Commonwealth Numbered Regulations - Explanatory Statements

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PETROLEUM (SUBMERGED LANDS) (MANAGEMENT OF WELL OPERATIONS) REGULATIONS 2004 2004 NO. 344

Subsection 157(1) of the Petroleum (Submerged Lands) Act 1967 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters that by the Act are required or permitted to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Paragraph 157(2)(e) of the Act states that the regulations may make provision for securing, regulating, controlling or restricting the construction, erection, maintenance, operation or use of installations, equipment or facilities.

The purpose of the Regulations is to introduce an objective based system for regulation of offshore petroleum well activities. This is consistent with government policy already implemented in the Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities) Regulations 1996, the Petroleum (Submerged Lands) (Management of Environment) Regulations 1999, the Petroleum (Submerged Lands) (Pipelines) Regulations 2001 and the Petroleum (Submerged Lands) (Data Management) Regulations 2004.

Offshore well activities are currently regulated through Directions made by the Minister under the authority of the Act. These Directions are prescriptive in nature, and limit flexibility by the petroleum industry to respond to changes in circumstances or technology. In addition, the use of prescriptive directions is not consistent with government policy to move to regulate offshore petroleum activities through objective-based regulations.

The objective-based regulation of well operations allow for well activity arrangements to be changed in response to improved technologies and other circumstances while adhering to the key legislative principles. An essential part of this flexibility is the development of an agreed Well Operations Management Plan (WOMP) that specifies acceptable methods of conducting well operations in accordance with sound engineering principles and good oil-field practice. In this case, it requires a company to identify potential hazards and risks to the integrity of its well activities and consequently implement measures to remove or control those hazards and reduce the risks. This is consistent with international best practice for petroleum regulation.

The Regulations apply to all downhole activities (ie, activities within the wellbore) associated with petroleum wells and well control equipment, including testing and monitoring equipment used in well operations.

The Regulations require a company undertaking a well activity, such as drilling, well testing and well maintenance, to submit a WOMP to the Designated Authority (DA) (ie, the relevant State/Northern Territory mines department), for acceptance. In accordance with sound engineering principles and good oil-field practice, a WOMP should include a description of the design, construction and management of the well activity and a plan for managing the risks identified for the activity. Following acceptance of the WOMP by the DA, the company is obliged to implement the methodology specified in the WOMP to conduct relevant well activities.

A company can revise the WOMP if circumstances change. However, any modification must be accepted by the DA prior to implementation. A company can also submit a WOMP to the DA as a single document or as staged documents (ie, delivered in parts at the start and completion of distinct phases of the well such as drilling, completion, operation, maintenance, and abandonment or suspension).

The Regulations enable companies to implement improved technologies and methodologies for well operations to achieve continuous improvement in those operations, without the need for government to continually update requirements. As industry can implement improved practices at its discretion, the cost of complying with the proposed Regulations should be lower than under a prescriptive regime. The transparent and accountable acceptance and compliance processes will reassure the community that well operations are being conducted responsibly.

The Regulations were prepared by a working group (Well Operations Management Working Group) comprising representatives from the Australian Government Department of Industry, Tourism and Resources; Geoscience Australia; the mining departments of Western Australia, South Australia, Victoria and the Northern Territory; and the Australian Petroleum Production and Exploration Association (APPEA). APPEA represents the majority of the Australian upstream petroleum industry, including both large and small companies.

The working group prepared and finalised the proposed Regulations through eight comprehensive meetings over the period March 2001 to July 2004 and reached agreement on all relevant issues by consensus. The working group is currently drafting Guidelines to assist industry to conduct its offshore petroleum well activities in compliance with the proposed Regulations.

Details of the Regulations are set out in the Attachment A.

A Regulation Impact Statement for the Regulations is at Attachment B. The Regulation Impact Statement has received the approval of the Office of Regulation Review.

The Regulations commence on the date of their notification in the Gazette.

ATTACHMENT A

DETAILS OF THE PETROLEUM (SUBMERGED LANDS) (MANAGEMENT OF WELL OPERATIONS) REGULATIONS 2004

Readers Guide

This Guide is not part of the legislation. It briefly outlines the main regulatory requirements in relation to well operations conducted on an offshore drilling facility (eg, drilling platform or drilling rig). For example, prior to undertaking a well activity, there should be an accepted safety case for the drilling facility from which the well activity is performed. Also, a well operations management plan under these Regulations and an environment plan under regulations relating to environmental management must be submitted to the Designated Authority, for acceptance.

Part 1 - Preliminary

Regulation 1 - Name of Regulations

This Regulation provides that the name of the Regulations is the Petroleum (Submerged Lands) (Management of Well Operations) Regulations 2004.

Regulation 2 - Commencement

This Regulation provides for the Regulations to commence on the date of their notification in the Gazette.

Regulation 3 - Object of Regulations

This Regulation provides that the object of these Regulations is to ensure that, for petroleum exploration, appraisal and production in an adjacent area:

•       the design of downhole activities is in accordance with good oil-field practice;

•       downhole activities are carried out in accordance with an accepted well operations management plan; and

•       risks are identified and managed in accordance with sound engineering principles and good oil-field practice.

