Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [and] Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021

Treasury 19 November 2021

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Purpose and Structure of the Bills

The Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 (the Main Bill) introduces a temporary levy on offshore petroleum production to recover the Commonwealth’s costs of decommissioning the Northern Endeavour, the Laminaria and Corallina oil fields and associated infrastructure.

The Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy Bill 2021 (the Treasury Laws Amendment Bill) amends three tax Acts to specify certain administrative features relating to the Laminaria and Corallina cost recovery levy, including the requirement that the levy is payable to the Commissioner of Taxation annually.

The details of the levy and the proposed amendments to the tax Acts are explained in more detail in the ‘Key issues and provisions’ section of this Digest.

Background

Regulation of offshore petroleum production

The regulation of offshore petroleum and greenhouse gas storage in Australian waters is divided between the Commonwealth Government and state and territory governments. According to the Offshore Constitutional Settlement (OCS), the states have responsibility for activities in the zone of ‘coastal waters’ (onshore and as far as three nautical miles seaward of the territorial baseline).[1] The Commonwealth has responsibility for ‘offshore areas’ (those beyond three nautical miles).[2]

The Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act) outlines the legal framework for exploration and recovery of petroleum and GHG activities in Commonwealth waters. There are a number of Regulations made under the OPGGS Act dealing with a range of issues such as levies, safety and the environment.[3] Under this framework, the Australian Government, together with the relevant state and territory governments, administers the offshore regulatory regime through ‘Joint Authority’ arrangements.[4] The Joint Authorities are decision makers under the OPGGS Act and their powers include the release of offshore petroleum exploration areas, variation of title conditions and resource management.[5]

Th OPGGS Act also establishes the National Offshore Petroleum Titles Administrator (NOPTA) and the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA).[6] Under the OPGGS Act, NOPTA is responsible for titles administration and data management functions in relation to offshore petroleum and GHG activities in Commonwealth waters.[7] NOPSEMA has functions relating to occupational health and safety (OHS) of offshore petroleum facilities and GHG storage activities, as well as the structural integrity of facilities, wells and well‑related equipment and environmental management.[8] More information on the arrangements and GHG storage can be found in relevant Bills Digests.[9]

Decommissioning framework

The oil and gas industry has operated in Australia for over 50 years and is continuing to evolve. Decommissioning is a normal part of the project lifecycle. The current decommissioning liability for Australia’s onshore and offshore petroleum industry is estimated at US$49 billion (AU$60 billion) over the next 30-50 years.[10] There is thus a need to ensure that the governing framework remains current, relevant and able to respond to future decommissioning challenges.

The requirements for decommissioning offshore oil and gas projects are predominantly contained in the OPGGS Act and the related Regulations, although some requirements are located in other Commonwealth and state legislation.[11] In order to clarify the application, operation and interaction between those components of the Commonwealth requirements for decommissioning, the Department of Industry, Science, Energy and Resources (DISER) released the Offshore Petroleum Decommissioning Guideline (the Guideline) in January 2018.[12]

As set out by the Guideline, the OPGGS Act outlines the obligation to remove disused property from the title area and what requirements must be met before the Joint Authority will consent to the surrender of a petroleum title. The Regulations detail the approvals that must be sought to decommission infrastructure.[13]

Some of the key provisions in the OPGGS Act include:

removal, maintenance and repair of property
surrender of titles
power to issue remedial directions to current and former titleholders.[14]

In early September 2021 the OPGGS Act was amended by the Offshore Petroleum and Greenhouse Gas Storage Amendment (Titles Administration and other Measures) Act 2021 to strengthen the decommissioning framework.[15] The amendments (among other things):

provide for greater oversight of changes in control of titleholders (such as through a corporate merger, acquisition or liquidation), including penalties for failing to seek approval of changes in control or attempting to avoid liability
expand existing powers to ‘call back’ previous titleholders to decommission infrastructure and remediate the marine environment in the title area where the current or immediate former title holder is unable to do so (known as ‘trailing liability’).[16]

The amendments have not yet commenced. See the Bills Digest for more information on the changes.

Collapse of the NOGA Group of Companies and the Northern Endeavour

The changes to the decommissioning framework were prompted by the collapse of the Northern Oil & Gas Australia Group of Companies (NOGA Group), a review of the circumstances leading to that collapse (the Walker Review),[17] and a review of the decommissioning framework.[18]

Northern Endeavour and the Laminaria-Corallina oil fields

The Northern Endeavour is a Floating Production Storage and Offloading (FPSO) facility. It is permanently moored between the Laminaria and Corallina (LamCor) oil fields. The oil fields are within two Petroleum Production licence areas (AC/L5 and WA-18-L) and are located approximately 550 km northwest of Darwin in the Timor Sea (see Figure 1).[19]

Figure 1. Location of the Northern Endeavour and Laminaria-Corallina oil fields

map showing location of the Northern Endeavour and Laminaria-Corallina oil fields

Source: ‘Activity – Northern Endeavour FPSO’, NOPSEMA.

