In this insight, we review the proposed enhanced decommissioning framework for the offshore oil and gas industry in Australia discussed in the consultation paper recently released by the Australian Government’s Department of Industry, Science, Energy and Resources and we consider potential implications for owners, buyers and sellers of Australian offshore oil and gas assets.

Key takeaways

  • The Department of Industry, Science, Energy and Resources recently released a consultation paper proposing an enhanced decommissioning framework for the offshore oil and gas industry in Australia.
  • The proposed framework aims to increase regulatory oversight and create a more robust financial security / assurance framework to support decommissioning activities.
  • NOPSEMA would have increased powers in relation to a sale of an offshore oil and gas asset (including a change in control of a titleholder) and before and during the decommissioning phase.
  • Titleholders could be required to provide bonds and securities as security for costs associated with decommissioning activities and there would be broader circumstances in which former  titleholders or their parent companies could be ‘called back’ to remediate the title area.
  • The proposed framework would have retrospective effect from 14 December 2020.
  • Submissions on the proposed framework are open until Friday, 22 January 2021.
  • The proposed framework could have a significant impact on potential buyers and sellers of late-life offshore oil and gas and the terms on which those assets are sold.


The Department of Industry, Science, Energy and Resources (the Department) recently released a consultation paper proposing an enhanced decommissioning framework for the offshore oil and gas industry in Australia. The Department has identified four areas for enhancement: (i) financial oversight; (ii) financial assurance; (iii) planning and management; and (iv) accountability and trailing liability.

The enhanced framework incorporates recommendations from the Walker Report and the Department’s review of the legislative and regulatory requirements for offshore oil and gas decommissioning that originally commenced in 2018. The changes are intended to bring Australia’s decommissioning framework in line with comparable jurisdictions (such as the UK, US, Norway and Canada).

The Department proposes to implement a number of measures including increased:

  • oversight of changes in company control;
  • oversight of financial assurance, including requiring the use of bonds and securities as security for costs associated with decommissioning activities; and
  • monitoring and compliance of titleholders’ duty by the NOPSEMA.

The changes proposed by the enhanced framework would represent a significant and material overhaul of the decommissioning regime in the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (the Act). This should not be surprising to those that have closely followed the progress of Department’s review and the events surrounding the Walker Report. 

The Department’s consultation paper is a high level document and the devil will be in the detail once the proposed legislative and policy changes are drafted. No timelines have been proposed for the release of that information.

The legislative changes are proposed to have retrospective effect from 14 December 2020.

Submissions on the enhanced framework are open until Friday, 22 January 2021.  We expect submissions will seek to flesh out the details of the enhanced framework. 

Financial oversight

Currently under the Act, a technical and financial assessment is required when a title to an offshore oil or gas asset is transferred. This assessment only applies to changes in the registered titleholder or the interests of the registered titleholder. It does not assess ‘indirect’ transactions, where the titleholder remains the same but there has been a change in company control.

Under the enhanced framework the types of transactions requiring government assessment and approval would be expanded to include any change in the ownership or control of a titleholder entity. This would include corporate mergers, acquisitions, and takeovers. This change would subject the new ultimate controlling entity to a government approval process and allow a review of that entity’s ability to meet relevant legislative obligations for decommissioning.

In addition, it is flagged that financial and technical assessment can be revisited ‘on an ongoing basis’ and at other times of a project life cycle such as for the grant of new titles and renewals.

The Department also proposes to increase the level of scrutiny when assessing whether a company is financially or technically capable to meet its obligations, has a satisfactory history of compliance, and is appropriate to enter the regime. The remaining recoverable value of the resource will be a particularly relevant factor when assessing an entity’s financial capacity.

Crucially, a titleholder would be required to provide forms of financial assurance to demonstrate it can meet its obligations and liabilities as a project matures. 

Financial assurance

Currently section 571(2) of the Act requires titleholders to maintain financial assurance. The de facto interpretation limits this to extraordinary costs and liabilities arising from events such as a significant oil spill[1]. Under the enhanced framework, NOPSEMA would expand its monitoring and compliance of titleholders’ duties to ensure they have the capacity to meet the expenses and liabilities associated with managing a petroleum asset.  In other words, there would be an expansion of the existing financial assurance mechanism to encompass both planned (ie such as decommissioning activities) and unplanned activities with NOPSEMA to continue to regulate compliance. 

