An ageing oil vessel in the Timor Sea is being disconnected from its sub-sea wells in preparation for being towed away, more than three years after becoming the responsibility of the Australian government.

The Northern Endeavour is a 274-metre, rust-riddled oil production vessel anchored 550 kilometres north-west of Darwin.

Petrofac, an international energy services company, has been decommissioning the vessel and its associated oil fields.

Last year, the federal government awarded the company a $325-million contract for phase one of the decommissioning.

The offshore oil and gas industry will cover the costs through a levy on petroleum production.

Preparations are underway to disconnect the Northern Endeavour from nine sub-sea oil wells in a 5,000-hectare surrounding area.

"That includes things such as flushing and cleaning of the topsides and sub-sea pipelines," said Petrofac regional director Josie Philips.

"It also includes other things like sea-fastening to prepare for the tow."

The pipelines and mooring lines connecting the vessel will be lowered to the sea floor by a remotely operated vehicle for later collection.

The wells sit about 400m below sea level and will be plugged ahead of being permanently sealed under another contract that is yet to be released by the federal government.

"We also have to temporarily plug the sub-sea wells to allow for the actual disconnection activities in advance of it being towed from the field," Ms Philips said.

Chance of sinking, oil spill

The operation to remove the Northern Endeavour from the Timor Sea and clean up its oil fields does not come without risks.

There is a 1 to 10 per cent chance the vessel could sink during towing, according to a Department of Industry referral to the federal Environment Minister.

Disconnecting the wells also carries a low-probability oil spill risk.

However, the worst-case scenario could see the release of nearly 19 million litres of crude oil into the Timor Sea.

Ms Philips said the company had extensive plans "to mitigate such risks," and the Northern Endeavour was on the smaller end of the decommissioning work the company had undertaken.

"We have a job that's significantly larger than this in the Gulf of Mexico," she said.

Despite the risks involved in the operation, the referral notes state that leaving the Northern Endeavour in situ has the potential for "significant environmental and economic impacts that could affect future generations".

Vessel to be handed to creditor

Once disconnected from its wells, the Northern Endeavour will be towed to an agreed delivery point and handed over to Singaporean-based company Castleton Commodities Merchant Asia (CCMA).

In 2020, CCMA sued the Commonwealth, claiming it should be allowed to take control of the Northern Endeavour because the vessel's former owner owed it more than $135 million.

The matter was settled in August 2022, and details of the settlement have remained confidential.

Once handed over to CCMA, the Northern Endeavour will be towed through the Indonesian archipelago to a shipyard in Singapore or Malaysia.

Why is the federal government responsible?

The Northern Endeavour fell into the federal government's hands in February 2020 after its former owner went into liquidation.

Northern Oil and Gas Australia (NOGA), a company with no previous experience operating an oil field, bought the vessel from gas giant Woodside in 2016 as the field was nearing its end of life.

The deal was criticised for allowing Woodside to walk away from the cost of decommissioning an oil field it had operated for nearly 20 years.

The federal government has since added trailing liabilities and title transfer controls to its decommissioning framework to prevent the responsibility for similar offshore oil or gas infrastructure from being transferred to the government in the future. 

Decommissioning costs $50 billion

The cost of decommissioning offshore oil and gas infrastructure around Australia could total about $50 billion, according to a report by the Centre of Decommissioning Australia (CODA).

With much of that work to start in the next decade, CODA chief executive Francis Norman says the oil and gas industry is preparing for the work ahead.

"Industry is definitely ready to fund it. They are getting ready to execute it," Mr Norman said.

While the decommissioning of oil and gas infrastructure is a complex, essential task, Mr Norman says it will also create opportunities.

"A lot of the material that will get removed with this work will come to shore," he said.

"When it comes to shore, we have opportunities to ensure that as much as possible of that material gets recycled … so this has the potential to create some really long-lasting jobs around Australia.

"It's work which has to be done, its work which is very interesting [and] there is some technical challenges."

Future decommissioning projects have the potential to establish Australia as an industry leader, Mr Norman says: "Because of the timing and the volume" and the opportunity to "work with our regional neighbours".

"This isn't an Australian phenomena — decommissioning is right around the world," he said.