Brief history of petroleum production in the LamCor oil fields

Woodside Energy Ltd (Woodside) discovered the LamCor oil fields in 1994 and 1995.[20] The original production titleholders were Woodside/Shell/BHP for AC/L5 and BHP for WA-18-L. Production from both fields commenced in November 1999, with Woodside operating the Northern Endeavour FPSO, coupled to wells via subsea infrastructure situated in the AC/L5 area. The LamCor oil fields were originally estimated to contain 317 million standard barrels of oil (MMbbl), and peak production was 180,000 bbl/day. The Northern Endeavour had a storage capacity of 1.4 MMbbl.[21]

By 2015, the titleholder for AC/L5 was a joint venture of Woodside and Talisman Oil & Gas Pty Ltd (Talisman), with Woodside owning and operating the FPSO, and Talisman the sole titleholder of WA-18-L.[22] Production had reduced to around 2 per cent of peak production rates. Woodside determined that there were no further viable exploration opportunities within the AC/L5 licence area and began to plan for the end of field life accordingly.

In July 2015 Woodside commenced the formal decommissioning phase for LamCor, announcing that it was seeking environmental approval from NOPSEMA for its decommissioning proposals.[23]

Northern Oil & Gas Australia Group of Companies

The Northern Oil & Gas Australia Group of Companies (NOGA Group) comprises four entities, a holding company and three subsidiaries. The Group had a sole director, who had previous interests in onshore gas production.[24]

The NOGA Group believed that it could continue commercial production in the Lam-Cor oil fields and on 29 September 2015 entered into the Laminaria-Corallina Sale Agreement (the LamCor Agreement) in which the NOGA Group acquired Woodside and Talisman’s interests in the Northern Endeavour and the LamCor oil fields.[25] While the financial terms of the agreement remain confidential, it has been reported that Woodside paid the NOGA Group US$16.5 million in cash and $5.4 million in services to take over the assets.[26]

Intervention by NOPSEMA and the Government’s response

From shortly after the NOGA Group took control of the Northern Endeavour and LamCor oil fields, NOPSEMA developed concerns about the ability of NOGA, together with Upstream Production Solutions Pty Ltd (UPS) (whom the NOGA Group had contacted to manage the FPSO), to satisfy safety and environmental obligations. These concerns included serious corrosion issues affecting the FPSO. Over the following three years, NOPSEMA issued two Prohibitions Notices, three Improvement Notices, four General Directions and four requests to revise permissioning documents.[27]

On 18 September 2019, NOPSEMA determined not to lift the Prohibition Notice and General Direction that were in place at that time and required that production cease until the identified issues were remedied. Two days later, the NOGA Group went into voluntary administration.[28]

A General Direction issued by NOPSEMA to the Administrators on 27 September 2019 required the Administrators to immediately develop and implement a plan to ensure that the Northern Endeavour could enter an extended state of non-production, such that the health and safety of persons at or near the facility are protected, environmental impacts are minimised, and the facility is secured.[29]

On 7 February 2020 the NOGA Group was placed into liquidation[30] and the liquidator disclaimed the Petroleum Production Licences, the FPSO, and all associated infrastructure.[31]

NOPSEMA indicates that, from this point in time, the Northern Endeavour, associated infrastructure and petroleum activity are no longer being regulated under the OPGGS framework because there is no registered title holder or operator.[32] Importantly:

the titleholder is the regulated entity under the OPGGS Act; that is, the titleholder must comply with the requirements of the Act and can be issued notices and directions by NOPSEMA or NOPTA
the titleholder is the regulated entity under the OPGGS (Environment) Regulations 2009; that is, the titleholder must have and comply with an accepted environment plan prior to undertaking any offshore activities[33]
the titleholder and operator are the regulated entities under the OPGGS (Safety) Regulations 2009; that is, the titleholder and operator have general and specific occupational health and safety duties, and responsibility for well integrity, and the operator prepares and implements the safety case for the offshore facility.[34]

On 14 February 2020 the Minister for Resources, Keith Pitt, reported the Government had established the Northern Endeavour Temporary Operations Program under the Industry Research and Development Act 1986 to maintain the FPSO in lighthouse mode, secure the facility and associated wells, and undertake required operational activities (hereafter ‘lighthouse mode’).[35] The Government allocated $75.433 million over two years to the program.[36]

On 17 February 2020 the Minister for Resources announced that the Government had engaged UPS to operate and maintain the FPSO in lighthouse mode.[37]

On 23 April 2020, the Minister for Resources announced an extension of UPS’s engagement and that the Government had commissioned Steve Walker to undertake an Independent Review into the Circumstances Leading to the Administration and Liquidation of Northern Oil and Gas Australia (NOGA) (Walker Review).[38] The Walker Review was delivered to the Government on 9 June 2020 and provides a comprehensive overview of the circumstances leading to the NOGA Group going into liquidation and makes a number of recommendations.

On 31 July 2020, the Minister for the Environment, Sussan Ley, issued an Exemption under section 158 of the Environment Protection and Biodiversity Conservation Act 1999, allowing the Commonwealth, as represented by DISER and those acting on behalf of DISER, to undertake ‘lighthouse operations’ without an approval under the EPBC Act until 31 December 2021.[39] This exemption was required because activities undertaken in the Commonwealth marine area require approval under the EPBC Act. Petroleum activities assessed by NOPSEMA’s environmental management authorisation process under the OPGGS Act do not require approval under the EPBC Act.[40] However, as noted above the FPSO and associated infrastructure are no longer regulated under that Act.

On 6 August 2020, the Minister for Resources announced that Woodside was ‘providing expert advice on what will be required to decommission and remediate the facility and fields, if the Government proceeds with that option’.[41] It was later revealed that Woodside’s limited tender contract was valued at $8.8 million.[42]

On 14 December 2020, the Minister for Resources announced that the Government was ‘moving to decommission the Northern Endeavour ... and associated oil fields to remove potential risks to the environment’.[43] At the same time, the Minister announced that the Government had opened consultations on a revised decommissioning policy framework.

