The Commonwealth government has proposed a new regulation which will mean that the offshore petroleum environment regulator, NOPSEMA, can’t accept a new or revised Environment Plan (EP) for offshore petroleum activities unless it is satisfied that the titleholder has met new financial assurance requirements. To assist industry to understand what it will now expect from financial assurances, NOPSEMA has also released a new guidance document.
NEW FINANCIAL ASSURANCE REGULATIONS
Section 571(2) of the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth), which came into effect November last year, requires titleholders to maintain financial assurance sufficient to give the titleholder the capacity to meet the costs, expenses and liabilities that may result in connection with carrying out the petroleum activities.
There is now also a new proposed regulation 5G of the Offshore Petroleum and Greenhouse Gas Storage (Environment Regulations) 2009 (Cth), which will mean that NOPSEMA must not accept an EP, or a proposed revision of an EP, unless it is reasonably satisfied that the titleholder is compliant with s 571(2), and also that the compliance is in a form acceptable to NOPSEMA.
The new regulation will start on 1 January 2015. It will initially only affect new EPs (for new activities), but existing EPs and activities may also be affected if titleholders don’t ensure that their existing financial assurances are maintained in a way which complies with the new financial assurance requirements.
NEW GUIDELINE - FINANCIAL ASSURANCES FOR PETROLEUM TITLES
NOPSEMA has released a new guidance document to assist industry to understand what it will expect from financial assurances. A few key points from the guideline:
- Assurances have to be provided by the titleholder, they can’t be provided by others (eg affiliates or related companies).
- Assurances are to deal with any extraordinary costs, expenses and liabilities that the titleholder might not have the capacity to meet. (They are not for meeting ordinary operating costs or the costs of compliance with title conditions).
- Financial assurance calculations should focus on calculating the greatest credible costs that may arise from a petroleum incident. This will include capital costs for being ready for an incident, operational response costs, and clean up costs for the greatest credible damage that could result.
- Titleholders should regularly review the cost calculation method they apply, as the financial assurance duty is an ongoing obligation. They should also keep records demonstrating compliance, and build a regular review of compliance into their internal management systems and authorities.
The Guideline also indicates that the Australian Petroleum Production and Exploration Association is current developing a costs, expenses and liabilities estimation method to assist titleholders in calculating appropriate levels of financial assurance in order to meet legislative requirements. This will set a series of cost bands based on the characteristics and potential impacts of petroleum incident that may arise from the activity outlined in the EP. Titleholders will not have to use this method, but the Guideline indicates that NOPSEMA may require further information if another method is used.