The Petroleum (Submerged Lands) Act 1967 has defined good oil-field practice as "all those things that are generally accepted as good and safe in the carrying on of exploration for petroleum, or in operations for the recovery of petroleum, as the case may be".

The above object of the Regulations ensures that:

•       Offshore petroleum well activities are performed in a way that maintains well integrity over operational life of wells; and

•       Effective risk management strategies are used to identify potential risks associated with well activities and implement measures to remove or reduce those risks.

Regulation 4 - Definitions

This Regulation provides definitions of terms used in the Regulations that are not already defined in the Act or have a different meaning in the Act.

•       "accepted well operations management plan"

•       "Act"

•       "risk"

•       "title"

•       "titleholder"

•       "well"

•       "well activity"

•       "well integrity"

•       "well integrity hazard"

•       "workover operation"

Part 2 - Well operations management plans

Regulation 5 - Request for acceptance of well operations management plan

This Regulation requires a titleholder who wishes to carry out a well activity to submit to the Designated Authority, for acceptance, a well operations management plan, at least 30 days prior to the commencement of the activity. The well operations management plan must be in writing and may apply to well activities for more than one well. The Regulation also allows the titleholder, subject to permission by the Designated Authority, to submit a well operations management plan as two or more documents or as staged documents, each staged document corresponding to particular stages of the well activity. If the Designated Authority has not given permission, the titleholder must submit the entire well operations management plan.

Regulation 6 - Contents of well operations management plan

This Regulation details the general requirements and mandatory contents of a well operations management plan to ensure that industry is made aware of its responsibility to conduct well activities and manage the identified risks, in accordance with sound engineering principles and good oil-field practice. A well operations management plan may include material other than that outlined in the Regulation.

Regulation 7 - Reasons for acceptance of well operations management plan

This Regulation specifies the matters to be taken into account by the Designated Authority in accepting a well operations management plan.

Regulation 8 - Decision on well operations management plan

This Regulation requires the Designated Authority, within 30 days of submission of a well operations management plan by a titleholder, to accept the whole or a part of the plan, reject the plan or notify the titleholder that the Designated Authority is unable to make a decision without further assessment of the plan. Once a decision is made to accept the whole or a part of the plan or reject the plan, the Designated Authority must inform the titleholder, in writing, of its decision, as soon as practicable. If the decision is to reject the plan (in full or in part), the Designated Authority must provide reasons. If the Designated Authority is unable to make a decision, it must include in the notification a process for further consideration of the plan. The Designated Authority must also notify, as soon as practicable after making a decision, the effect of Regulation 15.

Regulation 9 - Status of well operations management plans

This Regulation provides that if a titleholder has been given permission to submit a well operations management plan in parts and if the Designated Authority has accepted one or more parts of the well operations management plan, the first part of the plan that the Designated Authority has accepted is considered to be an accepted well operations management plan in its own right. A part submitted after the acceptance of the first part is considered to be a variation of the accepted plan. The Regulation also allows the Designated Authority to accept a well operations management plan as a replacement for an accepted well operations management plan. In this case, the previous accepted plan ceases to have effect.

Part 3- Variation of a well operations management plan

Division 1 - Variation by titleholder

Regulation 10 - Request for variation of accepted well operations management plan

This Regulation allows a titleholder who wishes to vary an accepted well operations management plan to submit a written variation of the plan to the Designated Authority, for acceptance. The Designated Authority must notify the titleholder that the accepted plan is not varied unless the Designated Authority accepts the variation.

Regulation 11 - Decision on request for variation

This Regulation provides that after submission of a variation of an accepted well operations management plan by a titleholder, the Designated Authority must, as soon as practicable, accept the variation, reject the variation or notify the titleholder that the Designated Authority is unable to make a decision without further assessment of the variation. Once a decision is made to accept or reject the variation, the Designated Authority must inform the titleholder, in writing, of its decision, as soon as practicable. If the Designated Authority is unable to make a decision, it must include in the notification a process for further consideration of the variation. The Designated Authority may accept a variation subject to any conditions decided by the Designated Authority. In this case, the Designated Authority must notify the terms of those conditions and the reasons for imposing them. The Designated Authority must also notify, as soon as practicable after making a decision, the effect of Regulation 15.

Division 2 - Variation at request of Designated Authority

Regulation 12 - Requirement to vary well operations management plan

This Regulation provides the Designated Authority with discretion to issue a written notice to a titleholder, requesting submission of a variation of an accepted well operations management plan. The notice must set out reasons for requiring the variation, identifying the proposed date of effect of the variation, and advise the titleholder of his/her rights to object under Regulation 13.

