The compliance burden on energy and resources participants in NSW, particularly those in the onshore petroleum industry, is set to increase if the Petroleum (Onshore) Amendment Bill 2013 (NSW) is passed. The Bill also builds on recent amendments to the Mining Act and the Petroleum (Onshore) Act 1991 (Petroleum Act) by setting out a framework for new land access arrangements.

Among other things, the Bill:

  • strengthens investigation and enforcement powers, including the power to issue remedial directions without notice, new offences (including new personal liability for directors and managers), and higher maximum penalties for non-compliance; and
  • introduces mandatory code of practice for land access for petroleum exploration, and provides greater access to environmental information about petroleum activities.

Mineral and petroleum explorers and producers should review their compliance policies and systems, and the way in which they collect and distribute environmental information about their activities, to ensure they aren't caught out by the amendments in the Bill, should they become law.

Why introduce these changes?

The NSW Government faces a difficult task of balancing significant gas supply needs for the State with strong community desires for strict regulation and landholder involvement in decision-making about exploration activities. The Bill comes at a time when controversy over coal seam gas and large-scale mining activities is especially high, the State and Federal regulatory landscape for these activities is undergoing rapid change, and resource companies are calling for clearer controls and less red tape to enable continuing resources activity.

According to the Minister for Resources, the Bill would ensure that NSW will have "the most rigorous requirements in Australia for the petroleum industry".

Many of the Bill's provisions would bring regulation of the petroleum industry more into line with existing regulation of the mining industry in NSW, but some provisions impose new controls on both sectors.

New land access arrangements and codes for exploration

The Bill enables the regulations to prescribe a land access code for petroleum exploration. The access code may contain "mandatory provisions", which are taken to be included in an access arrangement (which is required for petroleum exploration on the surface of land) except to the extent that the agreement expressly excludes or varies them.

The Bill also extends the amount of costs which a land holder can recover from a mining or petroleum exploration title holder in connection with an access arrangement for that title holder, to include costs associated with negotiating, and entering into, the arrangement.

Stronger powers to issue directions

The Bill will allow the Director-General of the Department of Trade and Investment, Regional Infrastructure and Services (DTIRIS) to issue directions to remedy a wide range of non-compliances with the Petroleum Act or with conditions of titles issued under the Petroleum Act. Currently, the power to issue directions is confined to non-compliances with specific kinds of environmental conditions in a petroleum title.

Many of the extended powers already apply to mining activities under the Mining Act 1992. The Bill effectively extends them to onshore petroleum activities.

The Bill also extends the power to issue directions to suspend exploration or mining/production activities. Currently, the Minister may suspend petroleum activities only for non-compliance with royalty or security obligations, or environmental management conditions in a petroleum title. The Bill will add to this list any non-compliances with a condition of a petroleum title, an earlier direction which has been issued, or a compensation agreement or assessment under the Petroleum Act. This reflects existing provisions in the Mining Act.

An important change in the Bill for both mining and petroleum activities is that directions could be issued without prior notice. This brings direction-making powers more into line with similar powers under NSW environmental and water legislation. The trade-off is that a person issued with a direction could appeal to the NSW Land and Environment Court against the merits of the direction.

However, the Bill will require that prior notice of a direction to suspend operations be given, and that the person to whom the direction would be issued has an opportunity to respond before a decision whether to issue the direction is made. As a consequence, there will be no right of merits appeal against these directions.

Note that existing mining and petroleum legislation allows directions to be issued to current and former exploration, assessment or mining/production title holders, which is especially important for title holders who transfer or do not renew their titles.

New offences and increased penalties

The Bill also introduces new offences in the Petroleum Act, largely based on those contained in the Mining Act.

Personal liability for directors and managers: The Bill makes a director or person concerned in the management of a corporation personally criminally liable for a non-compliance by the corporation with a petroleum title condition or a direction issued by DTIRIS, if the director or manager knows (or ought reasonably to know) that the offence would be or is being committed and fails to take reasonable steps to prevent or stop it. The Bill also establishes accessory offences by directors and managers for corporate non-compliances. This is similar to the director and manager offence provisions in the Mining Act.

Daily penalties: The Bill provides for a new maximum daily penalty of $110,000 for a corporation mining for petroleum other than in accordance with a petroleum title. This is in addition to a maximum initial penalty of $1.1 million which was increased last year from $110,000 under the Petroleum (Onshore) Amendment (Royalties and Penalties) Act 2012.

Royalty payments: A failure to pay a royalty under the Petroleum Act will be an offence attracting a maximum "base" monetary penalty of $1.1 million. The Bill will also enable the Minister to charge interest on the amount of any unpaid royalty.

New offences: The Bill also introduces a range of other new offences in the Petroleum Act, including:

  • an offence for non-payment of royalties or not submitting royalty returns;
  • a strict liability offence of providing false and misleading information in connection with an application, or in the administration of obligations, under the Petroleum Act; and
  • offences relating to the Government's exercise of investigation powers.

Publication of environmental information

The Bill empowers the Director-General of DTIRIS to publish environmental information which he or she has relating to the impact of particular prospecting and mining activities.

Persons who provide environmental information to the Director-General should be aware that the Director-General will be able to publish that information even where it is likely to cause that person "substantial commercial disadvantage", if the Director-General is satisfied that it is in the public interest to do so.

Audits and inspections

The Bill introduces into the Petroleum Act the audit provisions which appear in the Mining Act and some environmental legislation. These provide for:

  • the imposition of mandatory audit conditions in a petroleum title; and
  • petroleum title holders to undertake voluntary audits, and to protect some voluntary audit information from disclosure.

What happens next?

It appears that the Government's intention is to apply the Bill immediately to mining and petroleum activities if the Bill is passed. Perhaps to assist with a practical transition to the new regime, the Bill proposes another amendment to allow the Minister to suspend operation of petroleum title conditions for a period longer than the current six-month limit.

The Bill is yet another indication of the stronger regulatory approach which the NSW Government is taking in relation to the mining and petroleum activities. The Minister stated in his second reading speech for the Bill that the Government is also undertaking "significant work … to build a cleaner and more robust compliance and enforcement practice", which suggests a renewed focus on enforcement.

Mining and petroleum operators should consider carefully the practical significance of the Bill, and review their compliance policies and systems.

There is an opportunity now to be involved in the development of the proposed mandatory codes for petroleum land access, and so current and prospective industry participants should consider becoming involved via APPEA and/or direct submissions to Government.

In addition, participants should consider their presentation of environmental information, and opportunities which the voluntary environmental audit regime presents.