Bills Digest no.
23, 2016–17
PDF version [711KB]
Dr Alex St John
Science, Technology, Environment and Resources Section
11
October 2016
Contents
Purpose and structure of the Bill
Background
Australia’s offshore petroleum
jurisdiction
The Browse Basin
Figure 1: Oil resources in Australia
Committee consideration
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human
Rights
Key issues and provisions
Apportionment agreement
Other provisions
Regulatory levies
Refund of safety case levy
Environment plan levy
Date introduced: 15
September 2016
House: House of
Representatives
Portfolio: Industry,
Innovation and Science
Commencement: Schedules
1 and 2 commence on the day after Royal Assent, except for Schedule 2, Part
2, Division 1, which retrospectively commences on 7 December 2011.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at October 2016.
Purpose and
structure of the Bill
The main 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 (OPGGS
Act) to:
- clarify
apportionment arrangements relating to certain petroleum deposits that straddle
state and Commonwealth jurisdictions (Schedule 1)[1]
- ensure
the capacity of the National Offshore Petroleum Safety and Environmental
Management Authority (NOPSEMA) to refund fees paid to it where necessary (Schedule
2).[2]
Background
This Bill makes technical amendments to the regulation of
offshore petroleum development in Australia.
Australia’s
offshore petroleum jurisdiction
Australia is endowed with significant deposits of petroleum
(oil and gas) lying beneath the sea floor. Oil and gas has been found off the
coast of Victoria, the Northern Territory and north-west Western Australia. Oil
and gas underlying the sea floor is subject to three separate regulatory
regimes:
- internal
waters are waters within the
constitutional limits of a state, and subject to the exclusive regulatory
jurisdiction of that state. Normally, the limits of a state are the low-water
mark, although in some cases the internal waters of a state include waters in
bays that are closed across their mouth (such as parts of the Gulf St Vincent
in South Australia), or by connecting a series of islands (as in north-west
Western Australia)
- coastal
waters are waters three nautical miles (5.56 kilometres) to seaward of the
territorial sea baseline, and also waters to shoreward of the territorial sea
baseline that are not within the limits of the states. Under the terms of the
1979 Offshore Constitutional Settlement, these coastal waters fall within the
jurisdiction of the states or the Northern Territory
- Commonwealth
waters extend from three nautical miles seaward of the territorial sea
baseline to the limits of Australia’s continental shelf. These waters are
regulated by the Commonwealth and the adjacent state in Joint Authority,
although the Commonwealth has the final say in these waters. [3]
These separate jurisdictions are covered by different
legislation – in Commonwealth water, the OPGGS Act applies; in coastal
waters, the respective state’s coastal waters legislation applies; and internal
waters are covered by the respective state’s own petroleum legislation (which
may include both onshore and offshore petroleum activity).[4]
The situation can become particularly complicated when
petroleum activity straddles different jurisdictions, as occurs off north-west
Western Australia, where no fewer than four separate regulatory regimes
apply. For offshore petroleum in the Commonwealth jurisdiction, the OPGGS
Act applies; in coastal waters, the Petroleum (Submerged Lands) Act 1982
(WA) applies; in waters landward of the territorial sea baseline, the Petroleum
and Geothermal Energy Resources Act 1967 (WA) applies, and on Barrow Island
the Petroleum Act 1936 (WA) applies. This
map demonstrates this complex arrangement.[5]
In addition, the movement of petroleum towards drill sites and wells that are
extracting petroleum from a pool (that is, petroleum moves towards pressure
depletion points within the pool[6])
is another complicating factor when determining how to apportion specific
production to a particular jurisdiction.
The Browse
Basin
The north-west coast of Western
Australia is endowed with large petroleum resources, principally in the Browse,
Bonaparte and Carnarvon Basins – see figure 1.
