Oil & Gas Regulators: Respond & Review Regimes

Oil & Gas Regulators Respond to Recent Pollution Incidents by Reviewing their Regulatory Regimes.

 

In response to the spate of significant pollution incidents involving oil & gas exploration, production and transportation that have hit the headlines in recent years, a number of national and international regulators have taken the opportunity to review their regulatory regimes.  This article provides an update on the new Community-wide regulations that have been proposed by the European Commission, the regulatory reform that has occurred in Australia and the possible reforms in New Zealand.

 

EU – Proposes new regulations on offshore oil & gas activities

 

On 27 October 2011, the European Commission proposed new Regulations on the safety of offshore oil and gas activities, which are intended to apply across the whole of the EU in order to reduce the risk of major incidents such as the Macondo blowout occurring in European waters.  The initial consultation process for the proposal was completed at the end of last year and a revised version of the draft Regulations is now available on the EU Council’s Register. The amendments suggested by the Council at this stage are not fundamental but the note to delegates records that a number of substantive issues still remain to be discussed. 

 

If adopted, the proposed Regulations will apply to all offshore oil and gas activity within the waters of EU Member States, including their exclusive economic zones (EEZs) and continental shelves.

 

Extent of regulations 

 

Although they will not apply strictly to the operations of EU-registered operators outside the EU, the Regulation currently states that “Licensees, operators and major contractors based in the Union shall endeavour to conduct their offshore oil and gas operations when outside the Union in accordance with the principles set out in this Regulation”.  However, it is hard to see what degree of endeavour would be satisfactory and how it will be possible to enforce this in practice given that countries outside the EU will have their own (potentially conflicting) rules.

 

The Regulations propose new rules in a number of areas focusing on safety and the environment, including licensing, such that only operators with proven technical and financial capacities will be allowed to explore or produce. And in order to prove their financial capacities, they will be required either to buy sufficient insurance or to pay into a fund.  Pre-exploration and production risk assessment and planning are also covered and companies will be required to submit a Major Hazard Report before commencing exploration or production.  National competent authorities will be given powers to enforce these rules by imposing penalties for infringements and prohibiting deficient operations.

 

Deferring opinions

 

However, the Regulations have been opposed by a number of Member States and operators.  In particular, the UK trade association, Oil & Gas UK, has lobbied vigorously against the proposed regulations on the basis that the UK already has a robust and proven national regime, which would be undermined by relinquishing control to the EU.  The association has also warned that the Regulations threaten to limit the control the UK has over the exploitation of its oil and gas assets, which conflicts with the Treaty of Lisbon.  If they are adopted, the Regulations could apply to new exploration and production operations as early as 2013 and operators of installations that are already producing could be required to make those installations comply as soon as 2014.

Australia – Addressing gaps in current regulations

 

The Australian Government's review of oil pollution legislation was initiated in response to the spill from the blowout of PTTEP's Montara well on 21 August 2009.  The Australian Maritime Safety Authority reacted by implementing its ‘National Plan to Combat Pollution of the Sea by Oil and Other Noxious and Hazardous Substances’.  An enquiry was also established to investigate the blowout, which resulted in the Montara Commission of Inquiry Report 2010.

 

This Report found, among other things, that the provisions of the Commonwealth Environment Protection and Biodiversity Conservation Act 1999 were deficient and that there was a major gap in the application of environmental legislation applying to Commonwealth waters.  The Report made a number of recommendations, including the creation of a single independent regulatory body to look after safety and the introduction of effective arrangements to ensure petroleum companies pay fully for all cleanup costs and all costs of operational and scientific monitoring. 

 

Implementation and enforcement of these new regulations

 

Many recommendations of the Montara Commission of Inquiry Report 2010 have been implemented recently at a Federal level through amendments to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGSA) and associated regulations.  Some of these changes came into force on 1 January 2012, including the establishment of the National Offshore Petroleum Titles Administrator (NOPTA) for the offshore petroleum and greenhouse gas storage industries and the expansion of the functions of the National Offshore Petroleum Safety Authority (NOPSA) to become the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA).

 

NOPSEMA now has responsibility for administration and regulation of occupational health and safety, well integrity, environmental management and day-to-day operations in the Commonwealth offshore areas outside the 3-mile limits of Australian state waters.  NOPSEMA also has the power to issue directions to petroleum titleholders in the event of a significant offshore petroleum incident within the title area that has caused, or might cause, an escape of petroleum.  These changes will reduce reliance on Australian state departments in these areas.  State departments will however remain responsible for regulating the offshore industry within a 3-mile limit of their offshore waters, unless they allow their 3-mile areas to come under NOPSEMA's federal jurisdiction.  It is envisaged that some states will opt in to this arrangement while others may opt out, as the Department of Mines and Petroleum has done in Western Australia.  This is likely to result in a complicated regulatory situation, with state-level regulations applying alongside the federal regime in some states but not others.

 

Another change which was implemented at the start of the year is the replacement of annual fees, which were previously payable by titleholders (including holders of exploration permits and production licences), with cost-recovery levies, including a new annual titles administration levy and an environment plan levy.  This spate of regulatory change appears to be ongoing.

 

New Zealand – To drill or not to drill ?

 

New Zealand held a general election on 26 November 2011, in which the National Party was re-elected for a further 3 years.  Shortly after it was re-elected, the Government announced its intention to sell stakes in a number of its state-owned renewable energy and utilities companies in order to reduce its budget deficit. However, its intentions in relation to oil and gas exploration and production are less clear.  In the run up to the election, and in the wake of the Rena spill, opposition parties Labour and the Green Party promised to put a moratorium on deep sea drilling if they were elected.  However, the National Party reaffirmed its intention to pursue deep water drilling and, following its re-election, such pursuits look likely to proceed.

 

There appears to be some agreement from politicians across the board, however, that New Zealand is not adequately prepared to deal with significant oil spills in its waters.

 

Even before the Rena spill, there was considerable opposition by New Zealand’s Environment and Conservation Organisation (ECO) to deep sea drilling in the waters off New Zealand’s coastline, particularly outside its territorial waters (12 miles offshore) where there is no legislation controlling oil and gas activity.  Before the National Party was initially elected in 2008, the Government (then lead by the Labour Party) was drafting law to fill the gaps in its national regime and to rectify international conventions, but this was not taken up by the National Party when it came into power. 

 

Specialist units for health and safety?

 

However, the Government has decided to establish a specialist health and safety unit to deal with ‘high hazard industries’, including oil & gas.  In addition, the Government has enlisted the support of Australia’s National Offshore Petroleum Safety Authority (which has since become the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA)) to improve the New Zealand Government’s access to technical expertise.

 

The Ministry of Economic Development also published a comparative review of the health, safety and environmental legislation for offshore petroleum operations in 2010. Its recommendations included that an environmental regulatory framework should be established for petroleum permitting within New Zealand’s EEZ and that an agency should be allocated responsibility for environmental assessment and decision making within that zone.  Whether these recommendations will be adopted by the new Government remains to be seen.

 

By : Denys Hickey, Partner, and Robin Acworth, Associate, Ince & Co Singapore.