To 22 April 2021, seven contracts relating to the Northern Endeavour decommissioning totalling $231.4 million had been awarded, including financial and insurance services, operations and maintenance services, membership or licensing fees, professional advice and business facilitation services.[44] The largest portion of the funds ($209.3 million) relates to contracts with UPS to maintain the facility in lighthouse mode, remedial works and preparation for decommissioning.[45]

On 1 July 2021, the Minister for Resources announced the Government had ‘released a Request for Expressions of Interest (REOI) for Phase 1 works to decommission the Northern Endeavour’ FPSO.[46]

On 28 September 2021, the Minister for the Environment issued a revised Exemption under section 158 of the EPBC Act, exempting the Commonwealth from the requirement to obtain an approval under the EPBC Act for ‘the taking of “lighthouse operations” and “short-term well injection”’ activities until 31 December 2022.[47]

DISER’s submission to the Decommissioning Cost Recovery Levy Inquiry (see below) states that the Commonwealth does not hold legal ownership of the FPSO and associated infrastructure.[48] DISER has further indicated that it is seeking to ‘emulate’ the requirements of the OPGGS framework through its contract with UPS.[49]

The Commonwealth is currently a party to legal proceedings relating to the Northern Endeavour.[50]

Government announcements about the Laminaria-Corallina recovery costs levy

On 11 May 2021, the Minister for Resources, Keith Pitt, announced ‘a temporary levy on offshore petroleum production to fund decommissioning and remediation works in the Laminaria-Corallina oilfields and associated infrastructure’ as part of the 2021-22 Budget.[51] The levy was intended to ‘ensure taxpayers aren’t footing the bill’.[52] The budget measure indicates that ‘the levy will terminate on 30 June of the year in which all costs associated with the decommissioning have been recovered’,[53] however, no further information is provided as to when that may be.

Treasury and DISER undertook targeted consultation in June and July of 2021 and DISER subsequently released a consultation paper on the Laminaria-Corallina oilfields decommissioning levy on 24 June 2021.[54] Treasury also released an Exposure Draft of both Bills and Explanatory Materials.[55] Submissions do not appear to be publicly available.

The decommissioning process is described as occurring in three distinct phases:

Phase 1: decommissioning and disconnection of the facility from the subsea equipment
Phase 2: permanent plugging and abandonment of wells
Phase 3: removal of subsea infrastructure and remediation.[56]

The Government has previously declined to provide an estimate of the full cost of decommissioning the Northern Endeavour and Lam-Cor oil fields.[57]

Committee consideration

Senate Economics Legislation Committee

The Bills have been referred to the Senate Standing Committee on Economics’ Economics Legislation Committee for inquiry and report by 18 November 2021. The Committee held one public hearing on 8 November and received 14 written submissions.[58] Submissions highlight a number of similar issues and are discussed in the ‘Positions of major interest groups’ and in the ‘Key provisions’ sections of this Digest.

The Senate Committee’s report was released on 18 November 2021.[59] The Committee noted the ‘broad support’ for the levy and recommended the Bills be passed without further amendment.[60]

The committee is satisfied that the bills will deliver on their intent with regard to decommissioning the Laminaria-Corallina fields and associated infrastructure at no cost to the taxpayer, and with the lowest reasonable practicable burden on industry.[61]

The Australian Labor Party (ALP) and Australian Greens (the Greens) both contributed additional comment. The ALP Senators supported the Bills but recommended that the Main Bill be amended ‘to give NOPSEMA a legislated duty to provide safety and environmental regulatory oversight’ and to require the Resources Minister to table in Parliament an annual report providing transparency with respect to plans for and progress on decommissioning work, and receipts for the levy and anticipated receipts in the coming year.[62] The Greens similarly supported the Bills and recommended greater transparency measures. They also recommended the levy be made permanent and that the ‘government implement a long-term solution to ensure industry covers the full cost of offshore decommissioning.’[63]

Senate Standing Committee for the Scrutiny of Bills

At the time of writing this Bills Digest, the Senate Standing Committee for the Scrutiny of Bills has not yet considered the Bills.

Policy position of non-government parties/independents

At the time of preparing this Digest, non-government parties and independents do not appear to have commented directly on the Bills.

Labor Shadow Ministers Madeleine King and Josh Wilson have previously indicated that ‘Labor will be constructive in its consideration and engagement with the Government’s proposed reform process, but will hold the Government to account in this critical area of regulation’.[64]

Independent Senator Rex Patrick has argued that NOPSEMA acted too soon to shut down the Northern Endeavour and expressed concern that the Government had not adequately considered other options.[65]

Position of major interest groups

Major oil producers

It has been reported that major oil producers, including Chevron Corp, ExxonMobil Corp and Royal Dutch Shell, oppose the levy on the grounds that they have had nothing to do with the site.[66] Chevron, which anticipates being the largest payer of the levy, has indicated that it is ‘strongly opposed to the NOGA levy’.[67] Woodside—the former owner of the FPSO and associated infrastructure—is reported to have denied responsibility for the clean-up bill,[68] and to have been working to present ‘to the government an alternative proposal for the decommissioning’.[69]

