Australian company GR Engineering Services has warned shareholders it could take a financial hit following the potential collapse of Northern Oil & Gas Australia (Noga).

GR’s wholly-owned subsidiary Upstream Production Solutions (UPS) holds the operations and maintenance services agreement from Noga subsidiary Timor Sea Oil & Gas Australia (Toga) covering the Northern Endeavour floating production, storage and offloading vessel stationed at the Laminaria-Corallina oilfields off Western Australia.

Noga appointed administrators from KPMG last month after output at Laminaria-Corallina was shut-in earlier this year by Australia’s offshore regulator, the National Offshore Petroleum Safety & Environmental Management Authority (Nopsema).

GR said Tuesday it had been in discussions with the administrators, Toga’s senior lender Castleton Commodities Australia, as well as Nopsema.

Those talks, which are still continuing, were in relation to the future business operations of Toga and UPS’s status as the safety case holder and registered operator of the Northern Endeavour facilities.

GR noted that UPS was continuing to provide services to Toga under the operations and maintenance services agreement.

It added that it was working with the administrators with an understanding the administrators will fund UPS’s costs from 20 September, subject to receiving funding from Castleton.

The company warned its exposure to the contract was about A$17.4 million (US$11.7 million), including A$15.9 million related to receivables and work in progress and A$1.5 million related to the finalisation of commitments to vendors and suppliers.

It also noted that UPS held security over the title of Toga's two production licences on equal footing with Castleton for an amount of up to A$14.5 million.

“in light of the above, there may be adverse impacts on the profitability of GR Engineering in the half year results to 31 December,” GR warned in Tuesday’s statement.

Nopsema ordered a halt to production from the Laminaria-Corallina oilfields after corrosion issues were found with the Northern Endeavour FPSO which the regulator claimed could “lead to a major accident event”.

The regulator also justified the closure of the field due to a backlog of maintenance work and problems with the fire suppression system on the FPSO.

Noga had been seeking a partner to join it as it looked to embark on a development programme aimed at boosting output from about 4000 barrels per day to 19,000 bpd.

The Laminaria-Corallina fields, which and are estimated to hold 8.7 million barrels of proven and probable reserves and 14.4 million barrels of contingent resources.

Noga acquired a 100% interest in the oilfields from Woodside in 2016, as well as the Northern Endeavour.