Recent amendments to the Environment Regulations

The Offshore Petroleum and Greenhouse Gas Storage (Environment) Amendment (Financial Assurance) Regulation 2014 (Cth) (Financial Assurance Regulation) commenced on 1 January 2015.

The Financial Assurance Regulation inserted regulation 5G and associated regulations in the Offshore Petroleum and Greenhouse Gas Storage (Environment) Regulations 2009 (Cth) (Environment Regulations).

Regulation 5G of the Environment Regulations has the effect that NOPSEMA must not accept an environment plan (EP), or a proposed revision of an EP, submitted to NOPSEMA on and from 1 January 2015 unless NOPSEMA is reasonably satisfied that the titleholder is compliant with section 571(2) of the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA) and that compliance is in a form that is acceptable to NOPSEMA.

Section 571(2) of the OPGGSA requires a titleholder to, at all times while its title is in force, maintain financial assurance sufficient to give the titleholder the capacity to meet the costs, expenses and liabilities arising in connection with, or as a result of, the carrying out of a petroleum activity, the doing of any other thing for the purposes of a petroleum activity, or complying (or failing to comply) with any requirement under the OPGGSA, or a legislative instrument under it, in relation to a petroleum activity (Assured Costs).

The Financial Assurance Regulation also amended the Environment Regulations so that:

  • a failure by a titleholder to maintain compliance with its financial assurance obligations under section 571(2) of the OPGGSA in relation to a petroleum activity, in a form that is acceptable to NOPSEMA, is a ground for NOPSEMA to withdraw acceptance of the EP in force for the activity; and
  • a fee is payable to NOPSEMA for the expenses incurred by NOPSEMA in assessing the financial assurance arrangements proposed by a titleholder in relation to a petroleum activity. This fee is payable at the time (or times) agreed in writing between the CEO of NOPSEMA and the titleholder and the total amount of the fee will be an amount or rate determined by the CEO of NOPSEMA, provided that the fee must not exceed the total expenses incurred by NOPSEMA in assessing the proposed financial assurance arrangements.

NOPSEMA has released a revised guideline ‘Financial assurance for petroleum titles’ (Guideline) to give titleholders guidance in relation to their financial assurance obligations under the OPGGSA and the Environment Regulations, which is accessible here.

NOPSEMA has also confirmed that the document ‘Method to assist titleholders in estimating appropriate levels of financial assurance for pollution incidents arising from petroleum activities’ (APPEA Method) is appropriate for use by titleholders to assist in meeting their financial assurance obligations under the OPGGSA, subject to a 12 month review.

The APPEA Method was developed by the Australian Petroleum Production and Exploration Association to assist titleholders in calculating appropriate levels of financial assurance to ensure that they meet requirements under the OPGGSA and is accessible here.

NOPSEMA has also released two new forms relating to a titleholder’s financial assurance obligations under the OPGGSA, being Financial Assurance Declaration (N-04750-FM1519) (Declaration Form), which is accessible here, and Financial Assurance Confirmation (N-04750-FM1465) (Confirmation Form), which is accessible here.

The Guideline notes the following key points in relation to a titleholder’s financial assurance obligations under the OPGGSA:

  • NOPSEMA considers that section 571(2) of the OPGGSA requires a titleholder to calculate the sum of all credible extraordinary costs, expenses and liabilities that may arise from a petroleum incident in order to determine the requisite level of financial assurance. Such costs, expenses and liabilities may include the capital necessary to:
    • undertake the greatest reasonable credible operational response measures required to: (i) manage, terminate or control a petroleum incident and its consequences; and (ii) clean up and remediate the greatest reasonably credible damage that may result from the incident;
    • carry out environmental monitoring of the impact of the incident in accordance with the EP for the relevant activity; and
    • satisfy reasonable and identifiable third party liabilities that may arise from the petroleum incident.
  • Where a titleholder has a number of petroleum activities occurring across a number of titles, it may calculate the single greatest credible costs, expenses and liabilities that may arise from a petroleum incident relating to those activities and titles.
  • While NOPSEMA considers the APPEA Method to be generally suitable for use by a titleholder to calculate the maximum financial assurance needed under section 571(2) of the OPGGSA, NOPSEMA retains the discretion to require a titleholder to calculate financial assurance in greater detail, based on case-specific risks and responses outlined in the relevant EP. A titleholder may use cost calculation methods other than the APPEA Method to determine the level of financial assurance required for its petroleum activities, including other publicly available methods or practical methods developed by the titleholder. If a titleholder uses a calculation method other than the APPEA Method, validation and endorsement of that method by NOPSEMA may be required.
  • Maintaining accessibility to financial assurance for the life of a title is essential for compliance with the requirements of the OPGGSA. For NOPSEMA to be reasonably satisfied that sufficient financial assurance is being maintained, a titleholder must be able to call on its financial assurance at the time any Assured Costs may arise. A titleholder may use its discretion in determining the form, or combination of forms, of financial assurance used to meet its financial assurance obligations under the OPGGSA. Such forms include insurance, self-insurance, a bond, the deposit of an amount as security with a financial institution, an indemnity or other surety, a letter of credit from a financial institution and/or a mortgage.
  • NOPSEMA will not accept an EP, or proposed revision to an EP, until a titleholder has made a Financial Assurance Declaration using the Declaration Form. NOPSEMA considers that a Financial Assurance Declaration should be made, in most circumstances, prior to the submission of an EP. NOPSEMA only requires a revision to a Financial Assurance Declaration to be provided if the information contained in the declaration changes sufficiently to invalidate the declaration.
  • A Financial Assurance Declaration may be applicable to multiple titles, multiple concurrent activities and multiple concurrent EPs across the titles to which the declaration relates. If a Financial Assurance Declaration applies to multiple titles, NOPSEMA considers that a titleholder must maintain financial assurance that covers the maximum credible amount of costs, expenses and liabilities that may arise from any of the titleholder’s activities across all of its titles.
  • When submitting an EP a titleholder undertaking the relevant activity must also submit a Financial Assurance Confirmation using the Confirmation Form and attest that Financial Assurance Declarations have been provided to NOPSEMA in respect of all titles to which the EP relates. NOPSEMA will not accept an EP, or a proposed revision to an EP, until a titleholder has provided a Financial Assurance Confirmation.
  • Where there are multiple titleholders for a title, each titleholder may make a Financial Assurance Declaration using the Declaration Form in respect of its interest in the title(s) for which the declaration is being made. If this is the case, the titleholder must execute the Declaration Form using Option 2 on page 4 of that form. Alternatively, a titleholder for an activity may elect to discharge the total financial assurance obligation on behalf of all other titleholders in accordance with section 775D of the OPGGSA. That section allows a titleholder to discharge an obligation imposed on each titleholder. If this is the case, the relevant titleholder must execute the Declaration Form using Option 3 on page 5 of that form. Only the titleholder submitting the EP needs to execute a Confirmation Form. An operator cannot execute the Confirmation Form on behalf of the titleholders, unless it is a titleholder itself.