The Department proposes that bonds, securities, and other forms of financial assurance would be used under the enhanced framework. NOPSEMA would have the authority to decide if financial assurance is required and what form it should take. The level and form of assurance would be reviewed on a regular basis to reflect changing circumstances and costs. If NOPSEMA requires a form of assurance, it would need to be accessible by the government or a third party endorsed by the government in the event that decommissioning activities are not undertaken.

A decommissioning insurance policy may not be an acceptable form or assurance under the enhanced framework. To be approved as a form of assurance, the company would need to show that the insurance policy will remain in force even if the company enters into administration.

In our view, this enhancement of the financial assurance requirements has the potential to have a significant impact on industry from an investment and M&A perspective.  It seems the regulatory powers to require security would be wide and it’s not clear how far reaching they would be.  It also unclear how the complexity of multiple titleholder or joint venture arrangements would be catered for by the new requirements.  This may place a heavy burden on titleholders and new operators without the financial resources of large industry players.  The full effect of these changes remains to be seen.

Planning and management

The Department has identified the use of Field Development Plans (FDP) as an opportunity to enhance regulatory tools for decommissioning. An FDP establishes how a titleholder will develop and manage the field in line with best practice and optimal long-term use. Currently the FDP is only based on information available at the time of application. The enhanced framework would introduce a mandatory review period to ensure the economic viability of the project continues and the titleholder’s ability to meet its decommissioning obligations is not compromised.

The Joint Authority would retain its ability to request a titleholder to review its FDP under the enhanced framework. The Department anticipates that a mandatory review would encourage titleholders to engage with the Joint Authority and the NOPTA earlier and consider decommissioning plans during the life of the field.

Accountability and trailing liability

The trailing liability provisions are the other most notable accountability measures under the enhanced framework. According to the Walker review, the current limited application of trailing liability is inconsistent with comparable jurisdictions that manage a mature industry. The new measures seek to address the risk that existing titleholders may dispose of mature assets to entities that may not be financially or technically capable of fulfilling their decommissioning obligations.

The existing trailing provisions in the Act would be expanded to empower NOPSEMA and the Responsible Commonwealth Minister to ‘call back’ a previous titleholder to remediate the title area, regardless of how its interest in the title ceased. 

Under the current framework a titleholder can only be ‘called back’ when a title has ceased through termination, expiration, revocation, cancellation or has been surrendered. The enhanced framework would allow a ‘call back’ in a broader range of circumstances.

The framework would also introduce the concept of a ‘related person’ for the purposes of trailing liability. This would enable the government to require current or former titleholders or their parent companies to undertake remedial activities in the event that the current titleholder does not meet its decommissioning obligations. This seeks to address transactions being structured in a way to avoid such obligations. 

The changes confer broad-ranging powers on NOPSEMA and the Responsible Commonwealth Minister to require those who derived the greatest benefit from the relevant project to be responsible for decommissioning, should the current titleholder fail to do so.  The Department appears to describe this power as a ‘last resort’ power to be exercised where all other safeguards have failed and a current titleholder is unable to fulfil its obligations.  They will need to be carefully considered and crafted in legislative changes to ensure that former titleholders with the deeper pockets are not simply pursued over current titleholders without appropriate safeguards.

Additionally, the Department’s policy review has suggested that NOPSEMA and the Responsible Commonwealth Minister use their power under the Act to issue remedial directions earlier in a project’s life. Remedial directions require the current titleholder, and in limited circumstances the immediate former title holder, to take certain actions such as removing property (only as directed by NOPSEMA), plugging or closing off wells, conserving and protecting natural resources, and making good of damage to the seabed or subsoil. The proactive use of remedial directions would supplement titleholders’ obligation under section 572 of the Act to maintain and remove property and equipment when it is no longer in use.

The Department also proposes to introduce measures to increase transparency in decommissioning activities such as a public comment period on decommissioning plans submitted to NOPSEMA, public reporting of environmental performance, and publication of ‘close-out’ reports (to NOPSEMA’s satisfaction).



[1] Walker Report, Executive Summary, page 7 of 9.

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