The Australian Petroleum Production & Exploration Association (APPEA), the peak body for Australia’s upstream oil and gas industry, described the then proposed levy as ‘a terrible precedent’ and suggested there were a range of other options that wouldn’t risk ‘undermining investment confidence in the offshore oil and gas industry’.[70] In June 2021, APPEA described the levy as ‘over the top and extreme’.[71] In evidence to the Inquiry, APPEA acknowledged that the levy will be imposed and seeks to ensure its application and scope are confined to the Northern Endeavour incident.[72]

APPEA also argues that the Government’s policy intent and associated provisions specifying that the levy is not tax deductible are inconsistent with the existing tax treatment of decommissioning costs.[73]

Several oil and gas industry related unions have expressed support for the levy but raise concerns around regulation of safety and environmental issues, and transparency and reporting.[74] They also argue that the scope of the levy should be broadened to support the development of domestic decommissioning capacity and onshore facilities.

Environmental groups

The Wilderness Society is reported to support the government’s intervention (in taking over the Northern Endeavour), ‘on the proviso that industry would have to fully reimburse the taxpayer’.[75] The Wilderness Society and Friends of the Earth have called for the levy to be made permanent to ‘help address the ongoing risks’ of the substantial outstanding decommissioning task facing the industry.[76]

Financial implications

The Explanatory Memorandum states ‘the impact on receipts of this measure is not for publication reflecting commercial sensitivities’.[77]

Estimates of the total cost of decommissioning the Northern Endeavour and associated infrastructure range from $250 million to over $1 billion.[78] It was reported in June 2021 that the cost to industry ‘would be $367m a year, based on Australia’s production of 765 million barrels of oil equivalent’, with total cost recovery estimated to take up to three years.[79]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bills’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act.

The Government considers that the Bills are compatible.[80]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights made no comment on the Bills.[81]

Key issues and provisions

The Main Bill establishes the Laminaria and Corallina Decommissioning Cost Recovery Levy (the levy) and the Treasury Laws Amendment Bill provides the framework in which the levy may be imposed.

Main Bill

What are the Commonwealth’s total decommissioning costs?

The Main Bill seeks to allow the Commonwealth to recover the Commonwealth’s total decommissioning cost, defined as ‘the total amount in dollars of net costs reasonably incurred by the Commonwealth in relation to the decommissioning-related activities’.[82] Decommissioning-related activities and decommissioning are defined in clause 6 and include all activities carried out by, or on behalf of, the Commonwealth that relate (whether directly or indirectly) to decommissioning the Northern Endeavour and the wells and subsea infrastructure in the Laminaria and Corallina oil fields. This includes the operation (in any mode) of the Northern Endeavour, decommissioning activities, and the maintenance of required insurances.

The Department of Treasury confirmed in evidence to the Inquiry that indirect costs include ‘things like legal expenses and insurances’, as well as departmental costs such as the Northern Endeavour Taskforce.[83]

Definition of decommissioning

Numerous stakeholders expressed concern that the definition of decommissioning in the Bill is different from the definition included in the Exposure Draft of the Bill and also differs from terminology used in the OPGGS Act.[84] While decommissioning is not defined in the OPGGS Act, section 572(3) requires a title holder to remove ‘all structures..., all equipment and other property’ from the title area after it stops being used. The Offshore Petroleum Decommissioning Guideline outlines the Government’s policy position that complete removal is the base case, unless a titleholder can demonstrate that an ‘alternative decommissioning approach delivers equal or better environmental, safety and well integrity outcomes compared to the complete removal’, and complies with other legislative requirements.[85] Stakeholders argued that the phrase ‘removal or any other treatment’ (emphasis reflects change from Exposure Draft) represented a deviation from the base case and accepted best practice.[86] Other stakeholders argued that the definition should also refer to recycling of infrastructure.[87]

When does the levy apply?

Subclause 7(1) provides for the levy to apply in levy years (financial years), from the beginning of the 2021-22 financial year through to the end of the 2029-30 financial year (inclusive).

The Department of Treasury indicated ‘that end date [was] chosen to ensure that the levy is in place and would reasonably be expected to be a long enough period of time for the Commonwealth to recover its costs’.[88] Stakeholders argued that the levy should end in a shorter timeframe to provide certainty to industry and investors, or alternatively should be made permanent.[89]

To whom does the levy apply?

Clause 10 provides that levy applies to leviable entities, defined as ‘registered holders of a petroleum production licence at any time during the levy year’.[90] Petroleum production licences are granted by Joint Authorities under Part 2.4 of the OPGGS Act. At the time of preparing this Bills Digest, there were 94 active petroleum production licences.[91] Many of the licences are held in a range of partnership arrangements and each of those entities would be responsible for payment of the levy.

Subclause 11(1) provides that the levy will be payable on all petroleum recovered at the wellhead during the levy year under any petroleum production licences held by the entity.

How much is the levy and how is it determined?

Subclause 11(1) provides that the levy rate is the lesser of $0.48 per barrel of oil equivalent or a distributed levy rate, as described below.

Leviable entities will be required to submit an annual return stating the total barrel of oil equivalent recovered under their petroleum production licences during the levy year, by 31 December in the following levy year to the Commissioner of Taxation, and the Commissioner of Taxation will issue notices of assessment to the entities.[92] The Explanatory Memorandum states that the Commissioner of Taxation has general administration of these provisions and general provisions (for example, review of decisions, enforcement and penalty powers) of the Taxation Administration Act 1953 apply.[93]

The Department of Treasury indicated that the levy rate ‘represents a judgement about collecting those potential estimated [decommissioning] costs within a reasonable time frame’.[94]

Reduction of the levy rate and early termination of the levy

The Main Bill provides for circumstances in which the levy rate may be reduced, and the levy terminated prior to the 2029-30 financial year.

