No moratorium but greater strategic oversight of the regulatory regime is recommended by the Parliamentary Commissioner for the Environment in her long-awaited final report, delivered this week.

We look at the six broad recommendations and what they might mean for industry.

Focus of report

The Commissioner takes the view, based on international experience and the increase in exploratory drilling activity, that the use of fracking will grow rapidly and that regulation will struggle to keep pace.

Her recommendations are designed to let the regulator "get ahead of the game" through improvements to government oversight of oil and gas production and the regional planning process.

The report is confined to onshore drilling.

Key recommendations

Recommendation one

That central government provides strategic direction to local government through the development of a National Policy Statement (NPS). This could include "straightforward" matters like requirements for monitoring, but could also direct councils to plan for how they will deal with bigger challenges like the cumulative effects on the landscape and interaction with other land uses.

An NPS would reduce inconsistencies of practice among councils, and would include the development of technical and environmental standards.

Recommendation two

That regional councils make drilling oil or gas bores, fracking and waste disposal 'discretionary' activities requiring a specific consent and covered by specific rules, particularly in relation to the cumulative effects of such drilling. These should include:

  • identified areas where oil and gas drilling is prohibited
  • core requirements for environmental monitoring
  • a requirement that applications for establishing a well site and for drilling the well be bundled together
  • explicit circumstances when consents will be publicly notified and when they will not be, and
  • identification and planning for the cumulative effects of an industry that may expand very rapidly.

Recommendation three

This concerns the issue of well integrity. The Commissioner considers that regional councils can largely rely on the High Hazards Unit (HHU) to ensure that the design, construction and operation of a well are safe as this falls within HHU's responsibility to protect workers.

But HHU's expertise is not available to ensure that the well is adequately cased when it passes through freshwater layers as this does not bear on worker safety.

The report suggests alternatives:

  • to amend the Health and Safety in Employment (Petroleum Exploration and Extraction) Regulations 2013 to direct the HHU to include the protection of the environment in assessing the design of a well, or
  • to include the protection of freshwater layers as a condition that regional councils must apply in granting consents for oil drilling and gas wells.

Recommendation four

Although the Commissioner acknowledges that the chance of an accident is low, she observes that it is not zero; that the clean-up costs can be significant; and that issues of who should pay can arise when consents have been surrendered and a well has been abandoned.

She recommends:

  • that the adequacy of the public liability insurance held by companies bidding for exploration permits be assessed by New Zealand Petroleum and Minerals as part of "credit checking", and
  • an annual levy on industry participants to cover the cost of monitoring abandoned wells and remediating any future leaks, similar to the Alberta and Saskatchewan regimes.

Recommendation five

Regional councils are legally able to enforce the controls under the Hazardous Substances and New Organisms Act (HSNO) when they are visiting well sites but they are not legally obliged to do so.

The report recommends that council enforcement of HSNO standards be made mandatory.

Recommendation six

The Commissioner considers that more information is needed around solid waste disposal and has recommended that the Minister for Food Safety and the Minister for the Environment convene a working group, including regional council officers and agricultural representatives, to:

  • resolve when livestock can be put back on to 'land-farmed' pasture in Taranaki, and
  • consider how solid waste from the East Coast Basin should be disposed of before the number of wells begins to proliferate.

Chapman Tripp comments

A framework to promote more consistency of practice between the regions, while also recognising local circumstances, would provide welcome certainty to operators. The challenge is to get a regime which meets its regulatory objectives – in this case, environmental protection – without incurring unnecessary compliance and administrative costs.

In this context, we question whether a full discretionary activity consent should be required for all applications as there are a number of 'run of the mill' activities, the effects of which are well-understood and could be managed via the imposition of standard conditions.

The Commissioner's report now sits with the government. Environment Minister Amy Adams and Energy and Resources Minister Simon Bridges have said they will consider the recommendations but have provided no timeframe for that consideration.

Chapman Tripp's commentary on the interim report is available here.

Thanks to Karen Kemp and Shayne Misselbrook for writing this article.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.