Figure 1: Oil resources in Australia
Source: Geoscience Australia.[7]
Although oil and gas in the
Browse Basin has been known since the discovery of the massive Torosa gas field
in 1971, development has been inhibited by the relative isolation of the area
and the depth of the water.[8]
Attention was instead focussed on the North-West Shelf projects in the
Carnarvon Basin. However, in recent years the development of resources in the
Browse Basin has begun. The Icthys field is being developed by the Japanese
company INPEX, with gas and condensate to be piped over 800 kilometres from the
Browse Basin to Darwin for processing.[9]
Australian oil company Woodside has also been developing its interests in the
Browse Basin, with a view to developing three fields, including the Torosa
field.[10]
Most of the oil and gas for
Woodside’s proposed development underlies Commonwealth waters, however, the
Torosa gas field lies in part under Scott Reef. Scott Reef is an
uninhabited reef lying some 275 kilometres distant from the main coastline of
Western Australia, but as the reef is a part of Western Australia, the part of
the Torosa field that underlies the reef (and up to three nautical miles
seaward) is subject to Western Australian coastal waters jurisdiction.[11]
The development of the Browse Basin
has long been a source of tension between the Western Australian Government,
the Commonwealth and Woodside. It has been the wish of the Western Australian
Government that Woodside’s development of its Browse Basin interests should
include a land-based processing facility at James Price Point, whereas Woodside
previously dropped the idea of an on-shore facility in favour of a floating gas
processing and liquefaction facility. The Premier of Western Australia, Colin
Barnett, has wanted an on-shore facility to promote jobs in Western Australia.[12]
In early 2014, Geoscience
Australia found that additional areas in the vicinity of Scott Reef were not
submerged at mean low water, having the effect of enlarging the area around
Scott Reef that is under Western Australian jurisdiction. This placed a larger
portion of the resources of the Torosa field under the jurisdiction of Western
Australia.[13]
In July 2015, the Commonwealth
Minister for Industry and Science and the Western Australian Minister for Mines
and Petroleum, made an agreement for apportionment of the Torosa field,
specifying that the Commonwealth would be allocated 34.6 per cent of the petroleum
in the pool, and Western Australia would be allocated 65.4 per cent.[14]
The other two fields in the proposed Woodside development, Calliance and
Brecknock, wholly underlie Commonwealth waters.[15]
In his second reading speech, the Minister for Environment and Energy, Josh
Frydenberg, suggested that the certainty provided by the apportionment
agreement allowed Woodside to move its development of the Browse field along to
a front-end engineering and design study (FEED).[16]
In March 2016, Woodside decided
to defer its Browse development indefinitely, citing low prices and high costs.[17]
Committee
consideration
At the time of writing, the Bill had not been referred for
committee consideration.
Policy
position of non-government parties/independents
At the time of writing, non-government parties had not
publicly expressed a position on the Bill or its underlying issues.
Position of
major interest groups
At the time of writing, there had been no public
discussion of the issues canvassed by the Bill.
Financial
implications
The Bill is not expected to have any significant financial
impact. Although the Bill establishes a special appropriation for the purposes
of providing refunds for regulatory levies paid to the National Offshore
Petroleum Safety and Environmental Management Authority (NOPSEMA) in certain
circumstances, this provides retrospective legal certainty to the current
practice.[18]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[19]
The Parliamentary Joint Committee on Human Rights has not
yet reported on the Bill.
Key issues and provisions
Apportionment
agreement
The OPGGS Act defines a petroleum pool as ‘a
naturally occurring discrete accumulation of petroleum’.[20]
Schedule 1 of the Bill is principally concerned with
giving effect to, and protecting the validity of, apportionment agreements
relating to petroleum pools that straddle state and Commonwealth petroleum
jurisdictions.