Regulation 13 - Objection to requirement to vary

This Regulation outlines the process by which a titleholder can object to a notice issued by the Designated Authority under Regulation 12. The titleholder must submit the objection, in writing, to the Designated Authority, within 21 days after receiving the notice or a longer period if the Designated Authority allows it, in writing. If the titleholder does not make an objection, the Designated Authority must notify the titleholder of the effect of Regulation 15.

Regulation 14 - Decision on objection

This Regulation provides that when a titleholder makes an objection under Regulation 13, the Designated Authority must, as soon as practicable, accept the objection, reject the objection or notify the titleholder that the Designated Authority is unable to make a decision without further assessment of the objection. Once a decision is made to accept or reject the objection, the Designated Authority must inform the titleholder, in writing, of its decision, as soon as practicable. If the Designated Authority accepts the objection, the titleholder must then give the original or modified variation to the Designated Authority, as soon as practicable. If the Designated Authority is unable to make a decision, it must include in the notification a process for further consideration of the objection. The Designated Authority is obliged to notify the titleholder of the effect of Regulation 15.

Division 3 - Operation of well operations management plan

Regulation 15 - Commencement of well operations management plan and variations of well operations management plan

This Regulation specifies that the commencement day of a well operations management plan or a variation of the plan is the day on which the Designated Authority accepts the plan or the variation.

Regulation 16 - Termination of well operations management plan

This Regulation specifies the conditions under which a well operations management plan terminates. The plan ceased to have effect when it is withdrawn by the titleholder or replaced with another well operations management plan; when the Designated Authority has withdrawn its acceptance of the plan; or after five years from the acceptance of the plan, whichever day is the earliest. These conditions apply whether or not the well operations management plan has been varied since being accepted. As the existing well operations management plan ceases to have effect after 5 years from its acceptance, the titleholder will be required to submit another well operations management plan to the Designated Authority at the end of the 5 year period.

Part 4- Requirements for specific well activities

Regulation 17 - Approval

This Regulation sets out the well activities that a titleholder must not commence without the approval of the Designated Authority, and the required content of the titleholder's application for approval to commence any of these activities. As the specified activities would lead to the physical change of a wellbore, they could alter the well configuration. Given that, it would be undesirable to conduct these activities, without the Designated Authority's approval.

Part 5 - Withdrawal of acceptance of well operations management plan

Regulation 18 - Reasons for withdrawal of acceptance

This Regulation provides that the Designated Authority may withdraw its acceptance of a titleholder's accepted well operations management plan, if the titleholder has not complied with the Act, the Regulations, a direction given under section 101 of the Act, or the accepted well operations management plan. This Regulation also provides to the Designated Authority a discretionary power to withdraw acceptance for any other reason.

Regulation 19 - Notice of proposal to withdraw acceptance

This Regulation provides that if the Designated Authority intends to withdraw its acceptance of a well operations management plan, it must notify the titleholder in writing of its intention at least 30 days prior to the intended withdrawal. The Regulation also detailed the content of the notice of withdrawal. The notice must specify a date by which the titleholder may provide any information to the Designated Authority to be taken into account in the decision whether to withdraw acceptance.

Regulation 20 - Decision to withdraw acceptance

This Regulation details the process for withdrawal by the Designated Authority of an accepted well operations management plan, following its notification of withdrawal under Regulation 19. The Regulation also specified the circumstances under which the Designated Authority must not withdraw acceptance.

Regulation 21 - Relationship between withdrawal and other provisions

This Regulation specifies that the Designated Authority may withdraw its acceptance of a well operations management plan, irrespective of whether the titleholder has been convicted of an offence due to its failure to comply with a provision of the Act or the Regulations.

Whenever legislation provides more than one set of possible consequences for a default or infringement by a person, a question may arise as to whether the person may be subjected to both sets of consequences or whether the regulator or prosecuting authority must choose between them. In each case, the answer will depend on a consideration of the statutory provisions concerned and the nature of the consequences. The inclusion of this regulation eliminated any vestige of uncertainty about the situation that applies to withdrawal of acceptance of a plan and conviction for a related offence.

Part 6 - Titleholders general duties

Regulation 22 - Undertaking activity

This Regulation provides that a titleholder must not undertake a well activity in an adjacent area ("adjacent area" is specified in subsection 5A of the Act) unless the titleholder has an accepted well operations management plan or the activity is covered under transitional arrangements set out in Regulation 23. The Regulation also imposes a penalty of 50 penalty units for non-compliance (one penalty unit is $110 under the Crimes Act 1914). An offence against this Regulation is an offence of strict liability.

Regulation 23 - Well operations management plans for certain wells.

This Regulation provides that if the well is in operation, or an approval in relation to the well is in force, at the commencement of these Regulations, a titleholder is not required to have an accepted well operations management plan for the well activity for 2 years after the commencement of the Regulations. This Regulation also provides the Designated Authority with discretion to allow the titleholder a period different from 2 years. If the well activity is to be commenced within 6 months after the commencement of the Regulations, an accepted well operations management plan is not required within 12 months after the commencement of the Regulations.

