Further petroleum amendments to commence to implement Northern Territory Fracking Inquiry recommendations

Introduction

Following the finalisation of the Scientific Inquiry into Hydraulic Fracturing in the Northern Territory, chaired by Justice Rachel Pepper, and the release of the Final Report, the Northern Territory Government promised to implement each of the Inquiry's 135 recommendations prior to granting any production approvals for unconventional gas in the Territory. On 12 October 2022, the Petroleum Legislation Amendment Act 2022 (PLA Act) was passed and seeks to satisfy the final 13 of the Inquiry's 135 recommendations. After receiving assent on 16 December 2022, the Act will commence imminently and makes significant changes to the:

• Petroleum Act 1984 (NT);
• Petroleum Regulations 2020 (NT);
• Petroleum (Environment) Regulations 2016 (NT); and
• Environmental Offences and Penalties Regulations 2011 (NT).

The PLA Act constitutes the third suite of Inquiry-related amendments to the Petroleum Act which was part of the NT Government's third (and final) stage of its original Implementation Plan. The NT Government has now handed down the Final Implementation Report which explains how the Government has successfully implemented all of the Inquiry's recommendations over the last 4 years.

On 19 March 2019, the Petroleum Legislation Amendment Act 2019 (NT) was passed which made the first suite of amendments to the Petroleum Act to give effect to a number of recommendations. These amendments provided for open standing for the review of decisions and determinations through judicial review and the consideration of whether a person or entity is deemed appropriate to hold a permit or licence under the Petroleum Act, ensured the enforceability of relevant codes of practice and gave effect to the Petroleum (Environment) Regulations (NT).

On 20 March 2020, the Petroleum Legislation Miscellaneous Amendments Act 2020 (NT) was passed to make the second suite of amendments, which we have previously discussed. To recap, these amendments included new regulations relating to land access agreements, compensation to land owners/occupiers payable by certain interest holders and environmental security bonds. Further amendments required the Minister to consult publicly when inviting applications for the grant of an exploration permit and to consider and apply principles of ecologically sustainable development when determining an application to grant or renew an exploration permit or production licence. Further amendments were made in relation to set back rules for petroleum operations and interference with authorised activities that were being conducted under a petroleum title. That interference would be held liable to prosecution.

The significant changes introduced by the PLA Act are outlined below.

Human health and environmental risk

The Final Report's recommendation 10.1 recommends that formal site or regional-specific human health risk assessment (HHRA) reports be prepared and approved by the regulator prior to the grant of any production approvals. Any HHRA report must address the potential human exposures and health risks associated with the exploration for, and the production of, any shale gas development, off-site transport, and the decommissioning of wells, as recommended in the national Chemical Risk Assessment Guidance Manuals. Any HHRA report must also include a risk estimate assessment for exposure pathways that are deemed to be incomplete.

The PLA Act seeks to address concerns surrounding the effect that flow-back and water produced from fracturing activities will have on Territory water supplies by amending the Petroleum (Environment) Regulations 2016 to require that:

• a HHRA form part of any report about produced water or flowback fluid; and
• any HHRA must take into account specific national guidelines and guidance manuals including the Chemical Risk Assessment Guidance Manuals.

To complement recommendation 10.1, recommendation 7.4 recommends that the Government develop specific guidelines for human health and environmental risk assessments for all onshore shale gas developments consistent with the national chemicals risk assessment framework, including the national guidance manual for human and environmental risk assessment for chemicals associated with coal seam gas extraction. To meet recommendation 7.4, the PLA Act amends the Regulations to allow national guidance materials to be adopted in the Petroleum (Environment) Regulations 2016 (NT) relating to HHRAs.

