Australia: Upstream oil and gas regulatory update

Last Updated: 18 July 2012
Article by Clive Cachia and Eric Fethers

With the advent of a new financial year, it is worthwhile taking a quick snapshot of where we stand with respect to some of the regulatory reforms currently affecting the Australian upstream oil & gas industry.

Australian gas market development

On 8 June 2012 the Standing Council on Energy & Resources (SCER) – a grouping of Commonwealth, state, Northern Territory and New Zealand energy & resources ministers, met for the second time in Darwin. The SCER acknowledged the ongoing importance of streamlining regulatory approval processes, and attracting investment in gas projects to ensure adequate domestic gas supplies to service booming export markets. Ministers agreed on two core gas market policy principles:

  • ensuring that supply can respond flexibly to market conditions
  • promoting market development.

Ministers have agreed to develop a policy and implementation strategy to give effect to these principles for further consideration at the third SCER meeting due to take place in December 2012. To serve these broad objectives, a number of specific regulatory reforms are currently in process. This update looks at the current state of play in respect of coal seam gas and offshore petroleum operations.

National regulatory framework for Coal Seam Gas

To assist the development of Australian gas markets, the SCER noted that there has been "some progress" toward the development of a national regulatory framework for coal seam gas (CSG). This harmonisation of state and territory laws regarding the exploration and production of CSG is focussed on providing guidance to governments on land use decision making, principles to be achieved in the core areas of well integrity, water management and monitoring, hydraulic fracturing ("fraccing"), and chemical usage.

This harmonisation process was initially flagged in the Draft Energy White Paper in December 2011. At that stage, it was intended that a draft framework be prepared by June 2012 with further consultations in order for a finalised draft to be prepared by September 2012. This timetable has been delayed for reasons including the scope of the task, the political sensitivities involved and the need for extensive consultation with competing stakeholder groups. Given this delay, the SCER agreed to progress the drafting of this national regulatory framework "out-of-session".

While this harmonisation process bubbles along in the background, the governments of the Commonwealth, Queensland and New South Wales (those states where the vast majority of CSG reserves are located in Australia) are continuing with incremental regulatory reform. For example:

Commonwealth – there are plans to amend the Environment Protection and Biodiversity Conservation Act 1999 to create an expert committee to advise on bioregional assessments in areas of high potential impact from coal seam gas and/or large coal mining developments.

Queensland – a number of legislative and regulatory amendments have occurred during 2012 which affect CSG developments including:

  • the Strategic Cropping Land Act 2011 (commenced on 30 January 2012) which imposed a regime to manage competing land uses between agriculture and coal seam gas exploration and production
  • the CSG/LNG Compliance Plan which includes regulatory audits and inspections and monitoring of CSG data
  • a series of restrictions under the Mineral Resources Act 1989 on mining/petroleum activities and assessments insofar as they may conflict with urban land uses.

The Queensland Government recently released the report of the Land Access Review Panel's review of the current legislative framework governing the relationships between landholders, community groups, resource companies (including CSG developers) and land access professionals. It found that despite the above and other regulatory developments over the last 18 months, working relationships between competing stakeholders have not improved. A further 12 recommendations were made to address such concerns and to establish an optimal process for best practice engagement when resource companies are negotiating "conduct and compensation agreements" with landholders. On the strength of these recommendations, expect further reform in due course.

New South Wales – likewise, the NSW Government has been busy releasing its Draft Strategic Land Use Plans which sets out how it proposes to minimise land use conflicts and protect agricultural land and associated water resources. These draft Plans include draft policies and codes regarding aquifer interference, coal seam gas exploration, agricultural impact statements and community consultation processes. Integral to these draft Plans is the use of a "gateway process" under which an independent scientific panel is charged with assessing environmental implications of a proposed development plan. The progress of these draft Plans has been complicated by a recent NSW Upper House review which made 35 recommendations after its separate inquiry into the environmental, economic and social impacts of CSG developments. These recommendations include moratoriums on production licences, imposing compulsory water testing and monitoring obligations, continuation of the fraccing moratorium, development of a model to ensure remediation obligations are met, rectification of imbalances between landholders and CSG developers regarding land access and the establishment of a Petroleum Ombudsman.

