In brief

Five Bills recently introduced into Commonwealth parliament modify the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth). The key aim of these reforms is to replace the complex joint state/Commonwealth regulation with a Commonwealth system of regulation. The reforms also exclude the operation of the personal property securities legislation and make substantial changes to the financial arrangements and imposts on industry.

Introduction

On 25 May 2011, the Minister for Resources and Energy, Martin Ferguson, introduced five Bills into Parliament that modify the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA) and related laws. They establish a single Commonwealth regulator and also exclude the operation of the personal property securities legislation.

In addition there has been the very recent consolidation of the OPGGSA Regulations that took place with effect from 29 April 2011.

These actions represent a further step in the Commonwealth’s reforms which began last year. It is government’s goal to pass the laws in the spring session and to have the new administrative architecture in place by 1 January next year.

While we have not carried out a final count, the paperwork emanating from the Minister’s office in the last week of May amounts to some 500 pages, in addition to the regulatory consolidation of some 160 pages. Public consultation on the Bills will occur next week. 

Recognising the challenges inherent in digesting this material, this brief provides a snapshot of the recent and proposed reforms and noteworthy changes, looks at the politics and makes some tentative predictions on impacts for participants in the industry.

Context of the reforms

Impetus for reform was given by the Commonwealth Government’s 2009 Productivity Commission Research Report, Review of Regulatory Burden on the Upstream Petroleum (Oil and Gas) Sector (Productivity Commission Report), which recommended both:

  • the establishment of a national offshore petroleum regulator, and
  • the implementation of best practice regulatory principles.

Subsequent to the Productivity Commission Report, the Montara incident in the Timor Sea and the Macondo / Deep Water Horizon blow out in the Gulf of Mexico gave further momentum to the reform process. The inquiries that followed have highlighted shortcomings in operational practice and how the industry is regulated, and legislative changes therefore have principally been driven by a desire to improve safety and operational practices.

Areas of reform

Commonwealth regulator

The key aim of these reforms is to replace the complex joint state/Commonwealth arrangements with a Commonwealth system of regulation.

The four Bills1 read into parliament on 25 May 2011:

  • establish the National Offshore Petroleum Titles Administrator (NOPTA)
  • expand the functions of NOPSA and rename it as the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA)
  • regularise and ensure sufficient enforcement powers in relation to NOPSEMA’s expanded functions, and
  • revise the financial arrangements existing between the States and the Commonwealth and impose new levies on industry.

Last year, National Offshore Petroleum Safety Authority’s (NOPSA) regulatory oversight function was expanded to cover the non-OHS aspects of integrity for facilities, wells and well-related equipment.

NOPSA is rebadged as NOPSEMA with its role further expanded to include management of the environment and regulation of day-to-day petroleum operations. NOPSEMA will be headquartered in Western Australia.

NOPTA is responsible for managing gazetting and awarding of titles, providing information assessments, reports and advice to the responsible Commonwealth Minister and maintaining title records.

The state and territory governments’ residual role will be as part of the Joint Authority participating in key decisions. However all advice to Joint Authority will come from either NOPSEMA or NOPTA. The Designated Authority ceases to exist.

Field development plans

The longstanding project to consolidate the offshore petroleum regulations under the OPGGSA is now essentially complete with the Offshore Petroleum and Greenhouse Gas Storage (Resource Management and Administration) Regulations 2011 (Cth) (RMA Regulations) coming into force on 29 April 2011. Companies holding titles under the OPGGSA must comply with the RMA Regulations from this date.

The consolidation is to be welcomed. However the consolidation results in significant changes to field development plans (FDP).

Previously the requirements in relation to FDPs were found in non-binding guidelines.

While the explanatory notes say that there is no change in the content for an FDP, there are some substantive changes effected by the Regulations:

  • non-compliance with an FDP is subject to specific sanction, in many instances, by strict liability offences
  • applications for production licences must now be accompanied by an FDP
  • before an FDP can be approved, it must address the matters detailed in Regulation 4.07
  • ‘major changes’ to an FDP require approval on at least 90 days notice, and
  • titleholders must notify DRET in relation to a ‘significant event’.

Fees and charges

The Bills make substantial changes to the financial arrangements and imposts on industry. Tensions between the states (particularly Western Australia) and the Commonwealth remain high in relation to financial arrangements and revenue sharing. Under the 1979 Constitutional Settlement, registration fees paid on dealings were rebated to the states. The Commonwealth is moving to a cost recovery model where the cost of regulation will be met by way of annual charges tied to the operations carried out. Transaction fees such as registration fees are expected to be eliminated by 2013 or once the costs of establishing NOPSEMA and the Title Administrator have been covered. The Registration Fees Act will then be repealed.

There is speculation that the Commonwealth may seek to take control over the North West Shelf Royalty, which presently is regulated by and paid to Western Australia.

Exclusion of Personal Properties Securities Act

The Offshore Resources Legislation (Personal Property Securities) Bill 2011, also introduced on 25 May 2011 aims to exclude the application of the Personal Properties Securities Act 2009 (PPSA) to petroleum titles and titles issued under the Offshore Minerals Act 1994. This is consistent with the approach being taken by the individual States for their mineral and petroleum titles.

The definition of ‘personal property’ in the PPSA currently captures offshore petroleum and greenhouse gas titles. The proposed amendments exclude offshore petroleum and greenhouse gas titles, as well as dealings relating to them, from the operation of the PPSA. Registration and approval of dealings (such as charges) and transfers of offshore petroleum and greenhouse gas titles will remain the subject of the OPGGSA.

Prospects for the reform agenda

The resistance of the State of Western Australia to these proposals has been widely reported. Western Australia favours continuing the existing arrangements.

That opposition is to be contrasted with recommendations of the Montara inquiry, and findings of the Productivity Commission and, we believe, the generally held view within industry, that it generally will be better to have one point of regulation.

The separation of the regulatory function (NOPSEMA) from the promotional function (NOPTA) is generally regarded as best practice and eliminates the risk or perception of a regulatory conflict of interest.

With the key Bills being referred to parliamentary committees and the influence of the Greens’ control of the Senate vote post-30 June, there is no certainty about the Bills becoming law, but there are more stakeholders in favour of this policy position that those expressing views against. A key issue for Western Australia will be the financial impacts, and resistance can be expected until these are settled. From industry’s perspective, resourcing and efficiency will be critical, especially as industry’s levies will fund these new bodies. Recent events have amply demonstrated the need for an appropriately resourced and responsible regulatory function.

Our sense is that these changes will occur, though the timing is uncertain and, while some thought has been given to transitional provisions, some teething troubles can be expected.

This article provides a brief snapshot of what is a complex series of reforms, we are also preparing a more detailed analysis.