12/11/2021·5 mins to read

Statutory decommissioning obligations for the petroleum industry a step closer

The Crown Minerals (Decommissioning and Other Matters) Amendment Bill (Bill) will establish a regime for the decommissioning of petroleum exploration, mining and processing infrastructure when it is no longer required.

The Bill has now been reported back from Select Committee. Some changes have been made that are likely to be welcomed by the petroleum industry, but some controversial provisions have been retained. We explain more below.

The problem the Bill seeks to solve

The Bill was introduced in June as a response to the Government having to step in to decommission the Tui oil field when the field operator, Tamarind Taranaki, went into administration and then liquidation. The Bill adds to the Crown Minerals Act 1991 a statutory obligation on petroleum permit holders to carry out and fund the decommissioning of petroleum exploration, mining and processing infrastructure when no longer required.

The Bill is significant because the decommissioning regime it ultimately creates may become a model for statutory decommissioning obligations for other industries with significant environmental footprints.

Select Committee balanced things up a little

The changes to the Bill recommended by the Select Committee mean the decommissioning regime is more balanced, but still with significant and long term responsibilities on owners and operators (including mandatory financial security, trailing liability for former permit holders and their directors, and a post-decommissioning fund). Petroleum industry interests are still likely to consider the Bill to be legislative over-reach, and its layering of several measures to address the decommissioning problem (such as it is) to be out of step with equivalent regimes in other jurisdictions.

We have outlined below the main changes to the Bill recommended by the Select Committee that will be particularly welcomed by the petroleum industry, despite some of the more controversial measures that have been retained.

  • Removal of petroleum infrastructure: Not all petroleum infrastructure now needs to be completely removed as part of decommissioning. Regulations may allow some infrastructure to stay, for example if removing it would do more environmental harm than good. Also, the definition of petroleum infrastructure has been narrowed to exclude distribution and transmission infrastructure.

However, the right to leave petroleum infrastructure in place with the landowner’s approval has been removed due to concerns the provision could be gamed by permit holders.

  • Minister’s power to impose conditions unilaterally: The Minister’s power to impose decommissioning conditions on a permit without the permit holder’s consent has been narrowed. The Minister can no longer do this at any time - only when there is a transfer, a change of control, or a determination of financial security or decommissioning timetable.

  • Trailing liability: The Bill creates “trailing liability” in the sense that the liability for decommissioning can “trail back” to previous permit holders. The trailing liability clauses have been amended to introduce an order of priority if the current permit holder does not meet the costs of decommissioning the relevant petroleum infrastructure. In that case the most recent transferor to the current permit holder is liable, failing which the second most recent transferor is liable, and so on.

  • Agreed decommissioning timetable: A mechanism for the permit holder to agree with the Minister a bespoke decommissioning timetable, based on when production from the permit ends, has been added. This change augments the default position where decommissioning has to be completed by the permit expiry or surrender date at the latest. The Minister has been given a new power to extend the term of a permit if required to enable decommissioning activities to be completed.

  • Financial security requirements: The requirement that the financial security provided by a permit holder be sufficient to meet all or a determined proportion of the costs of decommissioning has been removed. The Minister will instead determine the amount taking into account criteria in the Act and Regulations, including “the circumstances of the particular permit holder”.

  • Director criminal liability: Director criminal liability for a permit holder’s failure to fulfil decommissioning obligations now only applies to directors of the current permit holder and not directors of former permit holders. However, directors of former permit holders are still exposed to civil pecuniary penalties.

The changes to the Bill are not all good news for the petroleum industry.

For example, the Select Committee has introduced a requirement for decommissioning completion reports and increased the maximum civil pecuniary penalty for corporates (previously just $10m, now the greater of $10m, three times commercial gain, and 10 percent of group turnover).

Where to from here?

The Bill is now back in the House for its second reading, and half-way down Parliament’s Order Paper. When the Bill was introduced the Government said it anticipated the Bill would be passed by the end of this year, but as there are only 12 scheduled sitting days left that now seems unlikely.

In its submission to the Select Committee, Energy Resources Aotearoa questioned the need to rush the legislation through given it was not aware of any fields due to be decommissioned in the near term.

Get in touch

To discuss what the Bill may mean for you or your organisation, please don’t hesitate to contact one of our experts (pictured right).