Production requirements and resource management activities

The PLA Act contains amendments which establish the following new plans, which (depending upon the relevant operations) must be approved by the Minister prior to conducting any relevant activities. These plans are designed to ensure that onshore petroleum resources are managed appropriately for the benefit of the Territory, by securing the integrity of wells and surface infrastructure and pursuing suitable production strategies:

Well operations management plan: prepared by a title holder that demonstrates to the Minister that well activities will be appropriately managed over the entire life cycle of the well, including in relation to drilling, well construction, operation, re-entry, modification, decommissioning and the post-decommissioning period, to ensure that the risks to the integrity of the well are reduced to as low as is reasonably practicable.

Field management plan: prepared by a licensee for a production licence, that demonstrates to the Minister that the licensee has a strategic plan for the life cycle of the field that will provide for the maximum economic recovery of petroleum, and will return the optimal value of the resource, including the optimal value to the Territory, after taking into account good oilfield practice and any other relevant factor under this Act.

Petroleum surface infrastructure plan: prepared by a licensee for a production licence, that demonstrates to the Minister that petroleum surface infrastructure on the licence area will be appropriately designed, built, operated and decommissioned to ensure that petroleum recovered under the licence will be appropriately managed from the point of extraction at the wellhead to the point of removal from the licence area in order to secure supply and to return the optimal value of the resource, including the optimal value to the Territory, after taking into account good oilfield practice and any other relevant factor under this Act.

A permittee or licensee who proposes to commence any well-related operations under the permit or licence must first submit for approval a well operations management plan. In the case of a production licence, a field management plan and a petroleum surface infrastructure plan, must also be submitted. A plan must be submitted in the approved form, include the prescribed information, and be accompanied by the prescribed fee.

The PLA Act establishes new offences which are triggered in circumstances where a permittee or licensee undertakes an activity that is not covered by a plan or where a permittee or licensee is the holder of a plan but its conduct contravenes the relevant plan.

Financial assurance framework

The operation of a new Part VC of the Petroleum Act provides a financial assurance framework that introduces mandatory environmental remediation and petroleum infrastructure decommissioning securities as well as mandatory insurance requirements for certain petroleum interests. The Minister may determine the form of security required in particular cases after taking into account any direction of the Treasurer about acceptable or appropriate securities and examples of appropriate securities include a cash bond posted to the Territory Government and held in trust, a bank guarantee, or a surety bond or insurance bond.

Under the PLA Act, the Minister administering the EP Act will determine the appropriate security or securities upon its decision to approve an environment management plan. An interest holder must not commence activities under an approved environment management plan without providing security in accordance with such a determination being made.

Appraisal petroleum

Appraisal is the phase of petroleum operations immediately following successful exploratory drilling. Historically, petroleum recovered from an exploration permit or retention licence (appraisal gas) could not be legally used or sold which effectively resulted in interest holders being forced to flare or vent appraisal gas, which had negative impacts on the environment.

The PLA Act includes a number of new and amended provisions which allow a permittee or retention licensee to apply to recover petroleum on an appraisal basis under their petroleum interest. The Minister must not approve an application unless satisfied that:

• a discovery of petroleum has occurred on the permit area or retention licence area; and
• extended well testing is required to determine whether the reservoir is commercially exploitable; and
• petroleum recovered during extended well testing would be flared or vented if the approval were not to be granted.

Any approval is subject to conditions specified by the Minister. Further, the Minister may cancel an approval if the permittee or licensee did not comply with a condition of the approval or has been issued with a notice by the Minister to show cause as to why the permittee should not apply for a production licence in relation to a commercially exploitable accumulation of petroleum occurring in an exploration permit or a retention licence area.

