• Towards A Single Regulatory System for the Australian Offshore Petroleum Industry
  • October 31, 2011
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • The importance of effective offshore petroleum industry control and regulation has been highlighted in recent years by two serious incidents: the blowout from the Montara wellhead platform on 21 August 2009 off the northern coast of Western Australia (Montara Incident) and the explosion of the Deepwater Horizon on 20 April 2010 which drilled on the BP operated Macondo Prospect in the Gulf of Mexico (Macondo Incident).

    The Montara Incident resulted in the uncontrolled discharge of crude oil into the Timor Sea between 21 August 2009 and 3 November 2009. The Macondo Incident resulted in the loss of 11 lives, 17 injuries and the uncontrolled discharge of crude oil into the Gulf of Mexico between 20 April 2010 and 19 September 2010. Given the impact of these incidents on the environment and local communities, it is unsurprising that they received worldwide media attention and caused significant community concern as to how these types of operations are regulated and whether that regulation is adequate to deal with modern offshore drilling practices.

    Australian regulation and oversight
    The regulation of offshore petroleum activities in Australia is undertaken under a joint arrangement between the Australian federal government and the various States and Northern Territory. This regime divides the offshore area into Commonwealth Waters1 and State or Territory Coastal Waters2.

    The principal legislation regulating offshore petroleum activities in Commonwealth Waters is the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (Act) and related regulations. Relevantly, the Act imposes a duty on offshore petroleum operators to take all reasonably practicable steps to ensure the facility and its activities are safe and without risks to health.

    The Act (and other related Commonwealth legislation) is administered by the National Offshore Petroleum Safety Authority (NOPSA). NOPSA’s objective is to provide independent assurance that health and safety risks are properly managed. In fulfilling this duty it carries out safety case assessments and inspections to ensure that the operator’s risk management arrangements are both adequate and complied with. In carrying out this role, NOPSA collects and summarizes data on the safety performance of the offshore petroleum industry and its own regulatory performance.

    Increasing rates of incidents
    In 2008 and 2010, NOPSA published its Health and Safety Performance Reports, which indicated that the annual numbers of gas releases and personal injury rates in the offshore petroleum industry were increasing.

    In 2009 the Australian Federal Government, together with the Western Australian State Government, conducted a joint independent inquiry into the regulation of upstream petroleum operations (Offshore Regulatory Inquiry 2009 (2009 Inquiry)). In its response to the 2009 Inquiry, the Federal Government stated that the increasing rate of accidents indicated there was potential for more severe incidents in the industry (2010 Response).

    One of the publications that emerged from the 2009 Inquiry was a report titled “Offshore Petroleum Safety Regulation Better practice and the effectiveness of the National Offshore Petroleum Authority” (2009 Report).

    The 2009 Report observed that offshore petroleum activities in Australia were regulated by many different and sometimes overlapping State and Federal statutes, regulations and directions. As a consequence, the reach and application of those laws and policies to off-shore operations was unclear and inconsistent. The 2009 Report also stated:

    “Our examination of the regulatory regime has uncovered a confusing mishmash of jurisdictional, legal, process and regulatory interfaces upon which is overlaid poor relationships among regulators. In such an environment, any serious operator shortcomings are far less likely to be found and addressed to reduce the risk of a major accident event.”3

    This problem is compounded by the fact that many different regulators have an interest in the regulation of the industry and their ability to discharge their responsibilities is impacted by the limited resources available to them. Aside from NOPSA, other interested regulators include the relevant State or Territory Minister and that Minister’s department4 with responsibility for day-to-day operations, pipelines and subsea facilities in Coastal Waters and environmental aspects of offshore petroleum activities in Commonwealth and Coastal Waters.

    Consolidation of regulation and a new national regulator
    Regionally and internationally, the Montara and Macondo Incidents have raised questions regarding the ability of governments and regulators to approve, monitor and enforce operations that meet the twin goals of protecting human health and safety and preserving the marine environment. The global response has been to review offshore petroleum legislation and processes relating to prevention and response.

    On 24 November 2010 the Report of the Montara Commission of Inquiry5 was released by the Australian Government (Montara Report). This report was prepared in response to the Montara Incident.6

    The Montara Report contains 100 findings and makes 105 recommendations which have implications for government, the Federal and State regulators as well as industry. Of these recommendations the Australian Government’s final response7 accepted 92 of the recommendations, noted 10 and did not accept 3 on the basis that they were technically inappropriate.

