Focus: Offshore petroleum resource management review
19 January 2016
In brief: In December 2015, the Federal Government released an interim report of its review into the management of Australia's offshore petroleum resources. The review suggests that, while the current regime is fundamentally sound, there is still a need for action to be taken across the offshore petroleum exploration and development lifecycle to ensure that the system can navigate future market conditions and encourage continued and new investment. Partner Igor Bogdanich (view CV), Senior Associate Helen Verrier and Lawyer Helen Santamaria report.
How does it affect you?
- The Interim Report of the Offshore Petroleum Resource Management Review (the Report) has proposed 20 recommendations across the petroleum lifecycle that could affect the policy, regulatory and administrative frameworks governing offshore petroleum management. The recommendations specifically target the effectiveness, transparency and flexibility of petroleum management and its alignment with commercial realities. The goals of stimulating exploration and development through the reforms proposed by the recommendations are of particular interest in light of the constraints created by falling oil-prices.
- The recommendations include:
- moving to a holistic, system-based management, rather than a title-by-title approach to development;
- recognising that previously uneconomic, smaller reserves of petroleum, which can now be more effectively identified with new imaging technologies, could become viable with greater flexibility in the declaration of location policy;
- reviewing legislated data management and confidentiality provisions; and
- improving the timeliness and efficiency of regulatory decision-making.
- Stakeholders have until 28 February 2016 to provide comment or submissions on the Report.
The Federal Government announced the review in mid-2014. A consultation paper was released for comment in November 2014 and was consolidated by targeted consultation with industry participants. The review is led by an industry steering group which includes representatives from the offshore petroleum industry, state and territory governments as well as the National Offshore Petroleum Titles Administrator.
The Report highlights the following challenges arising from the maturity of existing production products and the decline in exploration:
- optimising overall resource recovery across fields and projects;
- efficiently using existing infrastructure;
- addressing falling exploration levels (including the facilitation of searches for smaller finds around mature areas as well as major new fields in deeper, less explored areas);
- positioning Australia to take advantage of opportunities to encourage overseas investment; and
- ensuring the industry enhances exploration in the face of advances in technology and cost pressures.
The Report considers present and future opportunities and challenges facing government and industry participants. Specifically, the Report identifies four strategic areas for action:
The Report notes that the petroleum regime needs to address:
- the challenges arising from a growing number of smaller resource finds which, individually, are unlikely to be economically viable; and
- the efficiencies that could be gained from optimising infrastructure sharing opportunities.
The Report suggests that a greater focus on system-based management (as opposed to individual title or project management) will assist in successfully optimising development across project and resource reserves. In this context, the Report recommends:
- annual reporting by relevant agencies on a region or basin-wide basis to build a better understanding of the industry, to identify current and emerging resource management concerns at an early stage and to provide the basis for industry consultation to address such concerns;
- effective engagement with the private sector to facilitate early identification of issues in the relevant processes; and
- transfer of non-strategic and administrative decisions that currently reside with the Joint Authorities to the Title Administrator or relevant Minister where appropriate.
The Report notes that maintaining active exploration is key to generating the petroleum industry's project pipeline but exploration is increasingly costly, logistically complex and commercially high-risk. The Report suggests that data management, emerging technologies and streamlining acreage release are key. Specifically, the Report recommends:
- improving the collection quality and completeness of data;
- a formal review into current data arrangements and associated confidentiality periods (for example, those relating to 'multi-client' survey data);
- the streamlining of the current acreage release cycle (for example, the time period between nomination and the award of acreage);
- the publication of indicative time frames for title decisions; and
- lengthening the term of Special Prospecting Authorities (SPAs) and Access Authorities and reviewing the role of SPAs in attracting exploration.
Promoting timely and efficient development and production
The Report notes that there is potential for greater flexibility and cost reductions within the current retention lease framework and a better alignment between the framework and commercial realities. The Report recommends the introduction of:
- new criteria to enable the issue of retention leases for periods of between three and 15 years (compared with the current five year lease term, which will remain as the default position), where conditions would be applied to ensure regular testing of commerciality pathways if longer titles are contemplated;
- a project development focus to the administration of retention leases that permits titles and leases to be voluntarily linked for the purposes of reporting and compliance if connected to a single project;
- a mechanism to extend an existing location to other modest-sized reserves in the title area, based on similarity in play and seismic response; and
- greater flexibility for exploration permit holders in bringing forward the development of small reserves from exploration permit straight into a production licence.
The Report also recommends the streamlining of development and production pathways (for example, the timing and administrative requirements currently associated with the application process for a retention lease or production licence) and greater transparency surrounding the framework and decision-making considerations. This would reduce both regulatory and commercial burdens and improve administrative efficiency and process transparency.
A clear framework for management and decommissioning
The Report notes that the decision to decommission offshore petroleum projects and remove retired equipment is currently fraught with complex trade-offs between economic, environmental and political outcomes. The Report suggests that a decommissioning policy framework would provide greater clarity and certainty concerning both the policy and regulatory requirements for decommissioning offshore petroleum facilities.
Comment is now being sought from stakeholders on both the scope of identified issues and the efficacy of proposed actions.
The Department of Industry, Innovation and Science requests that all comments and submissions be provided no later than 28 February 2016. There is no formal date set for delivering the final report to Parliament.
Also, if you have any questions about the Report or require assistance with a submission feel free to contact us.
- Igor BogdanichPartner, Sector Leader, Oil & Gas,
Ph: +61 3 9613 8747
- John HedgePartner,
Ph: +61 7 3334 3171
- Tracey GreenawayPartner,
Ph: +61 8 9488 3866
- Richard MalcolmsonPartner,
Ph: +61 2 9230 4717
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