Regulation 24 - Compliance with accepted well operations management plan and Regulations

This Regulation specifies that a titleholder must carry out well activities for the well in accordance with its accepted well operations management plan and any requirements set out in the plan. The Regulation also specifies a penalty of 50 penalty units for non-compliance. An offence against this Regulation is an offence of strict liability.

Regulation 25 - Impact of well integrity hazard or increased risk not identified in well operations management plan

This Regulation provides that a titleholder must not commence or continue a well activity, when there is an identified well integrity hazard or a significant increase in an existing risk in relation to the well. The Regulation also specifies a penalty of 50 penalty units for an offence against this Regulation. It is a defence to a prosecution under this Regulation if the defendant has a reasonable excuse. An example of a reasonable excuse would be not to cease drilling immediately because of the reasonable belief that an immediate stop could make the hazard worse.

ATTACHMENT B

1 Problem

The Commonwealth Government has jurisdiction over offshore petroleum activities more than three nautical miles from the Territorial Sea Baseline (the low water mark or straight lines closing certain bays or fringing islands) through the Petroleum (Submerged Lands) Act 1967 (PSLA). Within this legal framework, the Commonwealth and the States/Northern Territory (NT) jointly administer and supervise offshore petroleum operations through a Joint Authority (JA) arrangement. Each JA comprises the Commonwealth Minister responsible for resources issues and the relevant State/NT Minister, where the relevant State/NT Minister is the Designated Authority (DA) in respect of the offshore region adjacent to that State/NT.

Offshore petroleum operations could cause accidents resulting in personal injuries and environmental damage, if potential risks associated with those operations are not managed effectively (a list of major offshore accidents is provided at Attachment 1). The 1988 Piper Alpha drilling platform accident in the North Sea, which claimed 167 lives, is a case in point. This incident was a key trigger for consideration of objective-based regulation of offshore petroleum operations in the United Kingdom and later in Australia.

Piper Alpha Accident

The Piper Alpha accident was caused by an explosion of a gas condensate leakage which had built up beneath the drilling platform. The report by Lord Cullen into the accident noted that prior to the accident a sector-wide set of regulations were applied to all platforms and were enforced by governmental inspection, and this policy did not allow for customisation of safety regulations to a particular type of platform. The Cullen report found that one of the major failures of the former regulatory system was that it did not adopt the policy of risk-based analysis requiring offshore operators to identify operational hazards on their operations and demonstrate that every operation can be conducted safely. The report recommended that goal-setting regulations, which require certain objectives to be met using appropriate methods, be implemented on offshore platforms to replace former regulations, which imposed detailed measures that had to be taken invariably.

Since the mid 1990s, the Australian Government has been working to develop objective-based regulations to ensure Australian offshore operations[1] are conducted safely and securely. In 1994, the then Australian and New Zealand Minerals and Energy Council (ANZMEC) Sub-Committee on Upstream Petroleum agreed that the Schedule of Specific Requirements as to Offshore Petroleum Exploration and Production (Schedule of Directions)[2] of the PSLA be converted into objective-based regulations. The Sub-Committee also agreed that the Schedule of Directions be converted in batches with the safety-related regulations being prepared first. The 1998 Minerals and Petroleum Resources Policy Statement stated that the Government would continue with the development of objective-based regulations for management of offshore petroleum operations. As the ANZMEC's decision on objective-based regulation pre-dated the RIS requirements, a RIS was not prepared for the decision-making stage. This RIS is being prepared for transparency purpose.

Safety and environment issues associated with offshore petroleum operations, including well activities, are now dealt with by objective-based regulations, the Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities) Regulations 1996 and the Petroleum (Submerged Lands) (Management of Environment) Regulations 1999. However, the integrity of offshore well activities (eg, drilling, well testing and well maintenance) is still regulated in a prescriptive manner through directions set out in the Schedule of Directions. This significantly restricts the use of effective risk management strategies by industry to identify potential hazards and risks[3] to the integrity of petroleum wells and implement measures to remove or reduce those hazards and risks. Therefore, a more effective regulatory regime is needed to ensure the integrity of well activities over the operational life of wells.

Construction of petroleum offshore wells has increased in complexity in recent years, with the rapid growth of petroleum exploration activities in frontier areas at greater water depths (major offshore petroleum projects and operators are provided at Attachment 2). As a significant number of wells are now drilled and operated in deeper water, the size and the capacity of drilling rigs and the number of people involved in their operations have increased. The current regulatory system with respect to well operations is prescriptive in nature, and hence limits the petroleum industry's flexibility to utilise innovative technologies for these operations.

There is also a strong community expectation that the Government has a responsibility to ensure the integrity of offshore petroleum wells over their operational life. The lack of well integrity could adversely affect petroleum exploration and production due to possible contamination of petroleum resources and reduced recovery of petroleum from the well. Therefore, government intervention is needed to address any deficiencies in the existing regulatory system in relation to well integrity.

