On 20 June 2017, NOPSEMA issued, for public comment, draft guidance note GN1746 titled ‘Change to the titleholder with operational control of activities’ (GN).
The GN is intended to assist incoming and existing holders of offshore petroleum titles ensure ongoing compliance under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGS Act) and associated regulations when there is a change to the titleholder with operational control of a well or petroleum activity.
Specifically, NOPSEMA has set out detailed recommendations guiding relevant parties in relation to:
- demonstrating compliance with a well operations management plan (WOMP) and environment plan (EP) where a change in operational control is likely to change the manner in which activities are managed; and
- pursuing separate regulatory processes relating to acceptance of a revised WOMP and/or EP as well as for the transfer of operatorship and approval and registration by the National Offshore Petroleum Titles Administrator (NOPTA) of a transfer or dealing in an offshore petroleum title.
The GN will widely apply to the way incoming and existing holders may be expected by NOPSEMA to navigate separate NOPSEMA and NOPTA regulatory processes relating to approvals associated with a WOMP, an EP and dealings and transfers in offshore petroleum titles.
The GN does not seek to introduce changes to the OPGGSA or its regulations. However, NOPSEMA’s recommendations could impact how parties structure, fund and implement acquisitions of interests in offshore petroleum titles where there is a change in operational control.
Public comment on the GN is open until 22 September 2017. Following the comment period, NOPSEMA will publish an updated guidance note.
Changes to titleholders with operational control
For the purpose of the GN, a titleholder with operational control is defined as “the entity that has the responsibility for day to day oversight and management of the activity under that entity’s corporate policies, management systems, contracts and other arrangements”.
The scenarios under which a change to the titleholder with operational control can occur include:
- a transfer of operatorship from one existing titleholder to another;
- where there is a sale of part or all of a titleholder’s title interest to another entity; and
- in a change of control transaction (including a situation where there is no transfer of title or titleholder under the OPGGS Act).
The rationale for the GN is that where there is to be a change to the titleholder with operational control, the following separate regulatory processes may need to be managed by incoming and existing titleholders:
- the transfer of facility operatorship through the acceptance by NOPSEMA of a new safety case and registration of the new operator;
- acceptance by NOPSEMA of a revised WOMP and/or EP; and
- approval and registration by NOPTA of transfers of petroleum titles (where all or part of a title interest changes hands).
NOPSEMA’s recommendations include a process illustrating how a transfer in operational control could be managed and includes details for the order and timing of the separate regulatory processes administered by both NOPSEMA and NOPTA. Figure 1 below is extracted from the GN.
Maintaining continuity of compliance
For all relevant parties who may be considering a transfer in operational control of a well or petroleum activity governed by the OPGGS Act, NOPSEMA makes key recommendations that:
- timely submissions to NOPSEMA are made where any change to a titleholder with operational control may occur;
- one of the existing titleholders submits a revised WOMP and/or EP which details how the activity is proposed to be managed under new operational control, in advance of the change (this recommendation is made in light of the statutory requirement that only an existing titleholder can submit an WOMP and/or EP to NOPSEMA);
- operational control of the activity is not to be transferred until a revised WOMP and/or EP is accepted by NOPSEMA;
- NOPSEMA’s acceptance of a new WOMP and/or EP coincides with the transfer of operational control and NOPTA approval of title transfers; and
- any transitional service arrangements between a buyer and seller to govern the transition to new operatorship and change of titleholder is structured in a way that maintains continuity of compliance and, where relevant, these arrangements are reflected in WOMPs and/EPs for the activity.
The GN addresses the need for greater facilitation, agreement and access to information between an existing titleholder with operational control (as the seller) and an incoming party who is proposing to assume operational control of an activity.
The incoming titleholder is also tasked with additional responsibility to manage the timing of separate NOPTA and NOPSEMA regulatory processes and risks that may arise from this.
By recommending that acceptance of a new WOMP and/or EP coincide with the transfer of operational control and (where applicable) with NOPTA approval of title transfers, the GN will require buyers and sellers of petroleum titles to give extra consideration to:
- early NOPSEMA and NOPTA engagement strategies for managing the transition to a change to a titleholder with operational control;
- deal conditionality linked to NOPTA and NOPSEMA approval;
- detailed co-ordination between a buyer and seller in order to navigate the regulatory processes;
- risks associated with a selling titleholder remaining on title for longer than may have been the norm;
- the extensiveness (and therefore cost of) transitional service arrangements between a buyer and seller; and
- potential issues for debt financing in circumstances where debt drawdown is conditional on approval and registration of the transfer of titles.