensure they can meet title conditions and work programs.

“The Department of Energy, Mines, Industry Regulation and Safety takes its regulatory responsibilities seriously and is committed to protecting the Kimberley region’s unique environmental and cultural heritage.”

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