2 Objectives

The aim of the proposed Petroleum (Submerged Lands) (Management of Well Operations) Regulations (Well Operations Regulations) is to ensure that:

•       Offshore petroleum well activities are performed in a way that maintains well integrity over operational life of wells;

•       Community concerns about offshore well operations are adequately addressed; and

•       Effective risk management strategies are used to identify potential risks associated with well activities and implement measures to remove or reduce those risks.

The proposed Well Operations Regulations will provide an objective-based system for regulation of offshore petroleum well activities. This is consistent with government policy already implemented in the Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities) Regulations 1996, the Petroleum (Submerged Lands) (Management of Environment) Regulations 1999, the Petroleum (Submerged Lands) (Pipeline) Regulations 2001, the Petroleum (Submerged Lands) (Diving Safety) Regulations 2002 and the Petroleum (Submerged Lands) (Data Management) Regulations 2004.

3 Identification of Options

3.1       Current Regulatory System

Offshore well activities are currently regulated through directions set out in the Schedule of Directions of the PSLA. Section 101 of the PSLA empowers the DA to issue these directions in regulating a well activity undertaken by a company. Directions in relation to safety, management, pipelines, diving safety and data management have been removed from the Schedule of Directions and are now administered under objective-based regulations.

Maintaining the current regulatory system would limit the scope for improved outcomes. It does not offer industry the opportunity to implement improved technologies and methodologies for well operations to achieve continuous improvement in those operations.

It should also be noted that the use of prescriptive directions is not consistent with government policy to move to regulate offshore petroleum activities through objective-based regulations.

3.2       Objective-based regulation

Objective-based regulation is the preferred option and is consistent with government policy for regulation of offshore petroleum activities. Matters concerning offshore safety, management of environment, pipeline operations, diving safety and data management are now subject to objective-based regulation.

The objective-based approach focuses on outcomes, rather than prescribing in detail how companies should operate. The Australian objective-based regulatory system, endorsed by the ANZMEC Sub-Committee in 1994, requires companies to have a management plan approved by the DA in place prior to the commencement of the relevant activity; eg, the Petroleum (Submerged Lands) (Management of Environment) Regulations 1999 requires an Environment Plan and the Petroleum (Submerged Lands) (Pipeline) Regulations 2001 requires a Pipeline Management Plan. Companies must also demonstrate that they have the relevant expertise to meet objectives and demonstrate compliance with these objectives.

The proposed objective-based regulation of offshore well operations will require a company undertaking a well activity, such as drilling or well testing, to identify potential hazards and risks to the integrity of its petroleum wells and consequently implement measures to remove or control those hazards and reduce the risks. It will also require the company to submit a Well Operations Management Plan (WOMP) to the DA, for acceptance. In accordance with sound engineering principles and good oil field practice[4], a WOMP should include a description of the design, construction and management of the well activity and a plan for managing the risks identified for the activity. Following acceptance of the WOMP by the DA, the company is obliged to implement the methodology specified in the WOMP to conduct relevant well activities.

Through consultation between the Commonwealth, State and NT petroleum regulators and industry, the following two objective-based regulatory approaches were developed and assessed.

Option 1

The first option would incorporate holistically the requirements set out in the respective Safety, Environment and Well Operations Regulations into a single document. This means a company undertaking an offshore well activity would be required to submit to the DA a single document, comprising a Safety Case (SC) under the Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities) Regulations 1996, an Environment Plan (EP) under the Petroleum (Submerged Lands) (Management of Environment) Regulations 1999 and a WOMP under the proposed Well Operations Regulations. Upon receipt of the document, the DA would distribute it across the relevant agencies to ensure that all aspects of well operations would be expeditiously assessed.

The Australian Petroleum Production and Exploration Association (APPEA), which is the peak industry body, did not support this option on the grounds that the amalgamation of the SC, EP and WOMP into one document would place an unnecessary burden on companies in terms of increased administrative costs. APPEA pointed out that as the majority of companies have administrative arrangements whereby their Safety, Environment and Reservoir Engineering Divisions respectively manage the relevant safety, environment and resource management matters, implementation of Option 1 would require industry to allocate additional time, resources and technical expertise.

It was established through consultation with the National Offshore Petroleum Authority (NOPSA), that it would not be necessary for a company undertaking a well activity to have specific safety documentation (SC) for that activity. This is because the approved Safety Case for the drilling facility (eg, drilling platform or drilling rig), from which a particular well activity is performed, could adequately address the safety aspects of the well activity.

Therefore, this option will not be analysed further.

Option 2

The second option would require a company to submit to the DA only a WOMP and an EP (see Figure 1). Respective regulators within the DA would then assess these documents in accordance with the proposed Well Operations Regulations and the Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities) Regulations 1996 respectively and forward them to the DA, for acceptance. If the well activity involved any significant safety issues, the DA would seek advice from the NOPSA, under a Memorandum of Understanding (MOU) between NOPSA and the DA. Once the DA is satisfied that the WOMP meets all the regulatory requirements, it will notify the company of its acceptance of the WOMP.