Subclause 8(2) allows the responsible Minister to make a determination, by legislative instrument, specifying the Commonwealth’s unrecovered costs, being the amount by which the total amount of levy assessed for previous levy years falls short of the total decommissioning costs. Proposed paragraph 8(3)(a) provides that the responsible Minister may only make such a determination if they consider that the application of the usual levy rate would result in recovery of an amount that exceeds the Commonwealth’s unrecovered costs. Subclause 11(2) specifies how the distributed levy rate is calculated.

The Explanatory Memorandum states:

This provides a mechanism to lower the levy rate for a levy year to avoid the Commonwealth collecting more levy than it costs to undertake decommissioning activities.[95]

The Explanatory Memorandum states that it is anticipated that this would only occur ‘during the tail end of the levy’.[96]

Subclause 7(2) allows the responsible Minister to make a determination, by legislative instrument, that the following financial year is not a levy year for the purposes of the Act, thus bringing the levy to an end at the end of the relevant financial year.

The Explanatory Memorandum states:

This limited power for the Resources Minister to terminate the levy early by way of a legislative instrument is both limited in its application and necessary and appropriate in these circumstances to ensure the design of the levy gives effect to the Government’s intention that the levy is only in place until the Commonwealth has recovered its costs.[97]

Some stakeholders raised concerns about these responsibilities being held by the Minister.[98] APPEA suggested that these responsibilities should be executed by the Australian Tax Office, who should be able to vary the levy as required without the need for a disallowable legislative instrument and that the levy should terminate automatically on receipt of the total decommissioning cost.[99]

Transparency and reporting

Numerous stakeholders expressed concern that the Bill did not contain any measures to ensure transparency and reporting of the Government’s decommissioning costs, the amount of levy recovered, progress in decommissioning activities, or identify who would determine when decommissioning activities are complete.[100] The ACCR and Offshore Alliance both suggested that the Australian Taxation Office should be required to release an annual report detailing the financials of the levy, including the amount collected for each leviable entity each year.[101] They further suggested that a quarterly report on the decommissioning work, detailing costs, progress of works and safety or environmental issues, be made available.[102] Several stakeholders pointed to the Extractive Industries Transparency Initiative (EITI) and the existing EITI Multi Stakeholder Group as an appropriate group to be involved in this work.[103]

Identification of a regulator

Numerous stakeholders outlined concerns about the inability of NOPSEMA to effectively regulate the FPSO and decommissioning process.[104] They argued that the Main Bill should clearly identify the responsible regulator for environmental and safety issues to ensure that the entities responsible for lighthouse operations and decommissioning works are held to the same standards as other industry operators.

Treasury Laws Amendment Bill

The Treasury Laws Amendment Bill amends three tax Acts to specify certain administrative features relating to the Laminaria and Corallina decommissioning cost recovery levy. Specifically,

Items 1-5 amend the Income Tax Assessment Act 1997 to specify that the levy is non-deductible
Item 6 amends the Petroleum Resource Rent Tax Assessment Act 1987 to add payments of the levy to the list of excluded expenditure, ensuring, amongst other things, that the levy is an excluded cost for the purposes of calculating upstream and downstream costs under the residual pricing method and
Items 7-21 amend the Taxation Administration Act 1953 to limit the objection period and the period of review for the levy, specify that the levy is payable to the Commissioner of Taxation, and ensure that ordinary taxation collection and recovery provisions apply in relation to the levy.[105]

Item 10 of Schedule 1 of the Bill inserts proposed paragraph 14ZW(1)(bga) into the Taxation Administration Act 1953 which provides that a leviable entity may lodge an objection to the assessment of the levy up to 60 days after the assessment has been received.

Item 11 of Schedule 1 of the Bill inserts proposed Part 3-17 into the Taxation Administration Act 1953, with proposed Division 125 outlining general provisions relating to the Laminaria and Corallina decommissioning levy. Proposed subsection 125-10(1) provides that the levy is due and payable 21 days after the day on which the Commissioner gives the leviable entity a notice of assessment. Proposed subsection 125-15(2) provides that the period of review for an assessment of levy is six months starting on the day on which the Commissioner gives the leviable entity a notice of assessment.

References

[1]. ‘Offshore legislation’, Geoscience Australia, n.d.; ‘Offshore constitutional settlement’, Attorney-General’s Department, n.d.; ‘Maritime boundary definitions’, Geoscience Australia, n.d.; Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act), sections 3‑6.

[2]. Ibid.

[3]. Relevant Regulations include, for example, the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Regulations 2004, the Offshore Petroleum and Greenhouse Gas Storage (Safety) Regulations 2009, and the Offshore Petroleum and Greenhouse Gas Storage (Environment) Regulations 2009.

[4]. ‘Regulating offshore oil and gas in Australian Commonwealth waters’, Department of Industry, Science, Energy and Resources (DISER), 25 October 2021.

[5]. ‘Joint authorities’, NOPTA, n.d.

[6]. ‘Legislation and compliance’, NOPTA, n.d.

