House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Resources and Northern Australia,Senator the Honourable Matthew Canavan)

Outline

The purpose of the Offshore Petroleum and Greenhouse Gas Storage Amendment (Petroleum Pools and Other Measures) Bill 2016 (the Bill) is to amend the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (the OPGGS Act) to:

•

ensure the ongoing validity of apportionment agreements, where it becomes apparent that an agreement relates to an area which contains multiple petroleum pools, rather than a single discrete pool; and

•

ensure legislative support for regulations that provide for refunds and remittals of environment plan (EP) levies and safety case levies.

Apportionment agreements

The Bill responds to a limitation that has been identified in section 54 of the OPGGS Act, which provides for apportionment of petroleum between Commonwealth and State or Territory jurisdictions. Section 54 applies where a petroleum pool straddles a jurisdictional boundary, and the relevant Commonwealth and State titles on both sides of the boundary are held by the same titleholder. The provision enables the proportion of petroleum that is taken to be recovered on either side of the boundary to be determined by agreement between the titleholder, the Joint Authority and the responsible State Minister.

The purpose of the apportionment is to provide certainty for the titleholder and government parties, into the future, as to the revenue regimes that will apply to the petroleum once it is recovered. In the case of a titleholder whose resource straddles a Commonwealth-State boundary, an up-front apportionment between jurisdictional revenue regimes (Commonwealth petroleum resource rent tax and State royalty) may be a key factor in the titleholder's commercial decision whether to commit to further investment in the project at that point in time.

Currently, section 54 of the OPGGS Act contemplates that an apportionment agreement relates to a single discrete pool that straddles a boundary. However, this assumes there is a greater level of knowledge about the particular pool than is often available at the early stages of a project, which is when section 54 agreements are negotiated. If it subsequently becomes apparent that the area specified in the apportionment agreement contains multiple petroleum pools, as may be the case when fuller technical information is obtained as the resource is developed, the apportionment agreement would fail. This would negate the revenue certainty for both Commonwealth and State governments as well as commercial certainty for the titleholder. Yet the number of pools involved is not necessarily of significance. What is important is that an area of potential migration of petroleum across a boundary is the subject of an agreed apportionment.

The amendments in this Bill will expand section 54 of the OPGGS Act to ensure the ongoing validity of apportionment agreements if it becomes apparent that an agreement relates to an area which contains multiple petroleum pools, rather than a single pool. The amendments also enable the making of a section 54 agreement about a specified part of the seabed that

contains a common pool, but where connectivity between jurisdictions is not necessarily confined to the pool. The amendments in this Bill are intended to provide greater flexibility to the development of, and ongoing certainty to the life of, an apportionment agreement, in order to support investment decisions.

The amendment will apply equally to existing and future agreements.

Refunds and remittals of EP levies

The regulatory functions of the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) are funded on a fully cost-recovered basis through fees and levies collected from the offshore petroleum and greenhouse gas storage industries. For the purpose of cost-recovering NOPSEMA's environmental management regulatory functions, the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Act 2003 (the Levies Act) imposes an EP levy on the submission of an EP (or a revision of an EP) in respect of particular activities authorised by Commonwealth petroleum titles.

The Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Regulations 2004 (the Levies Regulations) set out matters required to enable the full and effective collection of EP levies, including regulations setting out the amount of levy imposed and when the levy is due and payable. The Levies Regulations include provision for remittal or refund of an amount of an EP levy (the 'compliance amount') in circumstances where:

a)

NOPSEMA refuses to accept an EP or revision of an EP;

b)

an EP is withdrawn by the titleholder; or

c)

NOPSEMA accepts a revision of an EP, and one or more instalments of the compliance amount in respect of the original plan are not yet due.

The policy intent of a remittal or refund in the first two circumstances is that titleholders should only be required to pay the compliance amount of an EP levy if they are undertaking an activity in relation to which NOPSEMA undertakes environmental management regulation. The intent of a remittal in the third circumstance is that a titleholder should not be required to pay instalments of the compliance amount of an EP levy in respect of both an original EP and a revision that supplants that original EP, in relation to the same activity.

The amendments in this Bill are necessary to ensure there is a clear regulation-making power to support the regulation that provides for the refund and remittal of an amount of an EP levy. Retrospective commencement of the amendments will ensure the validity of refunds of amounts of EP levies previously made to titleholders in accordance with the Levies Regulations.

Refunds and remittals of safety case levies

The Levies Act imposes safety case levies for each offshore petroleum facility in respect of which a safety case is in force under the Offshore Petroleum and Greenhouse Gas Storage (Safety) Regulations 2009. Subsections 687(1) and (2) of the OPGGS Act provide for the 'remittal' of a safety case levy in prescribed circumstances. The Levies Regulations establish the machinery (pursuant to subsections 687(1) and (2) of the OPGGS Act) for the 'remittal' of amounts of a safety case levy.

There is some uncertainty whether 'remittal' in these provisions has the narrow meaning of refraining from exacting a charge or fee, or also encompasses the notion of giving back an amount that has already been paid (i.e. refunding). This is significant because NOPSEMA relies on the Levies Regulations to authorise refunds by the Commonwealth of safety case levies. The practice of refunding reflects Australian Government policy with relation to cost recovery, in that industry participants should not be charged for regulatory services that they do not receive. NOPSEMA may not have all of the information necessary to determine the amount of safety case levy that is actually payable in respect of a facility that operates on an intermittent basis until a provisional amount of levy has already been paid by the facility operator in accordance with regulatory timeframes.

To ensure regulatory clarity and certainty, the Bill will amend the OPGGS Act to make it clear that regulations can provide for the remittal (in the narrow sense) and refund of safety case levies.