As shown in Figure 1, Option 2 provides a simpler but more effective framework for the regulation of offshore well activities. This option would provide significant flexibility as well as cost benefits to industry, as it would not require companies to submit specific safety documentation (SC) nor amalgamate the well operations and environment plans. The proposed arrangement in relation to the SC is consistent with the existing objective-based safety regulation and is also endorsed by NOPSA. The submission of the WOMP and the EP as two separate documents would streamline the approval process, as this would enable each of the Petroleum Engineering and Environment Sections within the DA to assess the respective WOMP/EP independent of the other party.

The framework will also ensure that compliance options are efficient and adaptable to the changing needs of industry, as it provides individual companies with flexibility to tailor their WOMPs to specific circumstances and corporate cultures. The benefits and cost-effectiveness of this option will be further discussed in Section 4.2

Option 2 also received a favourable response from NOPSA, the State/NT petroleum regulators and industry.

Figure 1:

4 Assessment of impacts

4.1       Current Regulatory System

The exiting directions on well operations, as set out in the Schedule of Directions are prescriptive in nature, and limit flexibility by the petroleum industry to respond to changes in circumstances or technology. Also, changes to the Schedule of Directions are not subject to parliamentary scrutiny, as they require only the Joint Authority's approval.

The prescriptive nature of the current regulatory system imposes a considerable burden on governments, as such regulations need to be continuously updated to reflect the changing practices, standards and technologies in the management of well operations. This process consumes significant resources. In addition, compliance monitoring and enforcement after the commencement of the regulations increases this burden and places the onus on governments to keep up to date with new developments and procedures.

Directions for well operations, given they are prescriptive, clearly outline specifications and requirements for conducting a particular offshore well activity. Therefore, the current system provides offshore petroleum operators with guidance on how to conduct their well activities. This has the advantage that companies can proceed with their well activities without relying on additional administrative guidelines.

4.2       Objective-based regulation

Changing the regulation of well operations from a prescriptive regime to an objective-based system will impact on the petroleum industry (operators and regulators) and the community.

The proposed Well Operation Regulations will require companies to monitor, audit and review their well operations management systems, including continual and systematic improvement. This approach will drive improved well integrity outcomes. Industry is empowered to achieve agreed risk and hazard removal or minimisation measures in the most effective way, as described in the accepted WOMP. In this way, any improvements in technology and management systems can be implemented by industry itself, which is better placed for determining up to date best oilfield practice compared with government. As industry can implement improved practices at their discretion, compliance costs for industry should be reduced.

The requirement to undertake risk assessment, hazard minimisation and prepare formal WOMP documents may appear to burden petroleum exploration and development companies with increased administrative effort. However, the majority of companies already have systems in place to manage their commercial and technical risks, as is normally required for offshore well operations. Therefore, overall costs for industry are expected to be reduced, as companies will be able to integrate well operations risk management into their overall risk management systems.

APPEA has welcomed the enough flexibility provided by the proposed Regulations for industry to implement improved technologies and methodologies for well operations to achieve continuous improvement in those operations. However, APPEA was concerned that given the proposed Regulations are non-prescriptive, some companies could be disadvantaged if they were not provided with adequate guidance and clarity in relation to the WOMP process. To address this concern, industry will be provided with administrative guidelines (see next Section), outlining the process leading to the conduct of offshore well activities in compliance with the proposed Regulations. These guidelines are designed to facilitate industry's understanding of its obligations and requirements and provide non-mandatory guidance to companies preparing a WOMP for the DA's acceptance.

The exiting objective-based Safety Regulations have adequately addressed the community concerns about the safety of offshore well operations. Implementation of a similar objective-based regulatory regime for managing well activities will adequately satisfy the community expectation that the integrity of offshore petroleum wells is maintained over their operational life. The transparent and accountable acceptance and compliance processes encompassed in the proposed Regulations will reassure the community that well operations are being conducted responsibly. The community will also benefit through enhanced reliability of supply.

Small business is generally not involved in the exploration and production of petroleum offshore. However, the proposed Regulations may provide them with some additional opportunities for the supply of goods and services to the offshore petroleum industry where they can assist in the adoption of new practices and technologies.

Under the proposed Regulations, the enforcement function of the DA will change to place greater emphasis on auditing compared with on-site inspection. As costs involved in auditing and on-site inspections are not available to us, it is not possible to put a dollar figure on these costs. However, the qualitative analysis below suggests that the objective-based approach could provide cost savings to both industry and governments over time.

The existing regulatory system requires an on-site inspection for each offshore well activity, prior to the DA's approval of the activity. As part of the approval process, at least two or three State/NT petroleum regulators and petroleum operators will visit the relevant offshore site to undertake the on-site inspection of the proposed activity. Both industry and the State/NT governments will bear the costs of these inspections. Industry will have to transport regulators, and company administrators and technical experts to the offshore site by helicopter, accommodate them on offshore platform for 2 to 3 days, and pay allowances to administrative/technical staff. The governments will need to pay additional salaries and allowances to the regulators for conducting the inspection and providing detailed written report to the DA after the inspection.

