In brief

As part of the Australian Government’s effort to support the offshore oil and gas industry changes to the guidelines that govern the administration of the exploration permits were recently announced by Minister Macfarlane. The revisions aim to provide titleholders with additional ‘flexibility, clarity and transparency’ when operating in Australia’s offshore areas.

From 1 June 2015 the Offshore Petroleum Exploration Guideline: Work-bid (PE Guideline) consolidates and replaces the following guidelines:

  • Requirements of bid and renewal applications,
  • Assessment of bid and renewal applications, and
  • Permit conditions and administration.

While many changes record procedural enhancements or can be described as clarifications to improve the certainty or transparency of what government expects of the industry, there are a number that are significant, including more flexibility in how titleholders discharge their work program conditions. These changes are to be welcomed and, in this note, we overview them.

NOPTA’s approach to assessment of bids for Exploration Permits

Under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA), the Joint Authority must have regard to any criteria it makes publically available when awarding exploration permits.< /> These include the number and timing of wells to be drilled and the technical assessment that supports the nature and quantum of any of seismic survey component.

The PE Guideline substantially retains these criteria with the following enhancements:

  • No criterion is paramount (previously the number of wells had primacy). This gives the Joint Authority greater flexibility in determining applications and could result in a situation where a bid of a lesser number of wells is successful.
  • Past performance of an applicant is a relevant consideration in the determination of an application and the PE Guidelines make clear that:
    • past performance of the applicant’s directors and, if applicable, its parent can be considered,
    • ‘past performance’ captures:
      • behaviour over the previous five years, including any cancellations or defaults under the OPGGSA, and
      • health, safety or environmental incidents anywhere, and
    • past performance is a relevant factor for bid ranking under section 106(3) of the OPGGSA.

Minimum work program

The most significant change from the perspective of explorers is the removal of the annual component of the minimum work program in the first 3 years, such that the first 3 years’ work is now combined into one commitment or condition rather than being assessed annually. This allows operational considerations to drive when that early work should be scheduled rather than the anniversary of title grant. In our view this is a common sense change that recognises the timing difficulties associated with the contracting, permitting and planning of in-field exploration utilities. If existing titleholders wish to take advantage of this flexibility, they may opt in, including when their permit is renewed.

There is no change to the secondary work program – Years 4 to 6 continue to be assessed on an annual basis and work in each year becomes guaranteed from the first day.

Suspensions and suspension and extensions

The OPGGSA empowers the Joint Authority to suspend or suspend and extend performance of the work program conditions and by the PE Guideline:

  • more timing flexibility has been introduced, as well as a ‘stop the clock’ mechanism where a titleholder applies within 60 days of the primary term or a relevant permit year, and
  • special recognition is given to above commitment work through an entitlement to apply for an additional 12-month suspension or 12-month suspension and extension (or, exceptionally, a longer time frame) to assess the results.

The circumstances under which a titleholder may be exempted from compliance with a work program condition are established by the OPGGSA. Procedural confirmation is found in the PE Guideline with guidance on assessment criteria – exemption applications may be made either on exceptional technical or force majeure grounds (neither can include commercial considerations).

Good Standing Agreements

A Good Standing Agreement (GSA) is a mechanism by which the titleholder and its directors may maintain ‘good standing’ with the Joint Authority despite a default on a guaranteed work program commitment. GSAs avoid titleholders from making expenditure on unprospective programs by allowing them to divert that expenditure to, for example, a re-released area. GSAs are important for titleholders who have not met a guaranteed work commitment to bid for new exploration permits on a level playing field – particularly in light of the emphasis the PE Guideline places on past performance.

The PE Guideline increases a titleholder’s options to satisfy its GSA obligations by:

  • bidding for an exploration permit from re-released acreage within two acreage release rounds and completing work equal to the GSA monetary value,
  • bidding on prime acreage, where there are no other bidders, and
  • completing regional studies within three years and making those studies available.

The Joint Authority will determine specific conditions that will attach to a titleholder’s GSA on a case-by-case basis and can extend the timeframe for satisfaction if the GSA holder can demonstrate genuine efforts to satisfy the GSA.

Where there are multiple titleholders, those titleholders who do apply for a GSA are only responsible for their participating equity share of the GSA monetary value.

Summary

The PE Guideline aims at reducing uncertainty for applicants and titleholders when bidding for exploration permits and satisfying their guaranteed work program commitments. Although the PE Guideline for the most part clarifies and condenses the three documents that comprise the existing guidelines, applicants for exploration permits should be aware of the wider range of criteria the Joint Authority must now consider when determining the most deserving applicant.

Furthermore, titleholders should be aware that NOPTA has increased the ways in which titleholders can remain in ‘good standing’ with the Joint Authority. Not only are there now more ways for a titleholder to satisfy its GSA, the PE Guideline increases a titleholder’s ability to meet guaranteed work program commitments by seeking a suspension, a suspension and extension or an exemption under sections 264 and 265 of the OPGGSA.