Such incremental reform will serve to delay national harmonisation even further.

Offshore petroleum regulatory reform

Significant progress has been made on the nationalisation program of offshore petroleum regulatory reform including the establishment of the National Offshore Petroleum Safety & Environmental Management Authority (NOPSEMA) and the National Offshore Petroleum Titles Administrator (NOPTA) effective from 1 January 2012.

NOPSEMA now has regulatory responsibility for occupational health and safety, structural integrity of facilities, wells and related equipment, environmental plans and day-to-day operations of petroleum activities in Commonwealth waters. NOPTA has responsibility for administration for the range of exploration, retention, production, infrastructure and pipelines authorisations required under Commonwealth legislation (Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGSA)) and regulations. It also administers the offshore petroleum acreage releases and the National Electronic Approvals Tracking System which has three main features – an electronic title register, approvals tracking and an interactive map.

Coupled with these newly minted and funded agencies, the reform of regulations which they administer is ongoing. In May 2012, the Commonwealth Government accepted all of the recommendations made by a review panel under the Second Triennial Review of the Operational Effectiveness of the National Offshore Petroleum Safety Authority Report. These recommendations include:

  • increased co-operation between Commonwealth and State/Northern Territory regulators in respect of large or complex offshore petroleum projects
  • equipping the regulator with a wider range of compliance and enforcement tools including a range of civil penalties and remedies (in addition to the current criminal penalties) such as inspections and examinations; notices and warning letters; use of remediation determinations and enforceable undertakings; suspension/cancellation of relevant petroleum titles; mandatory disputeresolution proceedings; and fixed or per diem financial penalties. This is the subject of a separate review which is scheduled to be completed "in mid 2012"
  • developing safety case guidance notes and workshops to assist offshore petroleum operators and licence holders comply with their occupational health and safety obligations under the OPGGSA and relevant Regulations. NOPSEMA's report on progress is due by 1 October 2012
  • legislative action to resolve issues arising from the interface between the OPGGSA and Commonwealth maritime safety laws, including with respect to seaworthiness, pollution prevention, the point of transition between a petroleum "facility" (which may be a type of vessel)and a marine vessel and continued NOPSEMA oversight of facilities even if such facilities revert to being vessels outside the purview of the OPGSSA. Implementation of the first tworecommendations is scheduled to be finalised during 2012 and the last by June 2013.

In addition to these specific and targeted recommendations, the Commonwealth Government is currently developing an Issues Paper to review the environmental regulations supporting the OPGGSA. Among other things, the review will focus on reporting and consultation requirements, duties of operators, agents and instrument holders of offshore facilities and the effectiveness of oil spill contingency plans. This review is scheduled to be completed in 2012 after a planned consultation process, with the objective of commencement of any changes to the environmental regulations by 1 January 2013. This legislative review is being supported by NOPSEMA's projects to:

  • create a series of guidance notes outlining what is acceptable in meeting the intent of applicable regulations for an environmental plan. This will mirror the safety case guidance note project noted above
  • review all environmental plans in place as at 1 January 2012 (when NOPSEMA assumed environmental oversight functions) to ensure that all such inherited plans comply with the current environmental regulations.

Further to these offshore petroleum regulatory developments, the SCER noted that the states and the Northern Territory have completed a review of State and Territory petroleum legislation applying to coastal waters and onshore areas and developed draft guidelines that outline principles of engagement for petroleum developers with local government. These guidelines are due to be finalised by the end of 2012 for further review and approval by the SCER.

It will certainly be a busy six months ahead for upstream oil & gas regulators and a co-ordinated approach will be key. We will keep you updated as reforms are progressed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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