Item 1 of Schedule 1 inserts proposed subsections
54(1A)–54(1G) into the OPGGS Act. Currently section 54 of the
OPGGS Act provides that if a petroleum pool is partly inside the area of
the Commonwealth and partly inside the area of a state, and petroleum is
recovered from that pool, then the proportion of the resource that is
attributed to the Commonwealth and the state will be determined by agreement
between the titleholder, the responsible state Minister and the Joint Authority
(where the Commonwealth has the final say).[21]
If an agreement cannot be reached, the allocation can be determined by the
Federal Court or the relevant state Supreme Court, on application by one of the
parties.
Proposed subsections 54(1A)–54(1D) specify
that if, after the time of making such an agreement, it becomes clear that the
petroleum actually exists in two or more pools, then petroleum from all of
those pools will be apportioned according to the original agreement, based on
the state of knowledge at the time of making the agreement.
Proposed subsections 54(1E)–54(1G) provide an
alternate form of making an agreement, in the circumstances that the geographic
extent of the petroleum pool or pools is not known, although it is known that
the pool or pools straddle state and Commonwealth jurisdiction. Under this
form, an agreement will specify a geographic area straddling state and
Commonwealth jurisdiction that is presumed to contain a petroleum pool. If
petroleum is subsequently recovered from within this specified area, it will be
apportioned as set out in the agreement, as long as the apportionment would be
consistent with the nature and probable extent of the petroleum in the
specified area.
The net effect of these amendments is to preserve the
validity of apportionment agreements in the event that petroleum pools covered
by the agreements are subsequently discovered to be different from first
thought, or have changed in nature or extent since an apportionment agreement
was made. However, parties are not required to take up these new arrangements. For
new subsections 54(1A) or 54(1E) to apply, the agreement must contain the
specific terms required under proposed paragraphs 54(1A)(b) or
54(1E)(f) (the apportionment provisions). If these terms are
not included, subsection 54(1) of the OPGGS Act will continue to apply.
The Commonwealth imposes a profit-based tax, the Petroleum
Resource Rent Tax (PRRT), on certain petroleum projects. Section 3 of the Petroleum
Resource Rent Tax Assessment Act 1987 provides that, for the purposes of
the PRRT, petroleum from a petroleum pool is taken to be recovered from
different jurisdictional areas according to any apportionment agreement made
under the OPGGS Act.[22]
Items 2 and 3 of Schedule 1 make minor consequential amendments to section
3 of the Petroleum Resource Rent Tax Assessment Act, to ensure that apportionment
agreements under proposed subsection 54(1E) of the OPGGS Act, which are
based on specified parts of the seabed, are also recognised as authoritative
under the Petroleum Resource Rent Tax Assessment Act.
Item 4 provides that the amendments will apply to
both existing and future apportionment agreements.
Other provisions
Regulatory levies
Part 6.9 of the OPGGS Act establishes the National
Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) and
provides for its funding through industry levies.[23]
Such levies include the ‘safety case levy’ and the ‘environment plan levy’. The
levies are imposed by the Offshore Petroleum and Greenhouse Gas Storage
(Regulatory Levies) Act 2003 (the Regulatory Levies Act) and calculated
in accordance with regulations made under that Act.[24]
Refund of
safety case levy
Part 1 of Schedule 2 of the Bill deals
with the ‘safety case levy’, imposed under Part 3 of the Regulatory
Levies Act. Subsections 687(1) and (2) of the OPGGS Act allow
regulations to make provision for the remittal of part of an
amount of safety case levy, in certain circumstances. The Explanatory
Memorandum to the Bill explains that concern has arisen as to what is covered
by remittal:
There is some uncertainty whether ‘remittal’ in [subsections
687(1) and (2)] 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).[25]
The ability to provide refunds of safety case levies is
necessary as NOPSEMA may not have enough information to finally determine the
levy payable until after the facility operator has made a provisional payment.
If the final amount due is less than the provisional levy paid, a refund will be
required.[26]
Items 1 and 2 of Schedule 2 insert
the word ‘refund’ into subsections 687(1) and 687(2) of the OPGGS Act to
clarify that the regulations may provide for remittals or refunds
of an amount of safety case levy to petroleum titleholders where the amount paid
by the titleholder exceeded the final levy amount.
