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Petroleum (Submerged Lands) Amendment Bill 2002

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2002

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

PETROLEUM (SUBMERGED LANDS) AMENDMENT BILL 2002

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Circulated by the authority of the

Minister for Industry, Tourism and Resources,

the Hon Ian Macfarlane MP)

 

 



PETROLEUM (SUBMERGED LANDS) AMENDMENT BILL 2002

 

GENERAL OUTLINE

 

The proposed amendments in this Bill to the Petroleum (Submerged Lands) Act 1967 (the Act) will implement recommendations from the review of the Act and its incorporated legislation against competition policy principles. The review was conducted as part of a national review of legislation (Commonwealth, State and Northern Territory) governing exploration and development of the offshore petroleum resources.

 

The review accorded with commitments given in the Competition Principles Agreement, which was signed at the Council of Australian Governments meeting in April 1995.  Under that agreement all governments agreed to remove restrictions on competition on an ongoing basis unless those restrictions could be shown to be in the public interest and of benefit to the overall community.  The terms of reference for the review of the offshore petroleum legislation also required regard to be had to the importance of reducing compliance costs on business, where feasible.

 

The review concluded that the nation’s offshore petroleum legislation is free of significant anti-competitive elements which would impose net costs on the community.  To the extent that there are restrictions on competition embodied in the legislation (for example in relation to safety, the environment or the manner in which resources are managed) these were considered appropriate given the net benefits they provide to the community as a whole.

 

There was, however, one element of the current legislation where the review concluded that scope existed to enhance competition.  This related to the period for which the holder of an exploration permit could retain the permit. The current provision is that the holder of an exploration permit awarded at this time can hold the permit for anywhere between  6 years (if there is no renewal ) to a theoretical maximum of 46 years (or slightly longer if extension provisions are applied), assuming the permit area is the maximum size and every available renewal is applied for and granted.  The review concluded that, in the interests of making exploration acreage available to subsequent explorers more quickly,

a limit should be placed on the number of times an exploration permittee can renew the title.  This Bill proposes that, in the future, exploration permits will be able to be renewed no more than twice.  The change will be prospective and will not apply to permits awarded before 1 January 2003.

 

On one other element of the current legislation, the review concluded that scope existed to reduce potential compliance costs for industry.  This related to the number of times the holder of a retention lease could be asked to review the commerciality of a discovery held under that retention lease.  Currently the holder of a retention lease can be asked to review the commerciality of a discovery twice within the lease’s 5 year term.  This was considered excessive given that a review every 2½ years on average (each lease renewal and once in between) should enable the titleholder to assess factors material to whether a discovery remains, for the time being, uncommercial, and to demonstrate this to the regulator.

 

FINANCIAL IMPACT STATEMENT

 

There will be no impact on government expenditure. However, there is a theoretical saving to industry because the holders of retention leases would be liable to carry out a smaller number of re-evaluations of the commerciality of their lease.



NOTES ON INDIVIDUAL CLAUSES

 

Clause 1 - Short title

 

This clause enables the Act that will come into effect if this Bill is passed to be called the Petroleum (Submerged Lands) Amendment Act 2002.

 

Clause 2 - Commencement

 

This clause provides that the Act comes into force on Royal Assent. Nevertheless, the new provisions set out in item 3 of Schedule 1 have been drafted so that they will have no impact on petroleum explorers until 1 January 2003.

 

Clause 3 - Schedule(s)

 

This clause indicates that one Act in all is to be amended by this Bill, ie the Petroleum (Submerged Lands) Act 1967, and the amendments are as set out in Schedule 1.

 

SCHEDULE 1 - AMENDMENT OF THE PETROLEUM (SUBMERGED LANDS) ACT 1967

 

Item 1 - Subsection 30(1)

 

Subsection 30(1) states: “Subject to subsection (1A) and to section 31, a permittee may, from time to time, make an application to the Designated Authority for the renewal by the Joint Authority of the permit in respect of such of the blocks the subject of the permit as are specified in the application.”

 

Subsection (1A) sets out the limitation on renewals that applies to a permit granted under section 22B by way of cash bidding, ie they are not necessarily renewable, but if they are, no more than one renewal may be granted. Permits of this type have not been awarded for some time, as current policy is to award permits only under section 22, ie on the basis of the proposed work program. Section 31 sets out the halving rule, by which, at each renewal of any permit, the permittee must relinquish half the blocks (ie discrete 5 minute by 5 minute areas that make up petroleum tenements) held under the expiring permit except where the number of blocks is reduced to 6 or less, when a modified version of the rule applies.