[7]. OPGGS Act, Part 6.10; NOPTA, ‘About NOPTA’, NOPTA, n.d.

[8]. OPGGS Act, Part 6.9; ‘About us’, NOPSEMA, 30 July 2021.

[9]. See, for example: Sophie Power, ‘Offshore Petroleum and Greenhouse Gas Storage Amendment (Cross-boundary Greenhouse Gas Titles and Other Measures) Bill 2019 [and] Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Amendment (Miscellaneous Measures) Bill 2019’, Bills Digest, 82, 2019–20, (Canberra: Parliamentary Library, 2020).

[10]. Advisian, A Baseline Assessment of Australia’s Offshore Oil and Gas Decommissioning Liability, report prepared for National Energy Resources Australia, (n.p.: NERA, 2021); Australia Oil and Gas Outlook Report, (Wood Mackenzie, 9 March 2020), p. 14; Senate Economics Legislation Committee, Answers to Questions on Notice, Department of Industry, Science, Energy and Resources, Additional Estimates 2020-21, 25 March 2021, Question AI-29.

[11]. DISER, Offshore Petroleum Decommissioning Guideline, version 2, (Canberra: DISER, February 2020), pp. 14-15.

[12]. Ibid.

[13]. Ibid., pp. 6–12.

[14]. Ibid., pp. 6–8.

[15]. For more information see: Liz Kenny and Leah Ferris, ‘Offshore Petroleum and Greenhouse Gas Storage Amendment (Titles Administration and Other Measures) Bill 2021 [and] Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Amendment Bill 2021’, Bills Digest, 6, 2021-22, (Canberra: Parliamentary Library, 2021).

[16]. Kenny and Ferris, p. 4.

[17]. Steve Walker, Review of the Circumstances that Led to the Administration of the Northern Oil and Gas Australia (NOGA) Group of Companies, (Canberra: Commonwealth of Australia, June 2020) (Walker Review); note: the Walker Review was released under the Freedom of Information Act 1982, with some redactions.

[18]. ‘Offshore oil and gas decommissioning framework review’, DISER, last updated 25 October 2021; Offshore Resources Branch, Discussion Paper – Decommissioning Offshore Petroleum Infrastructure in Commonwealth Waters, (Canberra: DISER, October 2018).

[19]. Walker Review, p. 12.

[20]. Walker Review, p. 12.

[21]. Walker Review, p. 13.

[22]. Walker Review, p. 4.

[23]. Walker Review, pp. 12‑13.

[24]. Walker Review, pp. 12‑13.

[25]. Walker Review, p. 14.

[26]. Peter Milne, ‘Federal Govt Regulates Poorly and Gets $360M Northern Endeavour Clean-up Bill’, Boiling Cold (blog), 2 October 2020, p. 2; Georgia Wilkins and Bernard Keane, ‘Woodside Pockets Millions From Government to Clean up its Own Mess’, Crikey, 3 September 2020.

[27]. Walker Review, pp. 4–5.

[28]. Walker Review, pp. 4-6.

[29]. General Direction No. 772 Under Section 574 of the OPGGS Act, issued to the administrators of Timor Sea Oil & Gas Australia Pty Ltd on 27 September 2019.

[30]. Walker Review, p. 11.

[31]. Notice of Disclaimer of Onerous Property, Timor Sea Oil & Gas Australia Pty Ltd, notice under subsection 568A(2) of the Corporations Act 2001, (ASIC: n.p., 7 February 2020).

[32]. Karl Heiden (Head of Division, Corporate and Financial Assurance, NOPSEMA), Evidence to the Senate Economics Legislation Committee, Decommissioning Cost Recovery Levy Inquiry, 8 November 2021, p. 27.

[33]. OPGGS (Environment) Regulations 2009, sections 6 and 7.

[34]. OPGGS Act 2006, Schedules 2B and 3 and OPGGS (Safety) Regulations 2009, sections 2.24 and 2.43—2.44. A safety case is essentially a safety management system for operation of the facility.

[35]. Keith Pitt (Minister for Resources), ‘Government moving quickly to secure Northern Endeavour’, media release, 14 February 2020. The Northern Endeavour Temporary Operations Program is established by the Industry Research and Development (Northern Endeavour Temporary Operations Program) Instrument 2020 [F2020L00125] (commenced 15 February 2020), with the Instrument amended [F2020L01611] in December 2020 (commenced 16 December 2020).

[36]. Explanatory Statement, Industry Research and Development (Northern Endeavour Temporary Operations Program) Amendment Instrument 2020, p. 1.

[37]. Keith Pitt (Minister for Resources), ‘New Agreement Secures Safety of the Northern Endeavour’, media release, 17 February 2020.

[38]. Keith Pitt (Minister for Resources), ‘Government Ensures Security and Safety of Northern Endeavour’, media release, 23 April 2020.

[39]. Exemption under section 158 of the EPBC Act, granted to the Commonwealth as represented by DISER, 31 July 2020.

[40]. Notification of decision to endorse the program to streamline offshore petroleum and greenhouse gas activity environmental approvals under the EPBC Act, 7 February 2014; Final approval decision for taking of actions in accordance with an endorsed program under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act): Offshore petroleum and greenhouse gas activities taken in accordance with the Program Report – Strategic Assessment of the environmental management authorisation process for petroleum and greenhouse gas storage activities administered by the National Offshore Petroleum Safety and Environmental Management Authority under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 February 2014 (the Program), 27 February 2014.