Other amendments at a glance

At a glance, other amendments to the Petroleum Act include provisions which provide:

• that an interest holder can only apply to surrender a title subject to compliance with all relevant aspects of petroleum legislation including those relating to the remediation and rehabilitation of land;
• that a transfer of interest in a petroleum interest has no effect unless it is approved by the Minister and the Minister must be satisfied that the proposed transferee is an appropriate person;
• that the Minister may, on giving notice to an interest, vary conditions of a petroleum interest if the Minister believes on reasonable grounds that:
  • the interest holder has contravened or failed to comply with this Act or a direction or notice issued under this Act; or
  • the interest holder has contravened or failed to comply with a condition of a petroleum interest; or
  • the action is reasonably necessary to protect any aspect of the environment or any person, property or infrastructure.
• a permittee or licensee is responsible for continuously assessing and, where necessary, acting to ensure that the integrity of petroleum infrastructure is not compromised and that it is a strict liability offence if a permittee or licensee fails to take reasonable steps to control any hazard or risk that might compromise the integrity of a well or surface infrastructure.
• broadens the application of the offence that a person shall not explore for or engage in operations for the recovery of petroleum unless the person does so under and/or in accordance with an exploration permit, retention licence or production licence.
• in relation to continuing offences, increases the maximum daily penalty rate to one-tenth of the maximum penalty for the offence which is intended to act as an incentive to take the necessary action to discontinue the conduct that constitutes the offence, rather than absorb the penalty as an operating cost.
• clarifies the operation of the directors' liability provision under the Petroleum Act which applies to certain offences against the Petroleum Act including that an executive officer of a body corporate may be considered to have committed offence including in circumstances were the body corporate has not been charged with the relevant offence.
• fives new offences that apply when a person engages in conduct that is authorised under the Act and the conduct results in a level of environmental harm.

Cost recovery of Government services

The PLA Act proposes to redirect liability for costs which currently burden the Government to private entities by imposing two new non-refundable levies and revised and new fees.

Non-refundable levies

The two new non-refundable levies include a monitoring and compliance levy and an orphan well levy. The levies are payable each financial year to the Territory and Minister, respectively, and will be imposed from the beginning of the financial year commencing 1 July 2023.

The monitoring and compliance levy covers some activities that were previously undertaken at Government expense, such as:

• monitoring activities to ensure that they are consistent with approvals, conditions attached to petroleum interests, plans approved and other requirements under the Petroleum Act; and
• compliance and enforcement activities undertaken by the CEO, the Environment CEO, public sector employees in an Agency involved in the administration of the Petroleum Act, and inspectors.

All permittees and licensees are liable to pay a monitoring and compliance levy. This levy is calculated and imposed in relation to activities specified by regulation and approved to be carried on under the Petroleum Act during each financial year.

An orphan well levy has been imposed to provide funding for the purposes of, in broad terms, maintaining and monitoring orphan wells.

The orphan well levy is payable each financial year and is calculated by reference to the number blocks held by an interest holder at the beginning of that financial year and the rate specified in the Petroleum Act or prescribed by regulation.

Revised and new fees

The PLA Act inserts new and amended schedules into the Regulations which impose new and revised fees on interest holders. Some of the fees payable under Schedule 1 of the Regulations have been increased by three times the previous amount.

Schedule 1 to the Regulations is amended to impose:

• Increased fees for an application for a grant, renewal or to vary a condition of an exploration permit, retention licence or production licence; a grant of access authority; and approval of a transfer of an interest.
• A decreased fee for an application for approval by the Minister of an instrument relating to an interest in an exploration permit.
• New fees payable for an application to approve recovery of petroleum on an appraisal basis; a transfer of interest in an application for a petroleum interest; a change in control of a corporation holding a permit or licence; and a new fee payable for registration of variation of access agreement by order of the Tribunal.

A new Schedule 1A to the Regulations imposes new fees for applications for the approval of a well operations, field management or a petroleum surface infrastructure plan; and approval of a revised field management or petroleum surface infrastructure plan.

A new Schedule 1B to the Regulations imposes a new method for the calculation of the fee for applications for the approval and revision of an environment management plan required under the Petroleum (Environment) Regulations 2016.

It is important to note that the Petroleum Act has been amended to remove a title holder's right to reduce a royalty payable under a production licence in a year by the amount of the annual fee paid for that licence in relation to that year.