This insight reviews recent changes to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 to implement Australia's enhanced offshore oil and gas decommissioning framework, with a focus on changes in control of titleholders and trailing liability. We also consider how M&A transactions for late life Australian offshore oil and gas assets might be structured under the new framework.
This update follows on from our December 2020 article Proposed changes to the offshore oil and gas decommissioning framework: What to expect .
Key takeaways from the new decommissioning framework
Key changes have been made to Australia's offshore oil and gas decommissioning laws.
NOPTA approval will be required for changes in control of a titleholder including changes in control occurring 'up the chain' of ownership. Failure to obtain NOPTA approval may result in civil or criminal penalties and/or cancellation of a titleholder's title(s).
Previous titleholders (and their related parties) will retain 'trailing liability' where the current or immediate former titleholder is unable to undertake decommissioning. Trailing liability also applies to titles that have ceased to be in force.
The Australian government and regulators have expanded decision making criteria and information-gathering powers to assess the suitability of parties wishing to participate in the offshore oil and gas sector.
Information gathering powers commenced from 2 September 2021. The remaining changes are expected to commence on or before 3 March 2022. The trailing liability changes will take effect retrospectively from 1 January 2021.
Sellers and buyers of Australian offshore oil and gas assets may need to consider different transaction structures to those previously used. This may include the seller retaining some liability for decommissioning costs, decommissioning security agreements, vendor financing, seller retaining a minority interest, seller consent rights and seller step-in rights.
Coordinated and early engagement by seller and buyer with regulators (eg. NOPTA, NOPSEMA, FIRB, ACCC) remain key for successful M&A of offshore oil and gas assets. It will also be important for regulators to support transactions that effectively manage decommissioning liability.
The Australian government should consider providing further tax relief for decommissioning. This could encourage M&A of late life assets by reducing the amount of capital required as security for decommissioning.
The United Kingdom provides useful a precedent for trailing liability mechanisms and sale structures that could be used in Australia to effectively manage decommissioning liability, encourage M&A of late life assets and increase economic recoveries from Australia's offshore oil and gas assets.
KNOWLEDGE ARTICLES YOU MAY BE INTERESTED IN:
Proposed changes to the offshore oil and gas decommissioning framework: What to expect
Decommissioning Australia's Offshore Petroleum Assets
New Commonwealth guideline on decommissioning of offshore petroleum infrastructure