Insights

25/02/19

Offshore Petroleum and Greenhouse Gas Storage Amendment (Miscellaneous Amendments) Bill 2018 – upcoming amendments to the offshore petroleum and greenhouse gas storage regime

In March 2018 the Australian Government introduced the Offshore Petroleum and Greenhouse Gas Storage Amendment (Miscellaneous Amendments) Bill 2018 (Cth) (OPGGSA Amendment Bill) to Parliament.  This Bill amends the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA) to:

  • strengthen the National Offshore Petroleum Safety and Environmental Management Authority’s (NOPSEMA or Regulator) investigative and enforcement powers;
  • formally transfer various regulatory functions from the Minister to NOPSEMA (which NOPSEMA had already been exercising under delegation from the Minister);
  • retrospectively designate certain acreages as ‘frontier acreages’ for the purposes of the Designated Frontier Area tax inventive; and
  • achieve other minor technical amendments.

Changes to the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Act 2003 (Cth) (Offshore Levies Act), introduced by the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Amendment Bill 2018 (Cth) (Levies Amendment Bill, and, together with the OPGGSA Amendment Bill, the Bills), extend the application of various levies to greenhouse gas wells and make other minor and consequential amendments.

These amendments were scheduled to be read for a third time and passed early last week, however Parliament’s legislative backlog has delayed the timeframe for passing the legislation. It is unclear of the exact date the Bills will be passed.

The amendments follow scathing treatment of NOPSEMA’s oversight and enforcement activities in a 2018 Senate inquiry into the sector.  With the force of the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Banking Royal Commission) reverberating across all Australian regulatory sectors, we expect NOPSEMA to exercise these powers with newfound vigour.

Background

Regulatory overhaul of the oil and gas sector

The OPGGSA is the key piece of legislation governing the offshore oil and gas sector in Commonwealth waters.  It, along with its associated regulations, has the been the subject of significant scrutiny over the past few years.  Shortly after the Bills were introduced to Parliament, an exposure draft of potential amendments to the Offshore Petroleum and Greenhouse Gas Storage (Environment) Regulations 2009 (Cth) (Environment Regulations) was released and the Commonwealth Department of Industry Innovation and Science (Department) commenced an extensive (and ongoing) review of the regime for decommissioning offshore petroleum assets, which we have analysed here.  It is in this context of regulatory overhaul that the Bills were introduced.

The impetus for change

In February 2018 the Australian Senate launched an Inquiry into the work health and safety (WHS) of workers in the offshore petroleum industry (the Senate Inquiry).  The Senate Inquiry heard reports of NOPSEMA failing to interview key witnesses to safety events, and that different safety standards were applied to offshore and onshore oil and gas operations.  The Australian Petroleum Production and Exploration Association acknowledged that occupational health and safety performance in Australia lags behind international benchmarks.  During the Senate Inquiry hearings, the Australian Workers Union argued that workforce casualisation played a role in offshore WHS underperformance, as Health and Safety Representatives (HSRs) faced workplace discrimination including removal from shifts for speaking out.

The Senate Inquiry found various problems with the offshore oil and gas regulatory regime.  Its recommendations included:

  • bringing provisions of the OPGGSA relating to functions, processes and protections of HSRs into closer alignment with those applicable onshore under the Work Health and Safety Act 2011 (Cth) (the WHS Act);
  • requiring employers to consult with unions in relation to the development of Safety Cases;
  • providing unions a right of access to facilities for work health and safety (WHS) purposes;
  • that NOPSEMA carry out regular, unannounced inspections as part of its standard inspection regime;
  • increasing penalties;
  • that NOPSEMA uphold its Enforcement Policy more fastidiously; and
  • that the Commonwealth Government conduct a comprehensive assessment of Australia’s offshore safety regulations.