    As part of its response the Federal Government has committed to:

    1. Strengthening the “polluter pays” principle by adding a guarantee in legislation that all costs of responding to a hydrocarbon spill, including scientific monitoring and other damages to the offshore and broader environment, will be met in full by the polluter.
    2. Strengthening Australia’s objective-based regulatory regime by clarifying the framework for engagement between regulators and the offshore petroleum industry in responding to any future offshore petroleum incident.
    3. Enhancing the environmental assessment processes used by applying additional checks for offshore petroleum activities in Australian waters.
    4. The establishment of a single national regulator for offshore petroleum, mineral and greenhouse gas storage activities - the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA)

    Against this background, on 16 November 2010, the Offshore Petroleum and Greenhouse Gas Storage Legislation Amendment (Miscellaneous Measures) Act 2010 was passed. This legislation consolidated Australia’s health and safety regulation for offshore petroleum operations and clarified NOPSA’s role as the primary regulator for offshore petroleum activities by increasing its powers and efficiency. It extended NOPSA’s regulatory responsibilities to the oversight of the entire structural integrity of petroleum facilities (including pipelines), wells, and well related equipment in Commonwealth Waters, as well as the assessment of Well Operations Management Plans and individual well activities.8

    In the February 2011 issue of its newsletter “the Regulator”, NOPSA stated that it has commenced recruitment of additional inspectors to support its new regulatory responsibilities for well operations and well integrity and is recruiting communication and human resource professionals.

    On 25 May 2011 the Federal Government put forward the Offshore Petroleum and Greenhouse Gas Storage Amendment (National Regulator) Bill 2011 (Bill). If passed in its current form the Bill will:

    1. create a new national offshore petroleum regulator, to be called the National Offshore Petroleum Titles Administrator (NOPTA). This will replace the seven “Designated Authorities” which currently regulate offshore petroleum in Commonwealth waters. The Joint Authority (which currently consists of the Australian Government minister and relevant State or Territory minister responsible for offshore petroleum regulation) will be retained to make key title decisions. NOPTA’s role will include administering titles, collecting data relating to petroleum and greenhouse gas storage activities, approval and registration of transfers and dealings, maintaining the registers of titles and making recommendations to the Joint Authority on key title decisions. In addition, States and Territories will be able to confer their powers over coastal waters on NOPTA if they wish to do so;
    2. expand the role of NOPSA and rename it the National Offshore Petroleum Safety and Environment Management Authority (NOPSEMA). Its functions will be extended beyond occupational health and safety and well integrity to include environmental management;
    3. ensure sufficient enforcement powers in relation to NOPSEMA’s expanded functions; and
    4. revise the financial arrangements existing between the States and the Commonwealth and impose new levies on industry

    Both NOPTA and NOPSEMA will be based in Perth, Western Australia, and the Bill provides expressly for cooperation between the two.

    These two authorities will have jurisdiction over Commonwealth Waters. In relation to the waters extending three nautical miles from the land boundary, the States and Territories may confer their functions and powers on NOPSEMA and NOPTA. In relation to State and Coastal waters, a State or Territory may contract with NOPSEMA for the provision of services.

    The Offshore Petroleum and Greenhouse Gas Storage Regulatory Levies Legislation Amendment (2011 Measures No 2) Bill 2011 (Levies Bill) has also been introduced to amend the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Act 2003 (Cth). The Levies Bill is intended to impose new levies on registered holders of offshore petroleum and greenhouse storage titles in Commonwealth waters in order to recover the costs of establishing NOPTA and the expansion of NOPSA’s functions to include environmental management. The Levies Bill provides for two types of well levies:

    1. an annual titles administration levy, which is payable for each year that the eligible title is in force; and
    2. an environment plan levy, imposed when an application is made to NOPSEMA for acceptance or revision of an environment plan.

    Similarly, within Australia, industry has undertaken a detailed analysis of its processes and practices in relation to well design, integrity and operations and oil spill response capabilities and blow out contingency plans as well as equipment reviews and verification of preventative maintenance requirements and integrity assessments.

