Crown Minerals (Decommissioning and Other Matters) Amendment Bill

Crown Minerals (Decommissioning and Other Matters) Amendment Bill

Government Bill

47—1

Explanatory note

General policy statement

Decommissioning is the process of taking petroleum infrastructure and wells out of service, which may include removing the infrastructure, plugging and abandoning wells, and undertaking necessary site restoration activities.

New Zealand’s petroleum sector is maturing and an increasing number of petroleum fields are nearing the end of their economic lives and will soon require decommissioning. The costs of decommissioning activities are substantial and the environmental effects and health and safety risks of failing to decommission can be significant.

In the event of a petroleum company’s financial default, there is a risk that the Crown or other third parties will have to carry out and fund decommissioning.

The Crown Minerals Act 1991 (CMA) does not currently explicitly provide for petroleum permit and licence holders’ decommissioning responsibilities, the length of time for which they are responsible, and the consequences for failing to carry out decommissioning. Existing requirements for decommissioning under the CMA have largely evolved on a case-by-case basis, and are defined in individual permit conditions. Reliance on permit conditions to establish legal and financial responsibility for decommissioning means that the requirements may not necessarily be worded and applied consistently across permit and licence holders and time.

In June 2020, the Government announced proposals to strengthen the petroleum sector’s financial and legal responsibility for decommissioning activities, as part of Tranche Two of the Review of the Crown Minerals Act 1991. In April 2021, Cabinet approved additional proposals to further strengthen the provisions.

This Bill introduces a number of new provisions to mitigate the risk to the Crown and other third parties of having to carry out and fund decommissioning.

These new provisions include—

  • introducing an explicit statutory obligation for all current and future petroleum permit and licence holders to carry out decommissioning activities in accordance with relevant requirements set under other legislation, standard-setting processes, or consents, or, if those requirements do not exist, ensure all wells are plugged and abandoned, and infrastructure is completely removed. The obligation will require all current and future petroleum permit and licence holders to meet the full financial costs of the decommissioning activities; and

  • introducing a civil pecuniary penalty and criminal penalty for failing to meet this obligation. The criminal offence will run in parallel with the civil regime and is reserved for the most egregious breaches where the party “knowingly” breached the decommissioning obligation. Penalties reflect the high level of public interest in permit and licence holders fulfilling their explicit duty to decommission given the potential for significant environmental and health and safety harm of failing to decommission, and the substantial cost to the Crown or third parties, or both, if left to pay for and carry out decommissioning, particularly for offshore fields; and

  • holding permit and licence holders liable for meeting the costs of decommissioning even if they transfer out of a permit, in the event that the new permit holder fails to carry out and fund decommissioning. This is designed to incentivise permit and licence holders to carry out sufficient due diligence to ensure the transferee has financial capacity to carry out and fund decommissioning; and

  • empowering the Minister to carry out more effective monitoring of a permit or licence holder’s financial position and plans for field development on a regular basis, and to carry out assessments of a permit or licence holder’s financial capability to complete decommissioning when needed; and

  • requiring permit and licence holders to establish and maintain adequate financial security for the purposes of funding and carrying out decommissioning activities, to minimise the risk of decommissioning liabilities being transferred to the Crown or third parties or both; and

  • requiring permit on licence holders to make payments towards the cost of any post-decommissioning work. This includes activities carried out in relation to the remediation of wells that have been plugged and abandoned, or any infrastructure left in place after decommissioning has been completed. The financial responsibility for this work could otherwise be left in full to the Crown or third parties, or both.

The provisions in the Bill will apply equally to holders of petroleum permits under the CMA and holders of licences granted under the Petroleum Act 1937.