While none of these recommendations are directly implemented by the OPGGSA Amendment Bill, their influence is felt.  For instance:

  • the WHS Act has been used as a precedent for the introduction of enforceable undertakings (which are court-enforceable agreements between regulators and persons in relation to future conduct, usually entered into following a breach of the person’s obligations);
  • the OPGGSA Amendment Bill expands NOPSEMA’s inspection and investigation powers;
  • the OPGGSA Amendment Bill introduces new penalty provisions and expands the application of existing ones; and
  • the amendments reflect a wide-reaching reappraisal of NOPSEMA’s investigative and enforcement powers, and incentivise higher safety standards.

Arguably, this lighter touch reflects the fact that, despite room for improvement, no fatality or major accident has occurred during Australian offshore oil and gas operations since NOPSEMA’s establishment.  Whether NOPSEMA updates its policies and adopts the more aggressive posture pressed by the Senate Inquiry remains to be seen.  However, in light of the wide-reaching impact of the Banking Royal Commission, we expect NOPSEMA to take steps in that direction.

The transfer of various regulatory functions and powers relating to offshore greenhouse gas storage activities from the responsible Commonwealth Minister to NOPSEMA reflect a legislative formalisation of the existing state of affairs, in which NOPSEMA has been exercising those powers under delegation from the Minister, and will improve NOPSEMA’s regulatory independence.  According to John McVeigh MP, the Minister responsible for introducing the Bills to the House of Representatives, changes to NOPSEMA’s powers in relation to carbon storage reflect the ‘potential for an increase in greenhouse gas storage activities in future’.

Less material changes retrospectively designate four areas as ‘frontier areas’ for the purposes of the Designated Frontier Area tax incentive.

Summary of the Amendments

Transfer of regulatory functions from the Minister to NOPSEMA

At present, NOPSEMA is the primary regulator of offshore oil and gas exploration and production activities.  The same does not apply with respect to offshore greenhouse gas storage as NOPSEMA regulates these activities under delegation from the Commonwealth Minister.  The OPGGSA Amendment Bill transfers regulatory responsibility for offshore greenhouse gas activities to NOPSEMA to facilitate best-practice for the long-term regulation of the offshore oil and gas sector. This will improve and safeguard NOPSEMA’s regulatory independence.

Despite these amendments, decision-making powers relating to significant decisions such as the grant and cancellation of titles, the nature and scope of title conditions and decisions associated with resource management will remain with the Commonwealth Minister.

The Bills restructure the distribution of certain fees among the Minister, NOPSEMA and NOPTA.  They also extend the application of various levies to greenhouse gas wells, in order to facilitate NOPSEMA’s ability to recover the cost of its oversight of well operations under greenhouse gas titles.  Well investigation levies are also introduced.  These changes improve those regulators’ operational independence and ability to recover costs.

NOPSEMA’s strengthened investigative and enforcement powers

The OPGGSA Amendment Bill contains provisions designed to bolster the powers that NOPSEMA has in determining and enforcing compliance with the OPGGSA.  NOPSEMA’s existing powers only relate to petroleum titles and occupational health and safety (OHS) aspects associated with greenhouse gas storage activities. The amendments will extend the powers to all elements of greenhouse gas storage operations. These include:

  • widening the scope of premises and places that NOPSEMA inspectors may access, without a warrant, to carry out environmental and health and safety inspections.  NOPSEMSA can currently access premises for the purpose of determining whether an environmental management or OHS law has been complied with, or to verify whether compliance information provided by the titleholder is correct (Compliance Inspection).  Currently, the definition of ‘regulated business premises’ includes premises, other than offshore petroleum premises, occupied by the registered titleholder.  The definition will be expanded to include onshore premises of a related body corporate of a titleholder or operator, contractors, and contractors of a related body corporate of the titleholder or operator, and
  • providing NOPSEMA with additional powers to conduct inspections, without a warrant in relation to a titleholder’s compliance with respect to well-integrity requirements.  Currently, NOPSEMA has no power to conduct an inspection in relation to well-integrity.

