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Energy

Focus: The Montara oil spill report

26 November 2010

In brief: The inquiry into Australia's worst oil spill to date is not only critical of the company that operated the well but also the regulatory body responsible for overseeing its operations. Partner Igor Bogdanich (view CV) and Law Graduate Robert Merriam look at the recommendations of the Report of the Montara Commission of Inquiry and the Federal Government's draft response. 

How does it affect you?

  • The Report of the Montara Commission of Inquiry (the inquiry) strongly advocates the removal of responsibilities from state-based 'Designated Authorities' to a single national regulator; in particular, for all aspects of safety and operational approvals. This is accepted in the Federal Government's Draft Government Response to the Montara Commission of Inquiry (the draft response) and we can expect to see moves by the Federal Government towards establishing a national regulator.
  • The inquiry focuses on moving regulation from the current 'objective approach', where operators have to achieve the aims of 'good oilfield practice', to a 'prescriptive approach', where regulators take a more active role in setting, monitoring and enforcing operational practices. The practical effect of these recommendations is likely to be a decrease in flexibility for operators.
  • The inquiry also recommends amendments to environmental approval conditions and federal environmental legislation to reinforce the 'polluter pays' principle in the case of an incident – again, this was accepted in the draft response.
  • The inquiry and draft response have triggered an investigation into all of PTTEP Australasia (Ashmore Cartier) Pty Ltd's (PTTEPAA) operations and petroleum holdings in Australian waters, not just the permit relevant to the Montara spill. This demonstrates a strong response by the Federal Government in relation to a company, rather than the specific operation. This should be noted by all oil and gas operators.

Background

The Montara oil spill began in August 2009 and continued until it was plugged in November 2009. It was the worst offshore oil spill in Australian history, though smaller in size than this year's Gulf of Mexico spill. The Montara oil field is located in the territory of the Ashmore and Cartier Islands in the Timor Sea. This area falls within Commonwealth offshore waters regulated by the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (the OPGGS Act). Under the OPGGS Act, Commonwealth offshore waters are jointly managed by a Joint Authority (the Federal Minister) and a Designated Authority (a State Minister). In practice, the administration of the area is undertaken by the Northern Territory Department of Resources (NT Department) (acting as the Designated Authority under delegated power pursuant to the OPGGS Act).

The National Offshore Petroleum Safety Authority (NOPSA) regulates certain safety practices but, until recently, these have been confined to the area of occupational health and safety. Structural issues, as well as approvals for operations (including environment plans and well operation management plans), have been regulated by the Designated Authority. Earlier this month, the Federal Parliament passed legislation to expand NOPSA's functions in relation to structural integrity, but operational approvals are still dealt with by the Designated Authority.

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Review of petroleum titles

The inquiry found that PTTEPAA 'succumbed to a large number of serious deficiencies in its approach to well control' in the well that caused the spill,1 and that these deficiencies were emblematic of larger systemic problems.2 These deficiencies led the inquiry to question the company's ability to satisfactorily undertake other petroleum operations in Australian waters. In this regard, the inquiry recommended that the Federal Minister:

  • review PTTEPAA's permit and licence to operate at the Montara oil field;3
  • issue a 'show cause' notice to PTTEPAA (which might lead to the cancellation of the company's petroleum titles);4 and
  • commission a detailed audit of all other offshore wells operated by PTTEPAA to determine whether they too suffer from well integrity problems.5

A review is currently being undertaken of an action plan for improvement that PTTEPAA submitted to the inquiry. The Minister has said that the findings of this review will influence his consideration as to whether to issue a 'show cause' notice.