 

This item inserts in subsection 30(1) a mention of the proposed new section 31A to make clear that the number of renewals for which a permittee may apply may be restricted also by section 31A.

 

Item 2 - At the end of section 31

 

Prior to the amendments made to the Act under the Petroleum (Submerged Lands) Legislation Amendment Act (No. 1) 2000, the Joint Authority had a discretion to give the applicant a larger permit area than the halving rule (summarised under item 1) would otherwise allow. This discretion applied only when the number of blocks in the permit area had been, or was to be, reduced to 16 or less. The Amendment Act largely revoked this discretion. However, the Amendment Act included a saving provision such that, if a permit was in force when the amendment came into effect, the permittee could benefit from this discretion for one more renewal. This item inserts a note drawing attention to the saving provision, which does not figure in this part of the Act but appears in the Notes at the end of the Act.

 

Item 3 - After section 31

 

This item adds the proposed new section 31A to make any permit granted under section 22 or 27 renewable no more than twice. The provision is prospective, ie it can apply only to permits granted for the first time on or after 1 January 2003. With one type of exception, explained below, this means that a permit granted on or after 1 January 2003 could be held for the initial term of 6 years plus two renewal terms of 5 years each (if approved), making a total of 16 years, subject to the possibility of extension under some circumstances. This compares with the current provisions, whereby the holding of a permit for 46 years, or even longer, is theoretically possible (although uncommon).

 

A permit granted under section 22 is a permit granted on the basis of the proposed work program. All permits granted in recent years have been of this type. A permit under section 27 is able to be granted if a block or blocks known to contain petroleum have been freed from coverage by a production licence, retention lease or exploration permit, for example as the result of a surrender or cancellation. In that case the Joint Authority may gazette the blocks under section 23 of the Act (though this is not current policy), and thereby require applicants to make a cash bid as well as specifying a work program. (This is different from a cash bid permit issued under section 22B [see below], where no work program is required.) However, it is not mandatory for the Joint Authority to make use of a section 27 permit to reissue freed blocks to a new operator. Current policy is to issue a new section 22 permit over such blocks in the same way as over any other block.

 

The timetable for granting section 22 permits follows an annual pattern. The main release of exploration acreage that may be bid for occurs around March-April through gazettal under section 20. A reissue normally occurs in November-December of blocks in that release that have not been bid for, or successfully bid for, by any operator. Publicity material has been distributed about the 2002 release indicating that the existing renewal provisions will apply to any permit granted over any block included in the 2002 release gazetted in April, which will probably be regazetted in part late in the year. To honour this public commitment by the Commonwealth, paragraph 31A(1)(a)(ii) has been inserted in this item. This means that, if acreage released by gazettal under section 20 before 1 January 2003 is successfully bid for but the actual grant of the permit occurs after 1 January 2003, the two renewal limit will not apply to that permit, nor to any permit granted earlier than 1 January 2003.

 

However, in 2002, there has been no release of any block inviting applications for a section 27 permit over it. As a matter of policy, it is not proposed that any such release occur in the near future and certainly not before 1 January 2003. No provision equivalent to paragraph 31A(1)(a)(ii) is therefore required in respect of section 27 permits.

 

This item does not mention permits granted under section 22B by way of cash bidding. This is because the status quo applying to them is that they are not necessarily renewable at all, but if they are, no more than one renewal may be granted. There is no proposal to change the status quo in relation to these permits.

 

Item 4 - Subsection 38H(4)

 

Subsection 38H(3) of the Act provides, in part, that a lease shall be deemed to contain “a condition that the lessee will, within the period of 3 months after the receipt of a written notice from the Designated Authority requesting the lessee to do so, or within such further period as the Designated Authority, on application in writing served on the Designated Authority before the end of the first-mentioned period, allows, re-evaluate the commercial viability of petroleum production in the lease area (otherwise than by the drilling of wells) and inform the Designated Authority in writing of the results of the re-evaluation.”

 

Subsection 38H(4) states: “Where a lessee has complied with 2 notices of the kind referred to in paragraph (3)(b) during the term of the lease, the Designated Authority shall not give to the lessee during that term a further notice of that kind.”

 

This item changes the latter subsection to provide that, during the term of a lease, the Designated Authority may give no more than one notice requiring a re-evaluation.

 

Item 5 - Transitional - section 38H of the Petroleum (Submerged Lands) Act 1967

 

This item addresses the hypothetical situation where, during the term of a lease, a second notice requiring a re-evaluation has been issued to a lessee and, before these amendments come into effect, the lessee has not yet complied with that second notice. This item provides that, in that situation, the lessee is not required to comply with the second notice.