    Legal and operational barriers to sharing equipment and other resources impacted upon industry’s response to the Montara Incident. To address this issue, on 11 August 2011, industry members entered into a Mutual Aid Memorandum of Understanding to establish a framework for deploying and sharing equipment and personnel in responding to a significant offshore petroleum incident.

    The Australian Petroleum Production & Exploration Association (APPEA) has also developed and published a Self-Audit Check List for Australian Offshore Oil and Gas Title Holders as a guideline for use when assessing or auditing a title holder’s management system or when developing formal bridging documentation between a title holder and a facility operator.

    In APPEA’s view, effective control and assurance of activities requires monitoring of the title holder’s well operation management plan, the facility operator’s safety case and associated bridging documents with an increased need for monitoring of risk mitigation and response mechanisms in formal plans to be included in audits and review.

    The next steps
    While the Western Australian government remains opposed to the proposed national offshore regulator it has recently entered into a memorandum of understanding with the Federal Government and on 14 September 2011 the legislative package for the establishment of a single national regulator was passed by the Australian Senate. These bills will now be returned to the House of Representatives for approval with the aim of NOPSEMA and NOPTA becoming operational by 1 January 2012.9

    This is not the end of the story, however. The development of these arrangements is likely to require the Commonwealth reaching agreement with the States and Northern Territory on cost sharing arrangements, the development of uniform procedures, the level and standard of human resources, recruiting arrangements and the working of accountabilities and ministerial reporting lines. These are just some of the issues that may well generate further political debate.

    Likely impact on those subject to this changing regulatory framework
    As can therefore be seen, the Australian and international regulatory landscape is undergoing significant change involving the imposition of greater obligations on offshore petroleum operators and contractors, which in turn is impacting on health and safety and environmental liability. This is likely to see increased requirements with respect to corporate governance and management oversight responsibility and an increased focus on managing contractual risk allocation between operators and offshore contractors.

    Internationalisation of safety and operating standards amongst regulators can be expected in the future. In turn, there is likely to be a move to adopt uniform standards by global players across each jurisdiction, going beyond minimum compliance with laws and regulations in a particular location.

    Industry can also expect to see greater emphasis being placed upon oversight and monitoring of process safety, drilling operations and the integrity of ageing facilities including:

    1. additional multiple levels of control and audit protocol including greater use of third party assurance providers;
    2. improved communication systems and enhancements to the process for managing change, including third party contractors as well as active management of contractor recommendations (which should form part of any review); and
    3. enhanced reporting lines and company board mandated management systems with an emphasis on line of sight management tools to improve existing monitoring and compliance regimes.

    In addition to the specific regulatory changes taking place in the Australian offshore petroleum industry, companies also need to be mindful of legislative agendas in other contexts which will also impact upon their business and operations. For example, the introduction of a new requirement for company officers to exercise due diligence to ensure that the company complies with its obligations under the Model Work Health and Safety Act 2009 (Cth).10

    It is expected that industry members will continue their current efforts to share information relevant to safety procedures and risk management processes and continue to learn from each other in respect to near misses, safety incidents and new technologies.

    Continuous improvement and self criticism, together with meaningful engagement with government, regulators and the general public, offers the best chance of both reducing the costs of regulation and the risks of oversight as well as improving safety standards and public perception of the industry.

    Footnotes
    1. 3 nautical mile baseline to 200 nautical miles of Australia’s Exclusive Economic Zone

    2. Up to 3 nautical miles from the state or territorial sea baseline

    3. Kym Bills and David Agostini, Offshore Petroleum Safety Regulation, Better practice and the effectiveness of the National Offshore Petroleum Safety Authority, Commonwealth Department of Resources, Energy and Tourism, 2009 at page xi

    4. For example, Western Australian Department of Mines and Petroleum and the Northern Territory Department of Resources

    5. Commissioner David Borthwick, Report of the Montara Commission of Inquiry, Commonwealth of Australia, June 2010

    6. The Commission of Inquiry was established under Part 9.10A of the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth)

    7. Final Government Response to the Report of the Montara Commission of Inquiry

    8. Through the Offshore Petroleum and Greenhouse Gas Storage (Resource Management and Administration) Regulations 2011 (Cth)

    9. http://minister.ret.gov.au

    10. section 27.