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Amendments to the offshore petroleum regulatory regime

The inquiry recommended that, while an objective approach to offshore petroleum regulation in Australia was generally appropriate, the issue of well integrity requires a more prescriptive regime.6 The inquiry found that the current regime was reliant on operators 'doing the right thing' and needed to be more prescriptive with minimum standards and more active in enforcement. The inquiry recommended that the definition of 'good oilfield practice' be amended to include a requirement that certain minimum compliance standards are met (for example, that at least two well control barriers be in place).7

Other amendments to legislation which the inquiry recommended included:

  • providing a power to suspend petroleum production licences;8
  • extending NOPSA's prohibition powers;9 and
  • amending regulation 25 of the Petroleum (Submerged Lands) (Management of Well Operations) Regulations 2004 (Cth) to avoid the situation in which a titleholder might be rewarded for failing to take adequate steps to inform itself of well integrity hazards, or being wilfully blind to them.10

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A single regulator

The Inquiry found that the NT Department was not a sufficiently diligent regulator and recommended that the Commonwealth Minister consider:

  • revoking the Designated Authority powers and functions currently delegated to the Director of Energy of the NT Department; and
  • transferring the NT Department's responsibilities to either NOPSA, the Commonwealth Department of Resources, Energy and Tourism, or a Designated Authority of another State.11

Further, the inquiry recommended that the creation of a National Offshore Petroleum Regulator (NOPR) be pursued12 and that responsibility for the regulation of well integrity be shifted from the Designated Authorities to NOPSA.13 This recommendation mirrors the conclusion regarding a single national regulator that was reached in the Productivity Commission Research Report (Review of Regulatory Burden on the Upstream Petroleum (Oil and Gas) Sector, April 2009). NOPSA and NOPR's key roles would then be combined so as to establish a single independent authority responsible for safety, well integrity and environmental plans.14 This body would be separate from those that make decisions regarding the allocation and management of petroleum titles.15 

The concept of a single national regulator has been discussed for some time, but the inquiry's recommendation (and the Federal Government's acceptance of the recommendation) is a major step towards its realisation. The Western Australian Government has repeated its opposition to the creation of a single, national regulator since the inquiry's report was released.

The inquiry recognised that the creation of a single, national regulator will 'lead to other boundary issues such as the interface with arrangements in state waters or with onshore petroleum developments'.16 The inquiry suggested that such issues should be resolved by the Ministerial Council on Mineral and Petroleum Resources.

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Environment

The inquiry recommended that various changes be made to the regulation of offshore petroleum operations in relation to environmental matters. Key recommendations included:

  • ensuring that the conditions of the environmental approval for each project clearly set out the proponent's obligations for monitoring and remedying oil spills;17
  • amending the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (the EPBC Act) to allow government bodies to determine the monitoring and remediation that the relevant company must undertake once an oil spill occurs, (rather than the company);18
  • including an obligation in each environmental approval (both existing and future approvals) to pay for the monitoring and remediation of any oil spill (whether it is the company that undertakes this work or some other body);19
  • implementing suitable arrangements to ensure that this obligation to pay can and will be satisfied (for example, through insurance);20 and
  • amending the EPBC Act to allow government bodies to take 'compliance action' in response to an oil spill despite no breach of any condition of approval having occurred.21

The independent review22 of the EPBC Act undertaken by Dr Allan Hawke, which was delivered to the Federal Government in October 2009, recommended sweeping reforms to the scope and effect of the Act. The Government is still to release its response to the Hawke Report and so the Inquiry's recommendations on the reform of the Act will need to be considered alongside that response.

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The draft response

The inquiry makes 105 recommendations. In the draft response, the Federal Government notes 10 recommendations, does not accept three fairly minor recommendations and accepts the remainder. In light of the level of support from the Federal Government, there are likely to be significant changes ahead for the offshore petroleum regulation regime.

Footnotes
  1. Finding 91.
  2. Finding 92.
  3. Recommendation 101.
  4. Recommendation 102.
  5. Recommendation 105.
  6. Recommendation 66.
  7. p 17 and Recommendations 4 and 24.
  8. Recommendation 70.
  9. Recommendation 72.
  10. [4.115] and Recommendation 67.
  11. Recommendation 76.
  12. Recommendation 74.
  13. Recommendation 75.
  14. [4.217].
  15. [4.227] and Recommendation 73.
  16. p 20 and [4.233].
  17. Recommendation 89.
  18. Finding 90 and Recommendation 95.
  19. Findings 88 and 90 and Recommendation 96.
  20. Recommendation 96.
  21. Finding 87 and Recommendation 95.
  22. Hawke A (2009) The Australian Environment Act – Report of the Independent Review of the EPBC Act 1999, October 2009.

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