Enhancing Australia's decommissioning framework

By Anne Nguyen, Mark McAleer
Oil & Gas

Ensuring Australia is positioned for decommissioning 5 min read

On 14 December 2020, the Department of Industry, Science, Energy and Resources (the Department) announced that it has finished its review of Australia's offshore decommissioning framework and released a consultation paper entitled 'Enhancing Australia's decommissioning framework' (Enhanced Framework). The aim of the Enhanced Framework is to ensure that Australia is sufficiently positioned to respond to decommissioning challenges and to ensure the Australian regime is clear, fit for purpose and leading practice.

Consultation on the Framework

The Enhanced Framework is open for consultation until 22 January 2021.  In 2021, the Department will provide the final framework to government for consideration.  Of particular importance to industry participants is that the legislative measures are proposed to be backdated to be effective from 14 December 2020 (other than in respect of the trailing liability changes as outlined below).

Key features of the Framework

As anticipated, the Enhanced Framework seeks to substantially broaden the current decommissioning framework.  The key features of the Enhanced Framework are set out below.

Financial oversight

(Change in company control):

  • The scope of transactions requiring government assessment and approval will expand to include transactions where there is a change in control of the titleholder eg through a corporate merger, acquisition or takeover.  This is a departure from current policies where NOPTA only assesses direct transfers in the title.
  • Further, the Department proposes to enhance the decision-making criteria the Government will use when assessing if a company is financially and technically capable.
  • These changes will be implemented through amendments to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA), the Offshore Petroleum and Greenhouse Gas Storage (Resource Management and Administration) Regulations 2011 (RMA Regulations) and other guidelines (including the transfers and dealings guidelines).

(Financial assurance):

  • NOPSEMA will expand its monitoring and compliance of a titleholder's duty under section 571 of the OPGGSA to have sufficient financial assurance to meet the costs, expenses and liabilities of carrying out a petroleum activity.
  • It is proposed that the enforcement of this duty will remain a function of NOPSEMA.
  • The Department expects forms of financial assurance, such as bonds and securities, will be used under the Enhanced Framework which can be accessed by government or a third party endorsed by the Government in the event that decommissioning activities are not undertaken.
  • NOPSEMA will determine the form of financial assurance required, taking into account certain factors including the remaining life and estimated costs.  The level and form of assurance must be reviewed on a regular basis to reflect changing circumstances and costs.  This appears to be a departure from the current regime, where the titleholders could use their discretion in determining the form or mix of forms of financial assurance for their specific requirements.
  • The Department considers that s571 of the OPGGSA is sufficient  but changes will be made to policy and guidance material.

Planning and management

(Decommissioning planning and resource management):

  • The Department proposes to introduce a mandatory review period for a Field Development Plan (FDP).  This will ensure that the ongoing economic viability of a project is reviewed regularly, is balanced against the optimal long-term recovery of petroleum, and not at the expense of a titleholder's ability to meets its decommissioning obligations.
  • The Department expects to implement changes by amending the RMA Regulations.

Accountability and trailing liability

(Early and proactive use of directions):

  • The Enhanced Framework will enhance the remedial directions NOPSEMA and the responsible Commonwealth Minister may issue, including the early and proactive use of remedial directions and in respect of post-decommissioning monitoring activities.
  • The ability to regularly review and amend a remedial direction will also be introduced.
  • The Department considers that the existing remedial directions provisions in the OPGGSA are sufficient but will develop policy documents.  However, if through the consultation process or during implementation the need for legislative change is identified, this will be pursued.

(Public comment and transparent reporting): In order to improve transparency and public engagement for decommissioning, the Department proposes to introduce:

  • a public comment period on decommissioning environment plans that seek NOPSEMA's acceptance;
  • public reporting of environmental performance once a petroleum activity is underway; and
  • publication of 'close-out' reports once an activity has been complete, to NOPSEMA's satisfaction. 

This may be effected through amendments to the Environment Regulations.

(Trailing liability):

  • It was identified that there are two key policy objectives of enhancing existing trailing liability provisions being to:
    • ensure the risks and liabilities of petroleum activities remain the responsibility of those who have derived the greatest financial benefits from the project; and
    • bring about a change in behaviour and increase due diligence by companies of who it sells its titles and assets to.
  • The Department considers that there are two legislative options to enhance the existing trailing liability provisions:
    • Option 1 – creating a standing obligation in the OPGGSA, which would result in companies remaining continually liable for decommissioning, despite selling its assets and / or interests in a title (this is recognised as not the preferred approach given the impact this would have on investment); or
    • Option 2 – expand existing trailing liability provisions to enable the Government to  'call back' any former titleholder, regardless of how its interest in the title has ceased (including if it has sold its interest).  A concept of a related person may be introduced, which will enable the Government to require a former titleholder or a related entity / parent company  of a former titleholder to undertake and/or pay for remedial activities if the current titleholder does not meet its obligations.
  • The Department proposes to expand the existing trailing liability provisions by amending the OPGGSA, with the amendments to only apply to incumbent and future titleholders rather than retrospectively.
  • This will allow NOPSEMA /the Commonwealth Minister to issue remedial directions to any former titleholder and/or a related person as a last resort.

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