[41]. Keith Pitt (Minister for Resources), ‘Update on the safety of the Northern Endeavour’, media release, 6 August 2020.

[42]. Senate Economics Legislation Committee, Official Committee Hansard, 29 October 2020, p. 71.

[43]. Keith Pitt (Minister for Resources), ‘Northern Endeavour to be decommissioned’, media release, 14 December 2020.

[44]. Senate Economics Legislation Committee, Answers to Questions on Notice, Department of Industry, Science, Energy and Resources, Budget Estimates 2020-21, 25 March 2021, Question A1-25.

[45]. Senate Economics Legislation Committee, Official Committee Hansard, Estimates, 25 March 2021, p. 161.

[46]. Keith Pitt (Minister for Resources), ‘EOI released for Phase 1 of Northern Endeavour decommissioning’, media release, 1 July 2021.

[47]. Exemption under section 158 of the EPBC Act, 28 September 2021.

[48]. DISER, Submission to Senate Economics Legislation Committee Inquiry into the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [Provisions] and Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [Provisions], 8 November 2021, p. 3.

[49]. Shane Gaddes (Head of Liquid Fuels and Northern Endeavour Division, DISER), Evidence to Senate Economics Legislation Committee, Decommissioning Cost Recovery Levy Inquiry, 8 November 2021, p. 28.

[50]. In the matter of Timor Sea Oil & Gas Australia Pty Ltd [in liq] [2020] NSWSC 1832.

[51]. Keith Pitt (Minister for Resources), ‘Boosting jobs and maximising growth to secure Australia’s recovery’, media release, 11 May 2021.

[52]. Pitt, ‘Boosting jobs’.

[53]. Australian Government, ‘Part 1: receipt measures’, Budget Measures: Budget Paper No. 2: 2021-22, p. 14.

[54]. Paul Trotman (Head of Division, Resources Division, DISER), Evidence to Senate Economics Legislation Committee, Decommissioning Cost Recovery Levy Inquiry, 8 November 2021, p. 25.

[55]. Treasury consultation, ‘Laminaria-Corallina Decommissioning Levy’. The consultation period was 16 to 23 September 2021.

[56]. ‘Northern Endeavour decommissioning: Expression of Interest’, DISER website, 1 July 2021.

[57]. Senate Economics Legislation Committee, Answers to Questions on Notice, DISER, Budget Estimates 2020-21, 29 October 2020, Question BI-121.

[58]. ‘Public Hearings’ and ‘Submissions’, Senate Standing Committee on Economics, Inquiry into the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [Provisions] and Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [Provisions].

[59]. Senate Economics Legislation Committee, Inquiry into the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [Provisions] and Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [Provisions] (Inquiry Report), November 2021.

[60]. Senate Economics Legislation Committee, Inquiry Report, pp. 44-45.

[61]. Senate Economics Legislation Committee, Inquiry Report, p. 45.

[62]. Senate Economics Legislation Committee, Inquiry Report, pp. 51-53.

[63]. Senate Economics Legislation Committee, Inquiry Report, pp. 55-58.

[64]. Madeleine King and Josh Wilson, ‘Govt acknowledges oil & gas regulatory failure after $200M liability falls on Australian taxpayer’, joint media release, 9 April 2021.

[65]. Ben Butler, ‘Oil and Gas Industry Fights Morrison Government Levy of up to $1bn to Decommission Rig’, The Guardian, 12 May 2021; Senate Economics Legislation Committee, Official Committee Hansard, Estimates, 4 June 2021, pp. 68-71.

[66]. Perry Williams, ‘Anger over Proposed Change: Energy Giants Hit With $1bn Clean-up Tax’, The Australian, 30 June 2021, p. 13; Sonali Paul, ‘Woodside, Oil Majors, Work to Overturn $723M Timor Sea Field Decommissioning Levy’, Offshore Engineer, 27 August 2021.

[67]. Chevron Australia, Submission to the Decommissioning Cost Recovery Levy Inquiry, 8 November 2021, pp. 1–2.

[68]. Butler, ‘Oil and gas industry fights Morrison Government’.

[69]. Sonali Paul, ‘Woodside, Oil Majors, Work to Overturn $723M Timor Sea Field Decommissioning Levy’.

[70]. APPEA, ‘Federal Budget – Some Ticks But New Levy a Blow to Australian Jobs’, media release, 11 May 2021.

[71]. APPEA, ‘New NOGA Levy is extreme’, media release, 29 June 2021.

[72]. Andrew McConville (Chief Executive, APPEA), Evidence to Senate Economics Legislation Committee, Decommissioning Cost Recovery Levy Inquiry, 8 November 2021, pp. 12‑14.

[73]. APPEA, Submission to the Decommissioning Cost Recovery Levy Inquiry, 8 November 2021, p. 6.

[74]. Offshore Alliance, Submission to the Decommissioning Cost Recovery Levy Inquiry, 5 November 2021; see generally: Economics Legislation Committee, Proof Committee Hansard, 8 November 2021, pp. 1‑7.

[75]. Butler, ‘Oil and Gas Industry Fights Morrison Government’.

[76]. Peter Milne, ‘Oil and gas producers to start paying up to $1B to decommission the Northern Endeavour’, Boiling Cold (blog), 29 June 2021; Wilderness Society, Submission to the Decommissioning Cost Recovery Levy Inquiry, November 2021, p. 4; Friends of the Earth, Submission to the Decommissioning Cost Recovery Levy Inquiry, n.d., p. 2.

