House of Representatives

Second Reading Speech

Mr Frydenberg (Minister for the Environment and Energy)

I move:

That this bill be now read a second time.

The Offshore Petroleum and Greenhouse Gas Storage Amendment (Petroleum Pools and Other Measures) Bill 2016 contains important measures making amendments to the Offshore Petroleum and Greenhouse Gas Storage Act 2006.

The first measure is in response to a lack of functionality in section 54 of the OPGGS Act, which provides for apportionment of petroleum for revenue purposes between Commonwealth and state/territory jurisdictions. Section 54 applies where a petroleum pool straddles a jurisdictional boundary and the relevant Commonwealth and state titles on either side of the boundary are held by the same titleholder.

Petroleum in the seabed and subsoil tends to migrate towards an area of lower pressure, most commonly a producing well, so once production commences in either the Commonwealth or state/territory jurisdiction, petroleum may move from one jurisdiction into another. Section 54 of the OPGGS Act is intended to ensure that the respective proportions of petroleum in each jurisdiction are determined before any such migration takes place.

Section 54 provides for the proportion of petroleum that is taken to be recovered on each 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 tax and royalty regimes 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.

This was the case with the Browse Joint Venture's decision in 2015 to proceed to the next stage of investment in the Torosa gas field, a very large resource that has the potential to be significant for both the national and Western Australian economies. The apportionment agreement that was negotiated prior to the making of that investment decision cannot come into force until the amendments now proposed are made to section 54 of the OPGGS Act.

Currently section 54 contemplates that an apportionment agreement relates to a single discrete pool that straddles a boundary. However, this assumes that 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. As section 54 currently stands, if it subsequently became apparent that the area specified in the apportionment agreement in fact contained multiple petroleum pools, as may be the case when fuller technical information is obtained during the development of the resource, the apportionment agreement would fail. This would negate revenue certainty for both Commonwealth and state governments and commercial certainty for the titleholder. Yet the number of pools involved is not necessarily of any great significance. What matters 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 therefore expand section 54 to ensure the ongoing validity of apportionment agreements if it becomes apparent that an agreement relates to an area which in fact 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. This will ensure greater certainty and flexibility in relation to the development of an apportionment agreement, to support investment decisions. The amendment will apply equally to existing and future agreements.

While these amendments have been prompted by the need to give legal efficacy to the Torosa agreement, they are not limited to the circumstances of that agreement. In the Torosa case, the apportionment followed a change in the maritime boundary between Commonwealth waters and Western Australian coastal and inshore waters. Similar boundary changes are in progress in other offshore areas. These may also result in blocks containing petroleum deposits becoming wholly or partly located in a different jurisdiction and an apportionment agreement may then be required.

This measure underscores this government's ongoing commitment to investment in the Torosa gas field and the offshore petroleum sector more broadly and to the facilitation of sufficient certainty in relation to apportionment agreements developed in the future.

Australia's upstream petroleum sector is experiencing significant investment through several new LNG projects which have recently commenced production and further projects under construction which are due to come online over the next year or two.

These new projects combined represent around $200 billion in capital investment and will deliver significant economic and employment benefits over their multi-decade lives.

They will see Australia's LNG exports more than triple from 25 million tonnes per annum in 2014-15 to around 75.2 million tonnes per annum in 2020-21, making Australia the world's largest LNG exporter.

Beyond this, intensifying competition, project cost pressures and uncertain market conditions will have implications for further investment in new projects, like the proposed Browse project to which this bill relates.

The Australian government is working with industry on a range of reforms and other measures to ensure the ongoing competitiveness of Australia's oil and gas sector in an increasingly global market.

It is critical that the appropriate legislative and regulatory frameworks are in place. This provides a level of certainty and removes any undue impediments to support the significant and long-lived investments which characterise Australia's oil and gas sector.

This underlines the importance of this bill to future investment.

This bill also makes amendments to ensure there is a clear regulation-making power to support regulations that provide for the refund and remittal of environment plan levies in certain circumstances. The environment plan levy, imposed by the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Act 2003-the levies act-allows cost-recovery of environment related regulatory functions undertaken by the national offshore petroleum regulator, the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA). To ensure effective cost-recovery, as well as fair and equitable application of the levy to titleholders, the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Regulations 2004 provide for the refund and remittal of amounts of the levy in certain circumstances. NOPSEMA has been refunding and remitting amounts of environment plan levies on this basis.

This bill will insert a regulation-making power in the OPGGS Act to ensure there is a clear legal basis for the regulations to provide for the refund and remittal of environment plan levies. Retrospective commencement of the amendments will ensure the validity of refunds of amounts of environment plan levies previously given to titleholders in good faith and in accordance with the levies regulations.

A further amendment made by this bill will clarify that regulations may provide for remittal and refund of safety case levies imposed in relation to offshore petroleum facilities under the levies act. Currently, the relevant regulation-making power in the OPGGS Act refers only to remittal of safety case levies which can potentially be interpreted in a narrow way. This amendment will provide clarity and fully deliver on policy intent of the Australian government that the offshore industry is not paying levies for regulatory services that it is not receiving.

I commend this bill to the House.

Debate adjourned.