New Zealand upstream decommissioning bill becomes law

Market: Crude oil, Natural gas
03/12/21

Upstream operators of oil and gas fields in New Zealand will now be required by law to carry out and fund the decommissioning of projects at the end of their productive life, after legislation was given Royal assent this week, said New Zealand energy and resources minister Megan Woods.

The passage of the Crown Minerals (Decommissioning and Other Matters) Amendment bill, which was first introduced to parliament in June will mitigate the risk to the New Zealand government and taxpayer of having to fund decommissioning if a permit or licence holder is unable to do so, Woods said in a statement.

"The amendments to the Crown Minerals Act 1991 address a fundamental gap in the legislation to provide greater protection in respect to decommissioning obligations," the minister said.

The New Zealand government has introduced legislation that includes new provisions to mitigate a risk to the government and other third parties of having to carry out and fund decommissioning, instead of the upstream sector. All upstream exploration permits contain a plan to decommission infrastructure associated with field development.

The legislation includes financial and criminal penalties for upstream firms and their executives for failing to meet this obligation, the New Zealand government said.

The bill also requires permit holders to be 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, the explanatory memorandum to the legislation said.

Petroleum exploration and production activities in New Zealand are regulated by the Crown Minerals Act 1991. Production activities are undertaken through a mining permit issued by the government that entitles the permit holder to undertake exploration and extraction activities under an approved work programme. Under the previous petroleum programme, there was an obligation for each permit holder to properly decommission production facilities and abandon wells, but not a binding requirement.

The New Zealand government in November 2018 banned further offshore upstream exploration permits and restricted onshore permits to the Taranaki region, located on the west coast of the North Island. The offshore ban is part of New Zealand's plan to be carbon neutral by 2050.

The legislative change in New Zealand aim to avoid some of the issues facing the upstream sector in Australia, where the industry is at loggerheads with the Australian government over its plans to impose a levy for the decommissioning of infrastructure for just one upstream project. The Australian government introduced the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) bill 2021 into the lower house of parliament in October, which has not passed neither house of the Australian parliament so far.

Canberra has no plans yet on funding for the decommissioning of upstream infrastructure for all depleted oil and gas fields.

By Kevin Morrison

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