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2002
THE PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
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.
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.