On the other hand, frequent on-site inspections will not be necessary under the objective-based Well Operations Regulation. The WOMP, under the proposed Regulations, would provide a description of the design, construction and management of proposed well activities and a plan for managing the risks identified for those activities. Therefore, the DA could examine and scrutinise the relevant well activities in the process of acceptance of the WOMP and through subsequent auditing, without sending regulators for frequent on-site inspections. It is also worth noting that following the establishment of NOPSA in January 2005, the NOPSA inspectors will conduct frequent on-site inspections on offshore platforms/rigs. As these inspections would adequately cover the safety related matters involving offshore well activities, it would not be necessary for the State/NT regulators to conduct regular inspections. Following the approval of the WOMP, the regulators will conduct audits through meetings and interviews with petroleum operators and examination of relevant documentation. Auditing will be required at less regular intervals (approximately, once in six months) and the costs involved in auditing are expected to be significantly less than that of an on-site inspection.

The introduction of the Well Operations Regulations will also enhance Australia's reputation as a reliable supplier of petroleum resources to the international community.

Further benefits arising from objective-based regulation include:

•       Streamlined regulatory process;

•       Parliamentary scrutiny, as the new Regulations and subsequent amendments requires Executive Council approval and tabling in Parliament;

•       Improved well integrity outcomes, because industry has more flexibility than at present to adopt innovative technologies; and

•       Responsive to industry and community demands for best practice well operations management and continuous improvement in all aspects of a company's well operational performance.

It is apparent from the above analysis that the proposed objective-based regulation of offshore well operations will provide an effective framework for addressing industry needs, while ensuring government is able to protect community interests.

5 Consultation

The proposed Regulations were prepared by a Working Group (Well Operations Management Working Group) comprising representatives from the Commonwealth Department of Industry, Tourism and Resources; Geoscience Australia; mining departments of Western Australia, South Australia, Victoria and the Northern Territory; and APPEA. APPEA represents the majority of the Australian upstream petroleum industry, including both large and small companies. Individual company representatives also assisted the Working Group at various meetings.

The Working Group prepared and finalised the proposed Regulations through eight comprehensive meetings over the period March 2001 to July 2004 and reached agreement on all impending issues by consensus. In order to involve a diverse range of petroleum operators, the Working Group invited a large spectrum of industry from small, medium and large to an industry forum in Perth in October 2001 to submit comments prior to the finalisation of the Well Operations Regulations. These comments were incorporated into the draft Regulations in an attempt to balance Government's role as regulator and industry's objective of profit generation to achieve the best outcome for stakeholders and the community.

At the Working Group meeting held in February 2004, APPEA and a number of industry representatives expressed their concern that without clear administrative guidelines industry would find it difficult to conduct its offshore petroleum well activities in compliance with the proposed Regulations. They requested that guidelines for offshore well activities should be developed and finalised, prior to the commencement of the Well Operations Regulations. The Working group agreed to prepare administrative guidelines to assist companies to undertake their well activities in accordance with new Regulations.

The Working Group is currently finalising Guidelines for Well Operations after consultation with the members and industry. The Guidelines are expected to be finalised by the end of October 2004.

6 Conclusion and recommended option

6.1       Current Regulatory Regime

The current regulatory regime does not have the support of government because it is not consistent with government policy in relation to regulation of offshore petroleum activities. It restricts the flexibility of companies to utilise innovative technology and reduce risks over time, which will result in sub-optimal outcomes.

The prescriptive nature of the current regulatory system imposes a considerable burden on governments, as such regulations need to be continuously updated to reflect the changing practices, standards and technologies in the management of well operations. Also, the use of prescriptive directions is not consistent with government policy to move to regulate offshore petroleum activities through objective-based regulations.

6.2       Preferred Option: Objective-based Regulation

Objective-based regulation is the preferred option, as it enhances flexibility and innovation in well operations. It also fosters efficiency, increases industry responsibility and the encouragement of continually improving management practices. Such regulations are also subject to parliamentary scrutiny.

As previously explained, objective-based regulation provides a framework within which the government, industry and the community can work to ensure the risks of exploiting Australia's petroleum resources are reduced to, and maintained at, as low as reasonably practicable. The framework will also ensure that compliance options are efficient and adaptable to the changing needs of industry, as it provides individual companies with flexibility to tailor their WOMPs to specific circumstances and corporate cultures. The proposed Well Operations Regulations will also provide for a consistent approach to well operations throughout Australia. This will create capacity for continuous improvement and adjustment to changes in circumstances and technology. The framework will provide a high level of assurance through regulator acceptance procedures, ensuring that community desired outcomes are achieved.

This option will provide a high level of assurance to the community that acceptable outcomes will be consistently achieved at a lower overall long-term cost compared with the alternatives.

7 Implementation and review

Section 157 of the PSLA provides for the construction of regulations. The relevant directions contained in the Schedule of Directions will be repealed at the same time the regulations take effect. The Well Operations Regulations will retain the effect of the existing directions for a limited period (as agreed with the Designated Authority - two years) for existing wells. This will provide operators with sufficient time to submit compliant WOMPs prior to implementation.

