Offshore Oil & Gas Decommissioning - Australia

• NOPSEMA - The National Offshore Petroleum Safety and Environmental Management Authority

NOPSEMA is the regulator responsible for the administration of the occupational health and safety provisions, the structural integrity provisions and environmental management provisions of the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGS Act). This includes decommissioning responsibilities such as assessing duty holders’ permissioning documents and monitoring and enforcing compliance with regulatory requirements.

The OPGGS Act is the primary legislation governing offshore oil and gas decommissioning in Commonwealth waters. 1

The registered Titleholder is responsible for decommissioning activities. The ‘base case’ for decommissioning (the removal of all structure, equipment and other property) is the default decommissioning requirement under the OPGGS Act. 2  Options other than complete removal may be considered, however the Titleholder must demonstrate that the alternative decommissioning approach delivers equal or better environmental outcomes compared to complete removal and meets all applicable requirements. 3

There are other laws and regulations relating to oil and gas decommissioning in Commonwealth waters, including international conventions, regulations and other Commonwealth Legislation such as the Environment Protection and Biodiversity Conservation Act 1999 (Cth). and the Environment Protection (Sea Dumping) Act 1981 (Cth). 4

Australia’s legislative framework places responsibility on Titleholders by requiring various regulatory approvals prior to undertaking decommissioning activities.  Decommissioning compliance is enforced by the trailing liability provisions of the OPGGS Act (see Question 1.4 below).  At the end of decommissioning, Titleholders must take certain steps, e.g. to bring an environmental plan to an end, the Titleholder must notify the regulator, NOPSEMA, who may or may not accept the notification. 5

NOPSEMA and the responsible Commonwealth minister have the power to issue directions to a registered holder of a title about any matter in which the regulations may be made (these are wide and include decommissioning). 6

The OPGGS Act has been amended in recent years to introduce trailing liability provisions that commenced in March 2022 for offshore oil and gas assets. The trailing liability provisions in Part 6.4 of the OPGGS Act allow remedial directions to be issued by NOPSEMA and the responsible Commonwealth Minister for certain remedial works, including decommissioning works. 

If certain remedial directions relating to oil assets are breached or directions given under the general power to give directions, there are significant financial penalties set out in the OPGGS Act as well as the possibility of imprisonment. 7

The NOPSEMA or the responsible Commonwealth Minister may also carry out the activities needed to comply with remedial directions relating to oil and gas assets and recover the cost of those activities directly from the duty holder if the direction is breached. 8

There are no specific tax reliefs available for decommissioning costs. 

If a title is in force, 9  remedial directions can be issued to others who are not the Titleholder.  Remedial directions can be issued to entities (companies, joint ventures or individuals) such as: 10

• the current or former Titleholders;
• a related body corporate of the current or former Titleholders;
• a “related person” being a person who the responsible Commonwealth Minister determines that it is appropriate to issue a remedial direction who:

o   acted jointly with the current or former Titleholder;
o   derived a significant benefit from the operations authorised by the title;
o   had the ability to influence compliance under the OPGGS Act.

Therefore, co-venturers and/or other stakeholders (except the Commonwealth) can potentially be captured and receive a remedial direction, with potential significant penalties if there is a failure to comply with a remedial direction.  In relation to joint ventures, obligations are imposed on each individual Titleholder, meaning that each joint venture partner is liable under remedial directions that may be issued. 11

As set out above in 1.4 in relation to the Commonwealth, NOPSEMA or the responsible Commonwealth Minister may also carry out the activities required under remedial directions relating to oil and gas assets and recover the cost of those activities directly from the duty holder if the direction is breached, such that the Commonwealth should be able to recover (provided there are assets to enforce against) any costs it incurs in having the necessary activities carried out.

At present, there is no legislative requirement to provide security to the Commonwealth and/or other parties in relation to decommissioning liability.

There has, however, been a push for such a requirement in recent years. In late 2019, the Northern Oil and Gas Australia Pty Ltd group of companies went into voluntary administration and subsequently, liquidation.  One of the companies in the group, Timor Sea Oil & Gas Australia Pty Ltd was the petroleum Titleholder for the Laminaria and Corallina oil fields and owned the Northern Endeavour facility.  In June 2020, the “Review of the Circumstances that led to the Administration of the NOGA Group of Companies” was delivered. One of its recommendations was that Titleholders should be required to provide financial surety for their decommissioning liabilities should the National Offshore Petroleum Titles Administrator (NOPTA) and Joint Authorities 12  have concerns that the Titleholder may not be in a position to meet such costs, and that such sureties should be in a form that would be available to the Government in the case of the Titleholder going into liquidation. 13

This recommendation has not yet been implemented.  The OPGGS Act requires petroleum Titleholders to “maintain”, at all times while the title is in force, financial assurance sufficient to meet the costs and expense of certain matters such as complying with obligations under the OPGGS Act (including decommissioning) but there is no present obligation for the Titleholder(s) to provide any form of security to the Commonwealth. 14

In relation to greenhouse gas titles, the conditions of a title may include a condition requiring certain insurances to be obtained against certain matters, but this does not require security to be provided. 15

The form of financial assurance for a petroleum title that a Titleholder maintains would usually take the form as expressed in the OPGGS Act which includes (without limitation): 16

• insurance;
• self-insurance;
• a bond;
• the deposit of an amount as security with a financial institution;
• an indemnity or other surety;
• a letter of credit from a financial institution;
• a mortgage.

If insurance is required as a condition for a greenhouse gas title, then such security should be provided but the legislation does not otherwise specify the form of financial assurance to be maintained in relation to greenhouse gas titles. 17

As set out at 2.1 (above), former Titleholders are subject to the trailing liability provisions of the OPGGS Act and may receive remedial directions. Further, the change of control provisions in Chapter 5A of the OPGGS Act requires a person who begins to control, or ceases to control, a registered holder of more than 20 per cent interest in a title to obtain approval from the NOPTA of the change in control. 18

These measures, which commenced by amendments to the OPGGS Act from March 2022 mean that decommissioning liability cannot be avoided by an asset and/or corporate sale process.

As set out in response to Paragraph 2.2 above, the decommissioning failures relating to the Northern Endeavour facility have been a hot topic in recent years.  This resulted in the “Review of the Circumstances that led to the Administration of the NOGA Group of Companies” and led to amendments to the OPGGS Act, including the inclusion of trailing liability provisions. 

In order to recover the costs incurred by the Commonwealth of decommissioning and remediating the Laminaria and Corallina oil fields and associated infrastructure, the Commonwealth passed the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Act 2022 (Cth) to impose a temporary levy on offshore petroleum production.  This levy applies to registered holders of petroleum production licenses under the OPGGS Act for each 12-month period from 1 July 2021 to 1 July 2029, although the levy may be terminated once the Commonwealth has recovered its costs.

The legislative framework requires decommissioning to be performed in a safe and environmentally responsible manner. For example, an environment plan required by the Offshore Petroleum and Greenhouse Gas Storage (Environment) Regulations 2023 (Cth) requires certain criteria to be followed, but these do not include any criteria relating to a connection between decommissioning and low carbon energy projects.  While there is no express obligation relating to repurposing oil and gas infrastructure for alternative renewable energy projects, there have been some calls for the regulatory framework to be adapted to facilitate such repurposing.