The Bill also includes changes that are not specific to decommissioning and will apply across the whole of the CMA. These include—

  • amending the permit acquisition provisions (sections 29A, 41, 41AE, and 41C) to require the decision-maker to have a higher level of confidence that the proposed permit holder will comply with the work programmes or permit conditions, health and safety and environmental requirements, and obligations relating to fees and royalties. In a recent High Court decision Greymouth Gas Turangi Ltd v Minister of Energy and Resources [2020] NZHC 2712, the High Court interpreted “likely” in the context of ascertaining whether an applicant is “likely” to comply with and give proper effect to the proposed work programme (section 29A(2)(b)) as an “outcome that is reasonably in prospect, that being an outcome that is a distinct possibility”. The intent of these amendments is to shift the threshold higher than set by the court in the Greymouth judgment, to a level of confidence that is broadly midway between “more likely than not” and “certainty”. The intent is that the threshold is set so that the Minister can exercise greater control over who receives a permit, but not so high as to practically prevent the grant of all permits. This is intended to reduce the likelihood of persons that do not have sufficient technical and financial capability, or that have a poor history of compliance, being awarded a permit; and

  • providing the chief executive or an enforcement officer with the power to impose enforceable undertakings and issue compliance notices and infringement notices. This expands the regulator’s existing toolbox and provides effective and proportionate responses to potential breaches across the whole of the CMA; and

  • making amendments to improve the administration of the CMA, including—

    • creating a new offence and penalty for non-permit holders who do not provide information as required under the CMA; and

    • clarifying the scope of existing record-keeping requirements; and

    • enabling the proactive release of reports once the relevant non-disclosure periods have passed to improve transparency; and

    • removing the requirement for annual reassessments of the tier status of mineral permits, which currently places a disproportionate administrative burden on the regulator for a relatively low-risk activity; and

    • reclassifying all minerals prospecting permits as Tier 2 permits to improve administrative efficiency.

Departmental disclosure statement

The Ministry of Business, Innovation, and Employment is required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 provides for when the Bill comes into force. Clauses 1 to 17 and 18 to 27 and Schedules 1 and 2 of the Bill come into force on the day after the date of Royal assent. Clause 15 also comes into force on the day after the date of Royal assent, to the extent that it relates to new sections 89A to 89ZC, 89ZE to 89ZK, and 89ZV to 89ZZU. The rest of the Bill comes into force on 1 or more dates set by Order in Council. However, if any provision of the Bill is not brought into force earlier, it comes into force 24 months after the date of Royal assent. The reason for the commencement of certain provisions by Order in Council is that administrative systems will need to be put in place and regulations made in order to give effect to the new provisions of the principal Act dealing with decommissioning of petroleum infrastructure and wells and post-decommissioning requirements. It is not possible at this point in time to identify when all these necessary steps will be completed.

Clause 3 provides that the Crown Minerals Act 1991 is the principal Act.

Part 1Amendments to Part 1

Clause 4 amends section 2 (which relates to Interpretation) by inserting definitions of decommissioning and petroleum infrastructure, replacing the definition of participating interest, and making other consequential amendments.

Clause 5 amends section 2B to provide that all prospecting permits that relate to minerals (other than petroleum) are Tier 2 permits.

Clause 6 amends section 2C to remove the requirement that the Minister must reassess the tier status of certain permits each year. The affected permits are those specified in section 2C(1).

Clause 7 amends section 5 to update the functions of the Minister in light of changes made by the Bill.

Part 2Amendments to other Parts of principal Act

Clause 8 amends section 29A, which describes the process for dealing with applications for permits. The amendment requires the Minister to be satisfied that compliance with certain conditions is “highly likely”.

Clause 9 consequentially amends section 32 to take account of the new provisions relating to decommissioning inserted by later provisions in the Bill.

Clauses 10 to 12 amend sections 41, 41AE, and 41C, which relate to transferring all or part of a participating interest in a permit, obtaining consent for the change of control of a corporate body that is a Tier 1 permit operator, and obtaining consent for a change of permit operator respectively. The amendments require the Minister to be satisfied that compliance with certain conditions is “highly likely”.

Clause 13 consequentially amends section 41D to take account of the new provisions relating to decommissioning inserted by later provisions in the Bill.

Clause 14 inserts a new subpart 1 heading in Part 1B after the Part 1B heading.