The amendments in Part 1 of Schedule 2 to
the Bill commence on the day after Royal Assent.
Environment
plan levy
Part 1 of Schedule 2 of the Bill deals with
the ‘environment plan levy’, imposed under Part 4D of the Regulatory Levies
Act. Section 688C of the OPGGS Act allows regulations to be
made to specify when the environment plan levy becomes due and payable, and
imposes a late payment penalty if payment is not received by the due date. Section
688C does not currently make any reference to the remittal or refund of
overpaid environment plan levies. Despite this, regulation 59E of the Offshore
Petroleum and Greenhouse Gas Storage (Regulatory Levies) Regulations 2004
allows NOPSEMA to remit or refund an amount of an environmental plan levy in
certain circumstances. The amending regulations that inserted regulation 59E were
made by the Governor-General on 7 December 2011 and commenced on 1 January
2012.[27]
The Explanatory Memorandum explains that NOPSEMA has been remitting and
refunding amounts under regulation 59E since it commenced.[28]
However, given that regulation 59E is not explicitly authorised by a primary
Act, questions may be raised as to its legitimacy. This throws into doubt
payments made under regulation 59E since its commencement.
Item 3 proposes to insert subsection 688C(1A) to
provide a clear power to make regulations to provide for remittals or refunds
of part of the environmental plan levy. This provision will commence
retrospectively from 7 December 2011 (table item 4 at subclause
2(1) of the Bill) to ensure that the Governor-General had the power to make
regulation 59E at that date and that all remittals and refunds made under that
regulation since it commenced are supported.
Item 4 is a savings provision. It will apply if:
- before
the commencement of item 4 (on the day after Royal Assent—see table item 5
at subclause 2(1) of the Bill) a refund in respect of an environmental
plan levy was paid to a person
- that
refund is subsequently found to be invalid as no appropriation existed for such
a purpose and
- the
refund therefore becomes repayable to the Commonwealth.
In these circumstances, the person will be entitled to be
paid an amount that is equal to the amount repayable to the Commonwealth (subitem
4(2)). To avoid a situation where the person would need to pay the amount
and then have that payment refunded, subitem 4(3) provides that the
amount payable by the Commonwealth to the person may be set off against any
amount owed by the person to the Commonwealth. Subitem 4(4) appropriates
the Consolidated Revenue Fund in recognition that the Commonwealth is formally
obliged to pay the person the offset amount, even though, due to the offset
provision, this will not be the outcome in practice. This will ensure that the
requirements spelt out by the High Court in the Williams decisions are
met.[29]
(In those decisions it was held that generally before the Commonwealth could
spend appropriated money, specific legislation—other than an Appropriation Act—authorising
such payments is required).
[1]. Parliament
of Australia, ‘Offshore
Petroleum and Greenhouse Gas Storage Amendment (Petroleum Pools and
Miscellaneous Measures) Bill 2016 homepage, Australian Parliament website, Schedule
1.
[2]. Ibid.,
Schedule 2.
[3]. Attorney-General’s
Department, Offshore
constitutional settlement: a milestone in co-operative federalism,
Australian Government Publishing Service, Canberra, 1980; Department of
Industry, Innovation and Science (DIIS), ‘Offshore
petroleum regulatory regime’, DIIS website.
[4]. For
a more detailed discussion of Australia’s offshore petroleum jurisdiction, see
A St John and J Tomaras, Offshore
Petroleum and Greenhouse Gas Storage Amendment (Miscellaneous Measures) Bill
2014 [and] Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies)
Amendment (Designated Coastal Waters) Bill 2014, Bills digest, 77,
2014–15, Parliamentary Library, Canberra, 2015.
[5]. Western
Australia, Department of Mines and Petroleum (DMP), ‘Petroleum
Act example’, DMP website; Petroleum
(Submerged Lands) Act 1982 (WA); Petroleum
and Geothermal Energy Resources Act 1967 (WA) and Petroleum
Act 1936 (WA).