Despite NOPSEMA’s powers to search and inspect premises for the purpose of a Compliance Inspection, the Explanatory Memorandum clarifies that a warrant or relevant consent will always need to be obtained in circumstances where NOPSEMA inspectors exercise powers to conduct a search to gather evidence, for example, in relation to a prosecution.

(a) Directions to greenhouse gas titleholders

Under the current OPGGSA, the responsible Commonwealth Minister has the power to:

  • give directions to greenhouse gas titleholders ‘as to any matter in relation to which regulations may be made’. This includes giving directions in relation to health and safety, well integrity and environmental management elements of offshore greenhouse gas activities; and
  • give remedial directions to current and former greenhouse gas titleholders, including in relation to removing property from the title area, plugging wells, conserving and protecting natural resources in the area, and ‘making good’ damage to the seabed or subsoil.

Proposed sections 579A, 591B and 594A of the OPGGSA Amendment Bill will provide NOPSEMA with these same powers.  This will bring the offshore greenhouse gas storage regime in alignment with the regime for petroleum activities.  Under the current OPGGSA, both NOPSEMA and the responsible Commonwealth Minister have the power to give directions (including remedial directions) to petroleum titleholders. Once the amendments come into force, breaching any direction given by NOPSEMA or the responsible Minister will constitute a strict liability offence.

Section 584 of the OPGGSA provides a defence to prosecution for an offence in relation to a breach of a direction given by the responsible Minister if the defendant can prove that reasonable steps were taken to comply with the direction.  The OPGSSA Amendment Bill amends this section by extending the defence to directions given by NOPSEMA. The Senate Scrutiny of Bills Committee has flagged its concerns that the operation of this section shifts the burden of proof to the defendant.

(b) Enforeable undertakings

The OPGGSA Amendment Bill also introduces amendments to enable the Minister, National Offshore Petroleum Titles Administrator (NOPTA) and the CEO of NOPSEMA to accept enforceable undertakings in relation to compliance with provisions of the OPGGSA and associated regulations.  Enforceable undertakings are court-enforceable agreements between regulators and persons in relation to future conduct, usually entered into following a breach of the person’s obligations.  According to the Explanatory Memorandum, under the OPGGSA Amendment Bill, an enforceable undertaking may be accepted ‘in relation to all of the criminal and civil penalty provisions in the OPGGS Act, with the exception of indictable offences’.

Under the OPGGSA Amendment Bill, enforceable undertakings may be entered into in relation to, among other things, failures to comply with:

  • directions;
  • reporting obligations of holders of greenhouse gas special authorities; and
  • procedures relating to:
    • applications for site closing certificates;
    • notifying the Minister of eligible greenhouse gas storage formations; and
    • notifying the Minister of petroleum in relevant greenhouse gas areas.

Enforceable undertakings must be published on the relevant regulator’s website.  Failure to comply with an enforceable undertaking may result in fines of up to $52,500 for an individual or $262,500 for a body corporate.

These changes bring NOPSEMA’s enforcement powers under the OPGGSA more closely into line with those of Health and Safety Representatives under the Work Health and Safety Act 2011 (Cth).

(c) Other amendments to monitoring and enforcement provisions

Other amendments introduced by the OPGGSA Amendment Bill include the introduction of provisions that:

  • enable NOPSEMA inspectors to retain documents in certain circumstances;
  • provide that self-incrimination protections are limited to individuals, rather than corporations; and
  • enable certain decisions of NOPSEMA inspectors to be appealed to the Fair Work Commission.

Frontier areas in relation to the ‘Designated Frontier Area’ tax incentive

The Designated Frontier Area tax incentive (DFA) was established under the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTA Act) and applied between 2004 and 2009.  The purpose of the DFA was to encourage exploration in designated areas allocated by the Resource Minister.  Persons conducting exploration in these areas were able to claim 150% of the costs associated with their exploration expenditure (rather than the usual 100%), for the purpose of determining the amount of Petroleum Resources Rent Tax payable under the PRRTA Act.  Designation of frontier areas required publication in the Commonwealth Gazette.