Clause 15 inserts a new cross-heading above section 42.

Clause 16 inserts new sections 42B and 42C to require a holder of a petroleum mining permit or licence to submit field development plans to the chief executive, and to notify the chief executive of when they expect the field to permanently cease production.

Clause 17 inserts new subparts 2 to 5 into Part 1B.

New subpart 2 deals with the decommissioning of petroleum infrastructure and wells.

New section 89A deals with the application of new subpart 2. The subpart applies to—

  • a permit holder:

  • any person who applies for a permit before the commencement of new section 89A if that application has not been determined on commencement:

  • the holder of a licence granted under the Petroleum Act 1937:

  • a person who transfers a permit or licence or all or part of a participating interest in a permit or licence on or after commencement, and a person to whom the permit or licence or all or part of a participating interest is transferred.

New section 89B describes the relationship between the requirements in new subpart 2 and other enactments.

New section 89C describes the relationship between the requirements of new sections 42B and 42C, new subpart 2, and existing conditions in permits or licences.

New section 89D defines the terms commencement, licence, permit, petroleum infrastructure, plugging and abandonment (in relation to a well), and well.

New section 89E defines the term decommissioning and sets out some default rules about what is required when petroleum infrastructure is decommissioned, and allowing certain objects to be left on site when petroleum infrastructure or a well is decommissioned.

New section 89F defines the term petroleum infrastructure.

New section 89G sets out the powers of the Minister to set conditions relating to decommissioning petroleum infrastructure or a well on existing permit or licence holders, or when granting a new permit or on consenting to the transfer of a licence or a participating interest in a permit or licence.

New section 89H sets out criteria that must be considered by the Minister for setting time frames for decommissioning as a condition of a permit or licence. There are different criteria to be applied in relation to petroleum infrastructure or a well.

New section 89I defines the term relevant older petroleum infrastructure and new section 89J defines the term relevant older well. These 2 definitions are important because they define the liability of permit and licence holders to decommission petroleum infrastructure or wells put in place or drilled under the authority of previous permits or licences.

Decommissioning obligations for petroleum infrastructure

New section 89K sets out the core rules governing the obligations of permit holders, transferors, and transferees to decommission petroleum infrastructure. Permit holders must carry out, and meet the costs of, the decommissioning of—

  • all petroleum infrastructure put in place for the purposes of carrying out, or otherwise related to, activities authorised by the current permit (whenever granted) and relevant older petroleum infrastructure; and

  • all relevant older petroleum infrastructure.

A person who transfers all or part of a participating interest in a permit granted before, on, or after commencement, but before decommissioning is completed, must meet the costs of decommissioning all petroleum infrastructure—

  • put in place for the purposes of carrying out, or otherwise related to, activities authorised by the current permit; and

  • that is in place when consent to the transfer of that interest is given under section 41 of the Act.

New section 89L sets out obligations that are very similar to those in new section 89K, but in respect of holders of licences granted under the Petroleum Act 1937, and transferors and transferees of participating interests in those licences.

New section 89M sets out further obligations on transferors and transferees of participating interests in permits or licences when those transfers are made on or after the commencement of new section 89M.

It provides that the transferor continues to be liable for decommissioning costs after the transfer. If the transferee fails to enter into a required financial security, then—

  • the transfer is void, and the transferor continues to be liable to meet the costs of decommissioning; and

  • the transferor must be treated as continuing to be the holder of the licence or participating interest in the permit or licence that was the subject of the transfer.

New section 89N provides, in essence, that transferors are only liable to meet decommissioning costs if or to the extent that those costs are not met by permit holders or licence holders.

New section 89O specifies when the obligations of persons liable to carry out decommissioning or meet costs, or both, under new section 89K, 89L, or 89M, arise. Those obligations must be met by the earliest of—

  • the expiry or surrender of the current permit or licence:

  • any date or time or within any period specified by the Minister in conditions attached to the current permit or licence.

If a permit or licence is revoked, the person who held the permit or licence before it was revoked must carry out their decommissioning obligations under new subpart 2

  • within 2 years after being given notice of the revocation; or

  • by a time agreed with the Minister.

