A raft of regualtory changes has kept operators nimble on their feet and working hard to stay in front.
The 2014 year can best be described as “steady as the ship goes”. After the flurry of activity during 2012 and 2013 with legislative changes and capability reviews of some key regulatory agencies, 2014 was characterised by the bedding down of new legislation and operators coming to grips with what is now required of them.
Bedding in regulatory changes
While it is beyond the scope of this article to go through all of the changes, some of the key issues operators have addressed include:
- Various petroleum permits rolling off the pre-existing Minerals Programmes and onto the more onerous Minerals Programme for Petroleum 2013;
- Seeking to rely on the new non-interference zones for offshore operations in order to prevent interference with seismic and drilling operations by issue-motivated groups;
- Dealing with their obligations under the transitional provisions for planned petroleum activities up until the middle of the year, including the preparation of and compliance with Environmental Impact Assessments;
- Interacting with the Environmental Protection Authority (EPA) to ensure existing established offshore facilities comply with the transitional provisions, including seeking rulings from the EPA where appropriate;
- Operators undertaking new drilling and activities out past the end of the June 2014 transition period seeking marine consents for those activities from the EPA;
- Reviewing existing health and safety policies and procedures in light of the requirements in the Health and Safety in Employment (Petroleum Production and Extraction) Regulations 2013, and the upcoming significant changes to the Health and Safety in Employment Act 1992; and
- Preparation of safety cases for onshore production facilities and drilling rigs in advance of December 2014.
These matters are just the tip of the iceberg of what has confronted operators during 2014. Many have had to be quite nimble and work hard to stay ahead of the regulatory changes.
Looking forward to 2015, the experiences to date with the marine consenting process for offshore operations should assist future operators who are seeking to apply for non-notified marine consents. However, as the decision on Trans-Tasman Resources’ application to mine the seabed off the Taranaki coast shows, these approvals should not be taken for granted and petroleum operators will need to be well prepared and careful in how they approach applications and hearings.
One of the concerns that had been floating around before the first of the annual Block Offers was that the abolition of the “Priority in Time” allocation system would mean exploration acreage would not be available on a sufficiently timely basis and this would stifle some Government and industry exploration efforts.
This change to the petroleum permit allocation system was taken at the time to ensure that under-capitalised and under-resourced industry participants had less ability to secure acreage, sit on it for as long as they could, and then eventually farm it out in the pre-drill stage.
It is fair to say the concerns about stifling exploration activity have not come to fruition. The Block Offers process, now into its third year, seems to have run relatively seamlessly.
It is fair to say the concerns about stifling exploration activity have not come to fruition. The Block Offers process, now into its third year, seems to have run relatively seamlessly. Key features of the process have been:
- they have been held annually, and no deadlines have been missed;
- the assessment of bids has been done relatively quickly, over a two to three month period;
- each year a substantial amount of acreage has been made available for bid (although not necessarily awarded);
- specific legislative amendments to address the concerns of smaller operators seeking to undertake seismic activities (and not necessary drilling operations);
- it remains possible to extend the geographic area of permits where a discovery crosses a permit boundary through means other than the Block Offer process (thereby aiding investment certainty);
- each year, in advance of each Block Offer invitation to bid, NZPM has gone out and sought nominations from industry as to the acreage they would like to see included in the upcoming Block Offer; and
- perhaps most importantly, the Block Offer process has resulted in several new entrant companies investing in New Zealand, and renewed interest from several existing industry participants.
Perhaps the only hiccup was in the first Block Offer round when the awarded permits commenced immediately upon award – effectively meaning offshore operators lost the first summer window in their permit terms. That issue has now been corrected, with permits commencing in April of the year following the award.
It is likely that 2015 will involve a continuation of the opportunities and challenges that have been presented in 2014.
With the re-election of the current Government, and the generally supportive stance taken by the main opposition parties during the 2014 election in respect of E&P activity, it seems as if the New Zealand E&P sector can look forward to a reasonably stable regulatory and operating environment over the short to medium term.
At the time of writing, the results of the 2014 Block Offer were not known. It is likely we can expect a good level of interest in the blocks offered by the Crown – which is a positive sign for the medium and long term future of the sector here.
The other aspect of this is that most operators, including the new entrant operators, are becoming increasingly sophisticated in dealing with the so called “licence to operate” issues. It seems that some of the lessons learned from the unhappy Petrobras experience have been taken to heart by operators, and there is now a greater understanding (both in a company specific and pan-industry sense) of the need for meaningful stakeholder engagement and management.
While some companies do this better than others, the fact of the matter is that the importance of social licence issues and broader community acceptance of E&P activities is, and will remain (together with the changing HSE landscape), at the forefront of collective industry attention.