In 2005, four areas that were promoted as frontier areas were not validly published in the Commonwealth Gazette.  The OPGGSA Amendment Bill proposes to retrospectively designate the areas as frontier areas for the purpose of amending the administrative error,  As such, the amendments to retrospectively designate certain areas as ‘frontier areas’ for the purposes of the DFA tax incentive are not expected to have any financial impact.

Analysis

Teeth for the Tiger

At the Senate Inquiry, union representatives argued that ‘NOPSEMA is seen as a toothless tiger’.  The Bills denticulate NOPSEMA through greater investigatory and other powers, and a wider array of enforcement tools, including penalties and enforceable undertakings.  The aggressiveness with which they use their teeth once the Bills are law remains to be seen.  However, following the Banking Royal Commission, regulators in all sectors are in tune with populist demands for businesses to be scrutinised and held to account more forcefully.  This is particularly so where the environment and health and safety are concerned.

NOPSEMA under a Labor Government, which commentators predict will take power after this year’s Federal Election, can also be expected to be more sensitive to pressure from unions and their members to inspect more often, and to eschew enforceable undertakings in favour of penalties.

The Government’s race against the clock

The Bills were scheduled to pass into law on 18 February 2019.  However, the Government’s loss of control of the House of Representatives has resulted in changes to the legislative timetable.  The unexpected delays could result in Parliament failing to pass the amendments before the end of the Parliamentary term.  In that case, the Bills would not be brought before Parliament until after the Federal Election. 

The Bills have been criticised by the Australian Council of Trade Unions (ACTU) for failing to more fully implement the recommendations of the Senate Inquiry.  Labor appears to be sensitive to that criticism.  Labor has also stood behind the ACTU’s arguments that enforceable undertakings are an inappropriate regulatory tool in certain circumstances, particularly where workplace fatalities have occurred.  As such, they have recommended that ‘the Government continue to work with the Opposition to find amendments’ that would ‘limit the use of enforceable undertakings to where it is appropriate’. Nevertheless, we can expect NOPSEMA to be more sensitive to compliance with enforceable undertakings in the wake of the Banking Royal Commission.

If the amendments are delayed until the next Parliamentary term, and Labor come to power, the provisions relating to enforceable undertakings may be re-opened to debate, and amended to reflect this criticism.  More remotely possible, Labor may review the Bills and amend them to introduce more of the reforms recommended by the Senate Inquiry.

Context of change

The introduction of the Bills falls within a broader context of regulatory overhaul for the offshore oil and gas sector.

(a) Amendments to the Environment Regulations

Under the current Environment Regulations, prior to the commencement of a petroleum or greenhouse gas activity, the relevant titleholder must submit to NOPSEMA an environment plan setting out the risks and impacts of the petroleum or greenhouse gas activity, and proposed measures for mitigation (Environment Plan).  The Environment Plan must be accepted by NOPSEMA prior to commencement of the relevant activity.  The exposure draft introduces two key amendments aimed at improving existing transparency and consultation requirements by:

  • Requiring public disclosure of the full Environment Plan in relation to any petroleum or greenhouse gas activity. Currently, titleholders are only required to submit a summary of the Environment Plan.
  • Introducing a mandatory public consultation period in relation to Environment Plans submitted for certain exploratory seismic or drilling activities.

The exposure draft was the subject of a public consultation period in late 2018. It is expected that revised amendments will be finalised early this year.

(b) Decommissioning regime

As part of the decommissioning review, a discussion paper released by the Department in October 2018 has identified a number of areas for regulatory improvement in relation to decommissioning (Discussion Paper).  In particular, clarifying the legal and financial responsibility for decommissioning.  Although the Discussion Paper does not represent a final policy position, the potential solutions are aimed at bolstering the accountability of titleholders with respect to carrying out decommissioning obligations.

Even if some of the proposed amendments described above are yet to come into force, the various amendments foreshadow significant regulatory overhaul of the oil and gas sector in the short to medium term.  More change is yet to come.