New section 89P sets out rules about joint and several liability where a permit holder, former permit holder, licence holder, or former licence holder is 2 or more persons.

Plugging and abandonment of wells

New section 89Q describes what the plugging and abandonment of wells involves.

Decommissioning obligations in relation to wells

New sections 89R to 89W set out very similar rules about liability for plugging and abandoning wells as are set out in relation to the decommissioning of petroleum infrastructure under new sections 89K to 89P.

Exemptions and deferrals

New section 89X empowers the Minister to exempt a particular permit holder or licence holder from the requirement to decommission a particular thing that is petroleum infrastructure or to plug and abandon a well. Alternatively, the Minister may defer the time for complying with that obligation. Class exemptions or deferrals may be made by regulations made under section 105.

New section 89Y sets out the criteria for granting an exemption under new section 89X. In summary, the Minister must be satisfied that the requirements are unreasonable or inappropriate in the particular case or that events have occurred that make the requirements unreasonable or inappropriate in the particular case.

New section 89Z sets out the criteria for granting a deferral under new section 89X. In summary, the Minister must be satisfied that it is appropriate in the circumstances to defer the requirement to a later date in the particular case.

Information gathering

New section 89ZA sets out the Minister’s power to monitor the financial position of persons liable to carry out and meet the costs of decommissioning. Information gathered for monitoring purposes may be used to inform the Minister’s decision as to whether to carry out a financial capability assessment under new section 89ZB.

New sections 89ZB and 89ZC set out the Minister’s power to assess the financial capability of persons liable to carry out and meet the costs of decommissioning. New section 89ZC requires those persons to provide the information necessary to enable the assessment.

New section 89ZD requires those same persons to provide an asset register that is a complete and accurate list of the petroleum infrastructure and wells they must decommission.

Financial securities

New section 89ZE requires a permit holder or a licence holder to obtain and maintain 1 or more financial securities to secure, or secure in part, the performance of their obligations under new subpart 2. The process begins by the Minister issuing a notice to the relevant permit holder or licence holder indicating the time by which the financial security must be obtained and asking the permit or licence holder for their views on the kind of security that should be obtained and the amount to be secured. The Minister then has regard to the matters set out in new section 89ZF (including any criteria set out in the regulations) and then decides on the kind of security that must be obtained and the amount to be secured (see section 89ZG). A notice must be sent by the Minister to the licence holder or permit holder setting out the kind of financial security to be obtained, the amount to be secured, and the time by which the security must be obtained.

New section 89ZH provides for the alteration of amounts required to be secured or the kind of security required by the Minister.

New section 89ZI requires the Minister to notify changes to the required kind of financial security or the amount to be secured, and new section 89ZJ gives the affected permit holder or licence holder a right of objection to both the original and any subsequent decision by the Minister.

New section 89ZK gives the objector a right to be heard and requires the Minister to determine the objection within a reasonable time.

New section 89ZL deals with the application of new subpart 3. The subpart applies to each permit holder and licence holder, but only in relation to—

  • petroleum infrastructure that was decommissioned on or after the commencement of this section:

  • a well that was plugged and abandoned on or after the commencement of this section.

New section 89ZM explains the relationship between this subpart and other enactments or conditions of permits or licences.

New section 89ZN defines terms used in this subpart, frequently by reference to their defined meaning in new subpart 2. An important new term is post-decommissioning work, which means activities carried out in relation to the remediation of—

  • petroleum infrastructure that has been decommissioned but not removed:

  • a well that has been plugged and abandoned.

New section 89ZO sets out the obligations of any permit holder or licence holder who is obliged under new subpart 2 to carry out and meet the costs of decommissioning. Those persons must also pay an amount to the chief executive to meet the costs of post-decommissioning work on petroleum infrastructure and wells decommissioned earlier under new subpart 2.

New section 89ZP requires the Minister to set the amount the permit holder or licence holder is liable to pay under new section 89ZO.