[6]. J
Chandler, ‘How
are onshore licensing regimes in Australia dealing with the challenges of
petroleum in shale and other tight rocks?’, Australian Resources and
Energy Law Journal, 34(3), December 2015, p. 252.
[7]. Geoscience
Australia (GA), ‘Oil’, Australian
Energy Resource Assessment 2016, GA website.
[8]. DMP,
‘Browse
Basin’, DMP website.
[9]. INPEX,
‘Icthys
in detail’, INPEX website.
[10]. Woodside
Energy Ltd., ‘Developing
Browse’, Woodside Energy Ltd. website.
[11]. See
Australian Government, National Offshore Petroleum Titles Administrator
(NOPTA), ‘Browse
Basin map’, NOPTA website.
[12]. A
Burrell, ‘Premier
favours James Price Point plant over FLNG push: Barnett battles Shell Browse
plan’, The Australian, 12 November 2012, p. 21.
[13]. G
Waters (General Manager National Offshore Petroleum Titles Administrator), ‘Changes
to the offshore coastal waters boundary of Western Australia’, correspondence
to Western Australian Joint Authority, 14 May 2014.
[14]. I
Macfarlane (Minister for Industry and Science) and B Marmion (Minister for
Mines and Petroleum), Browse
FLNG project another step closer, media release, 22 July 2015.
[15]. Australian
Government, NOPTA, Browse Basin map, op. cit.
[16]. J
Frydenberg, ‘Second
reading speech: Offshore Petroleum and Greenhouse Gas Storage Amendment
(Petroleum Pools and Other Measures) Bill 2016’, House of Representatives, Debates,
15 September 2016, pp. 40–41.
[17]. A
O’Connor, S Letts and B Shepherd, ‘Woodside's
Browse Basin LNG project scuttled off Kimberley coast’, ABC News,
(online edition), 23 March 2016.
[18]. Explanatory
Memorandum, Offshore Petroleum and Greenhouse Gas Storage Amendment
(Petroleum Pools and Other Measures) Bill 2016, p. 3.
[19]. The
Statement of Compatibility with Human Rights can be found at page 4 of the
Explanatory Memorandum to the Bill.
[20]. Offshore Petroleum
and Greenhouse Gas Storage Act 2006, section 7.
[21]. Offshore
Petroleum and Greenhouse Gas Storage Act 2006, subsection 54(1). Subsection
59(2) of the OPGGS Act provides that, for decisions of the Joint
Authority, in the case of disagreement between the Commonwealth Minister and
the relevant state or territory Minister, the Commonwealth Minister may decide
the matter and that decision has effect as the Joint Authority’s decision.
[22]. Petroleum Resource
Rent Tax Assessment Act 1987.
[23]. Offshore
Petroleum and Greenhouse Gas Storage Act 2006, section 682.
[24]. Offshore Petroleum
and Greenhouse Gas Storage (Regulatory Levies) Act 2003 and Offshore Petroleum and
Greenhouse Gas Storage (Regulatory Levies) Regulations 2004.
[25]. Explanatory
Memorandum, Offshore Petroleum and Greenhouse Gas Storage Amendment
(Petroleum Pools and Other Measures) Bill 2016, p. 3.
[26]. Ibid.
[27]. Regulation
59E was inserted by the Offshore Petroleum
and Greenhouse Gas Storage (Regulatory Levies) Amendment Regulations 2011 (No.
2).
[28]. Explanatory
Memorandum, Offshore Petroleum and Greenhouse Gas Storage Amendment
(Petroleum Pools and Other Measures) Bill 2016, p. 3.
[29]. Williams
v Commonwealth [No. 1] (2012) 248 CLR 156, [2012]
HCA 23; Williams v Commonwealth [No. 2] (2014) 252 CLR 416, [2014] HCA 23.
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