[77]. Explanatory Memorandum, Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [and] Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021, p. 1.

[78]. Sean Smith, ‘Abandoned ex-Woodside ship to cost taxpayers $200m’, The West Australian, 24 December 2020; Perry Williams, ‘Anger over proposed change: Energy giants hit with $1bn clean-up tax’, Australian, 30 June 2021, p. 13.

[79]. Williams, ‘Anger’.

[80]. The Statement of Compatibility with Human Rights can be found at page 11 of the Explanatory Memorandum to the Bills.

[81]. Parliamentary Joint Committee on Human Rights (PJCHR), Human rights scrutiny report, 13, 2021, (10 November 2021): 33.

[82]. Clause 6.

[83]. Simon Winckler (Director, Special Tax Regimes, Treasury), Evidence to the Senate Economics Legislation Committee, Decommissioning Cost Recovery Levy Inquiry, 8 November 2021, p. 36; see also: Treasury, Answer to Question on Notice, Levy cost coverage, 8 November 2021.

[84]. Wilderness Society, Submission to the Inquiry, p. 3; Offshore Alliance, Submission to the Inquiry, pp. 15‑16; Australian Centre for Corporate Responsibility (ACCR), Submission to the Inquiry, 8 November 2021, p. 2.

[85]. DISER, Offshore Petroleum Decommissioning Guideline, p. 4.

[86]. Wilderness Society, Submission to the Inquiry, p. 3; Offshore Alliance, Submission to the Inquiry, pp. 15-16.

[87]. Offshore Alliance, Submission to the Inquiry, p. 16; ACCR, Submission to the Inquiry, p. 3.

[88]. Winckler, Evidence to the Inquiry, p. 33.

[89]. Submissions to the Inquiry: APPEA, p. 2; Wilderness Society, p. 4; Friends of the Earth, p. 2; The Australia Institute, 8 November 2021, p. 7.

[90]. Clauses 6 and 10.

[91]. ‘NEATS Public Portal’, NOPTA, Title search for ‘Production Licence’, filtered for active licences; as at 19 November 2021.

[92]. Treasury Laws Amendment Bill, item 11 of Schedule 1; Explanatory Memorandum, pp. 7‑8.

[93]. Explanatory Memorandum, p. 8.

[94]. Winckler, Evidence to the Inquiry, p. 33.

[95]. Explanatory Memorandum, 6.

[96]. Explanatory Memorandum, p. 6.

[97]. Explanatory Memorandum, p. 7.

[98]. Offshore Alliance, Submission to the Inquiry, p. 18; APPEA, Submission to the Inquiry, p. 4.

[99]. APPEA, Submission to the Inquiry, p. 4.

[100]. Submissions to the Inquiry: Wilderness Society, p. 3; Offshore Alliance, pp. 20‑21; APPEA, p. 5; Australasian Centre for Corporate Responsibility (ACCR), p. 3; Jubilee Australia Research Centre, p. 3; Publish What You Pay, pp. 2‑3; The Australia Institute, pp. 7‑8.

[101]. ACCR, Submission to the Inquiry, p. 3; Offshore Alliance, Submission to the Inquiry, pp. 20‑21.

[102]. ACCR, Submission to the Inquiry, p. 3; Offshore Alliance, Submission to the Inquiry, pp. 20‑21.

[103]. The Australia Institute, Submission to the Inquiry, p. 8; Publish What You Pay, Submission to the Inquiry, pp. 2‑3.

[104]. Taylor Rundell (National Economist, Australian Workers Union), Evidence to the Senate Economics Legislation Committee, Decommissioning Cost Recovery Levy Inquiry, 8 November 2021, 5; Offshore Alliance, Submission to the Inquiry, pp. 13‑14; ACCR, Submission to the Inquiry, p. 3; Jubilee Australian Research Centre, Submission to the Inquiry, p. 4.

[105]. Explanatory Memorandum, Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [and] Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021, p. 4.

Glossary

Abbreviation	Definition
Coastal waters	Waters of the sea that extend to three nautical miles from the territorial sea baseline (generally the low tide line), and any waters that are on the landward side of the territorial sea baseline but not within the limits of the State or the Northern Territory.
Commonwealth offshore area	The following areas, the seabed and subsoil beneath those areas: the territorial sea of Australia; and the exclusive economic zone; but does not include the coastal waters of a State or the Northern Territory
Decommissioning Cost Recovery Levy Inquiry or the Inquiry	Senate Standing Committees on Economics, Economics Legislation Committee,Inquiry into the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [Provisions] and Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021 [Provisions]
DISER	Department of Industry, Science, Energy and Resources
EPBC Act	Environment Protection and Biodiversity Conservation Act 1999
Main Bill	Offshore Petroleum (Laminaria and Corallina Decommissioning Recovery Levy) Bill 2021
NOPSEMA	National Offshore Petroleum Safety and Environmental Management Authority
NOPTA	National Offshore Petroleum Titles Administrator
OPGGS Act	Offshore Petroleum and Greenhouse Gas Storage Act 2006
Treasury Laws Amendment Bill	Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021

Links

Links: The links to the Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021, the Treasury Laws Amendment (Laminaria and Corallina Decommissioning Cost Recovery Levy) Bill 2021, their second reading speeches and Explanatory Memoranda can be found on the Bills’ home pages, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at November 2021.

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