New section 89ZQ requires the Minister to direct that a payment be made either in 1 lump sum or by instalments. It also provides that the regulations may prescribe criteria to guide the Minister in making their decision, and provides for related matters such as notice.

New section 89ZR sets out other duties of the chief executive.

New section 89ZS sets out other duties of the Minister.

Exemptions

New section 89ZT empowers the Minister to exempt a permit holder or a licence holder from the obligation to pay all or part of the amount set by the Minister as a post-decommissioning payment. Class exemptions may be made by regulations made under section 105.

New section 89ZU sets out the criteria the Minister must apply before granting an exemption. The Minister must be satisfied that the (payment) requirement is unreasonable or inappropriate in the particular case or that events have occurred that make the requirement unnecessary or inappropriate in the particular case.

New section 89ZV provides that the provisions of new subpart 4 apply in relation to the contravention or alleged contravention of the principal Act or the regulations.

New sections 89ZW to 89ZZC provide for the giving, acceptance, and enforcement of enforceable undertakings. These provisions are based on comparable provisions in the Health and Safety at Work Act 2015.

New section 89ZW enables the chief executive or an enforcement officer to accept an enforceable undertaking from a person in connection with a matter in relation to a contravention or alleged contravention of the Act or the regulations.

New section 89ZX requires the chief executive to give notice of a decision to accept or not accept an enforceable undertaking and to provide reasons for that decision.

New section 89ZY specifies when an undertaking becomes enforceable.

New section 89ZZ prohibits the contravention of an enforceable undertaking and makes such contravention an offence punishable on conviction by a fine not exceeding $200,000.

New section 89ZZA empowers the chief executive or an enforcement officer to apply to the District Court for one of 2 orders if a person contravenes an enforceable undertaking (an order directing the person to comply with the undertaking or an order discharging the undertaking). The court may order the person to pay the department responsible for administering the principal Act the costs of the proceedings and the reasonable costs of monitoring the persons ongoing compliance with the enforceable undertaking in the future.

New section 89ZZB provides for the withdrawal or variation of an enforceable undertaking.

New section 89ZZC prohibits the taking of civil or criminal proceedings in respect of a contravention or alleged contravention of the principal Act or the regulations while an enforceable undertaking is in force.

Compliance notices

New section 89ZZD enables the chief executive or an enforcement officer who reasonably believes that a person is contravening, or is likely to contravene, the principal Act or the regulations to issue a compliance order in circumstances where 1 or more of the criteria in new section 89ZZD(3) are satisfied. The compliance order may require the person to—

  • remedy the contravention; or

  • prevent a likely contravention from occurring; or

  • remedy the things or activities causing the contravention or likely to cause a contravention.

New section 89ZZE sets out the required contents of compliance notices.

New section 89ZZF requires a person to whom a compliance notice is issued to comply with it within the period specified in the notice. Contravention of that requirement is an offence punishable on conviction by a fine not exceeding $200,000. A person charged with this offence has a defence if they prove that they had a reasonable excuse for not complying with the notice within the period specified in the notice.

New section 89ZZG enables the chief executive or an enforcement officer to extend the compliance period for the compliance notice.

General provisions

New section 89ZZH sets out general provisions relating to compliance notices.

New section 89ZZI enables the chief executive or a compliance officer to make certain minor changes to a compliance notice.

New section 89ZZJ enables the chief executive or an enforcement officer to vary or cancel a compliance notice.

New section 89ZZK provides that formal irregularities or defects do not invalidate a compliance notice.

New section 89ZZL sets out formal rules about how a person must be given notice of a compliance order.

Civil proceedings for non-compliance with compliance notices

New section 89ZZM enables the chief executive or an enforcement officer to bring civil proceedings in the District Court seeking an order—

  • compelling a person to comply with a compliance notice; or

  • restraining a person from contravening a compliance notice.

