Following the BP Deepwater Horizon oil spill on 22 April 2010, it has come to light that some governments do not have the legislative power to mandate urgent cleanups of oil spills and are instead limited to recovering damages for environmental harm. However, under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPA ), the Australian Government has the power to direct a petroleum titleholder to clean up a spill, failing which the Government may step in and do so at the titleholder’s cost. Even so, there is still some doubt about how fast the Government can step in if the titleholder is unwilling or unable to perform the clean-up as directed and whether there is any automatic right to recovering costs. The Report of the Montara Commission of Inquiry (the Montara Report) identified and made recommendations to remedy these shortcomings, which, if adopted, will significantly change the regulation of offshore petroleum operations in Australia.

Power of the Government to intervene

Under the OPA , the designated State Government Authority may give a titleholder “a direction as to any matter in relation to which regulations may be made” (s574(2)). These matters include “the cleanup or other remediation of the effects of the escape of petroleum” (s574(3)). A direction can also be given to third parties, such as employees or agents of the titleholder or other persons concerned with the production operations and relevant vessels, aircraft, structures or installations (s574(3)).

Specifically, the OPA empowers the relevant Designated Authority to direct a titleholder to “plug or close off, to the satisfaction of the Designated Authority, all wells made in the title area by any person engaged or concerned in those operations” (s586(2)(b)) and to “make good, to the satisfaction of the Designated Authority, any damage to the seabed or subsoil in the title area caused by any person engaged or concerned in those operations” (s586(2)(b)).  

The consequence of breaching any of these directions is that the Designated Authority “may do any or all of the things required by the direction to be done”(s577(1)) at the cost and expense of that person (s577(3)).  

Shortcomings in the regulatory framework

Although the Australian Government has power to intervene to compel a producer to clean-up an oil spill, by giving a direction and by performing the clean-up itself and recovering the costs, there is no specific authority for the Government in an emergency situation to bypass the issuing of a direction process prior to attending to the clean up of the spill itself. Nor is it specified how much time must be provided to a titleholder to comply with a direction before the Government is able to intervene and, in the event that the Designated Authority performs the clean-up, there is no automatic right of recovering remedial costs. Whilst there have been no spills in Australia comparable to the scale of the Deepwater Horizon oil spill, the possible consequences are dire, and as the Montara Report intimates, it is clear that shortcomings are not mere minor deficiencies, but portents for a substantial rehaul of the Australian regulatory regime for offshore petroleum operations.

The Montara Report

On 21 August 2009 a blowout from the Montara wellhead platform in the Timor Sea off the northern coast of Western Australia caused one of the worst oil spills in Australian history. The Montara blowout resulted in an uncontrolled discharge of oil which continued until 3 November 2009 (a total of 74 days) at a rate of 64 tonnes per day. It is estimated to have cost the operator, PTTEP Australasia (a subsidiary of the Thai company PTT ), at least $170 million to clean up the spill and repair the damage.

In response to the incident, the Minister for Resources and Energy, the Hon Martin Ferguson AM MP, instructed a Commission of Inquiry to investigate the adequacy of the regulatory regime, the regulatory system for monitoring and enforcement, and the regulatory obligations applicable to titleholders. The Commission’s findings were critical of not only PTTEP , but also the framework regulating its operations. Amongst 105 other findings, the Commission recommended:

  • The inclusion of an obligation in the environmental approval process for proponents to pay for the monitoring and remediation of any oil spill, whether conducted by the proponent or the Government or other body.  
  • Amending the Legislation to allow Government bodies to take ‘compliance action’ in response to an oil spill without requiring a condition of approval to have been breached.  
  • Replacing the State-based ‘Designated Authorities’ with a single national regulator to oversee Australian offshore petroleum operations, particularly in relation to safety and operational approvals. 
  • Adoption of a more prescriptive approach to ‘good oilfield practise’ by requiring regulators to take a more active role in setting, monitoring and enforcing operational practices.

The oil outlook

Whilst PTTEP ’s approach to controlling, monitoring and maintaining the well had serious deficiencies, the blowout that resulted in approximately 4,736 tonnes of oil being discharged into the Timor Sea characterised larger problems inherent in the Australian framework for regulating offshore petroleum operations. If the Montara Report recommendations are adopted, the awarding of exploration and production blocks by the Government will be much more closely scrutinised with reference to not just the technical experience of proponents, but also financial adequacy and the insurance and bond requirements required of them – which will be reflected in an increase in the costs of participating in the offshore petroleum business in Australia.