Pecuniary penalties and criminal liability

New sections 89ZZN sets out defences to proceedings for pecuniary penalties under new section 89ZZO. There is a defence if—

  • the breach was due to a reasonable mistake or due to events outside of the person’s control; and

  • the breach was remedied (to the extent that it could be remedied) as soon as practicable after the breach was discovered by the person or brought to the person’s notice; and

  • the person has compensated or offered to compensate any person who has suffered loss or damage by that breach.

New section 89ZZO sets out a pecuniary penalty regime for contravention of new sections 89K, 89L, 89R, 89S, and 89ZE, and for the taking of related actions, The maximum penalty that may be imposed by the court is—

  • in the case of an individual, $500,000; or

  • in the case of a body corporate, $10,000,000.

New section 89ZZP deals with the standard of proof in proceedings for a pecuniary penalty (which is the standard of proof that applies in civil proceedings).

New section 89ZZQ creates a criminal offence in relation to a person who is liable for carrying out or meeting the costs (or both) of the decommissioning of petroleum infrastructure or wells. If a body corporate commits an offence under new section 89ZZQ, a person who was a director of that body corporate at the specified times also commits an offence.

New section 89ZZR creates a defence to criminal liability for directors.

Relationship between pecuniary penalties and criminal liability

New section 89ZZS sets out rules about the relationship between pecuniary penalties and criminal liability.

Restrictions on indemnities and insurance

New section 89ZZT prohibits bodies corporate from indemnifying directors, employees, and agents, or persons who formerly held those positions, from pecuniary penalties or costs.

New section 89ZZU similarly prohibits contracts of insurance that indemnify persons from pecuniary penalties or related costs.

Clause 18 inserts a new subpart 5 heading in Part 1B, before section 90.

Records and reports

Clause 19 amends section 90, which relates to the records and reports that a permit holder must keep. First, the amendment extends the types of activities the records and reports must cover to include decommissioning activities, and provides some examples of the records and reports that must be kept. Second, the amendment allows the chief executive to publish information supplied under section 90 after the relevant non-disclosure period has expired. Third, the amendment extends the application of new section 90(11) to financial records, including information gathered for the purposes of carrying out a financial capability assessment under new section 89ZB. Despite anything to the contrary in section 90, the chief executive does not have to send or make available any records, reports, information, or returns protected under new section 90(11).

Clause 20 amends section 90A, which specifies conditions that relevant decision-makers must satisfy when disclosing certain information. The amendment extends the application of section 90A to cover new sections 89ZA, 89ZC, 89ZE, 89ZF, 89ZR, and 89ZS, which relate to information provided for the purposes of monitoring a person’s financial position and to enable the Minister to carry out a financial capability assessment of that person.

Clause 21 amends section 99C to allow enforcement officers to apply for search warrants to enter structures and ships as well as places and vehicles.

Offences

Clause 22 amends section 100 (which deals with offences). A new offence relating to the failure to provide certain information is created. Also, section 100 is amended to provide for a limitation period for bringing proceedings for offences in relation to enforceable undertakings.

Clause 23 amends section 101A (which relates to interpretation).

Clause 24 inserts new sections 104A to 104J into the Act. These provisions are largely machinery provisions necessary for the establishment of an infringement offence regime under new section 104A. An infringement offence means an offence against the Act or an offence prescribed as an infringement offence in the regulations. However, because of their serious nature, offences against new section 89ZZQ (which relates to a failure to carry out certain obligations) and section 100(3)and (3A) (which require proof of intention or knowledge) cannot be infringement offences.

Under new section 104J, the maximum infringement fee for an offence is prescribed in the regulations but cannot exceed $3,000 in the case of a body corporate or $1,000 in the case of an individual.

Regulations

Clause 25 makes extensive amendments to section 105 (which deals with regulations) primarily in order to make provision for new regulations to be made in relation to matters required to be prescribed for the purposes of new subparts 2 to 5 of Part 1B.

Savings and transitional provisions

Clause 26 and Schedule 1 insert a new Part 4 into Schedule 1 of the principal Act, which prescribes savings and transitional provisions in relation to this Bill.

Clause 27 and Schedule 2 consequentially amend other Acts.