The Well Operations Regulations will be administered by the DAs, who currently administer similar provisions. There are reporting requirements under the Regulations to allow the DA to monitor performance. In terms of enforcement strategies, the DA has the power to compel compliance with the Regulations. In addition to penalty units, the DA can revoke acceptance of the WOMP.

The effectiveness of the regime will be assessed using the monitoring, audit and reviewing aspects of the proposed regime, which is a requirement of the objective-based regulatory system.

The Well Operations Regulations will be reviewed periodically by the Upstream Petroleum Subcommittee (UPS) of the Ministerial Council on Minerals and Petroleum Resources. The UPS will consult with industry on an as-needs basis to review the effectiveness of the Well Operations Regulations. The comprehensive review will include full consultation with relevant bodies. The effectiveness of the regime in ensuring ongoing, good oilfield practice in the Australian offshore petroleum exploration and development industry will be assessed using information provided in reports required from operators by the objective-based regulatory system.

Attachment 1

Major oil industry accidents

A chronology of some of the major oil industry accidents in the last 25 years is given below.

March 1980: Alexander Keilland oil rig in Ekofisk field of North Sea broke up with fatigue fracture and capsized, killing 123 people.

October 1981: United States oil drilling ship sank in South China Sea, killing 81 people.

September 1982: U.S. oil rig Ocean Ranger keeled over in the North Atlantic, killing 84 people.

August 1984: Thirty-six workers drowned and 17 were injured in an explosion and fire on a Petrobras oil-drilling platform in the Campos Basin off Brazil.

January 1985: Two men were killed and two injured in a pump room explosion on Glomar Arctic II rig in the North Sea.

July 1988: In the world's worst oil rig disaster, 167 people were killed when Occidental Petroleum's Piper Alpha oil rig in the North Sea exploded after a gas leak.

September 1988: Four workers were killed when an oil rig owned by Total Petroleum Co. of France exploded and sank off the south-eastern coast of Borneo.

May 1989: Three people were injured in an explosion and fire on an offshore oil platform owned by Union Oil Co. of California. The rig was operating on the Cook Inlet, southwest of Anchorage, Alaska.

December 1991: One crew member died after a Petrobras tanker explosion off the Sao Paulo, Brazil state coast.

March 1992: A French-built Super Puma helicopter, carrying 15 workers and two crewmen, plunged into the North Sea seconds after taking off from Cormorant Alpha platform to make a short hop to an accommodation vessel. Eleven men died.

January 1995: Thirteen people were killed in an explosion on a Mobil oil rig off the coast of Nigeria. Many were injured.

November 1995: One person died and five were wounded in a Petrobras pipeline fire in Sao Paulo.

January 1996: Three people were killed and two injured in an explosion on a rig in the Morgan oil field in the Gulf of Suez.

July 1998: Two men died in an explosion on the Glomar Arctic IV rig.

December 1998: A fire at Petrobras's Gabriel Passos Refinery in Minas Gerais killed three workers.

January 2001: Two workers died from a fire on a Petrobras offshore natural gas platform in Campos Basin.

March 2001: Ten people were killed after explosions rocked the world's biggest offshore oil platform belonging to Brazil's state oil firm Petrobras.

Attachment 2

Project	Oil/Gas	Operator	Capex	Status
Victoria
Basker/Manta	oil	Anzon		Consideration
Casino	gas	Santos	$208m	Consideration
Golden Beach	gas	Santos		Consideration
Kipper	gas	ExxonMobil	$600m	Consideration
Minerva	gas	BHP Billiton	$230m	Construction
Otway Gas Project	gas	Woodside	$1100m	Committed
Sole	gas	OMV	$200m	Consideration
Western Australia
Angel	gas	Woodside		Committed
Browse Gas Project	gas	Woodside		Consideration
Cliff Head	oil	Roc Oil	$140m	Consideration
Dockrell	gas	Woodside		Consideration
Enfield	oil	Woodside	$1480m	Committed
Gorgon	gas	ChevronTexaco	$11000m	Consideration
John Brookes	gas	Santos	$170m	Committed
Mutineer/Exeter	oil	Santos	$480m	Construction
North West Shelf Train 5	gas	Woodside	$1600m	Consideration
Perseus over Goodwyn	gas	Woodside		Committed
Pyrenees/Macedon	oil/gas	BHP Billiton	$300m	Consideration
Scarborough	gas	BHP Billiton	$4000m	Consideration
Searipple	gas	Woodside		Consideration
Stybarrow	oil	BHP Billiton		Consideration
Tidepole	gas	Woodside		Consideration
Tasmania/Victoria
Bass Gas (Yolla/White Ibis)	gas	Origin Energy	$400m	Construction
Northern Territory
Blacktip	gas	Woodside	$500m	Consideration
Darwin LNG	gas	ConocoPhillips	$2300m	Construction
Evans Shoal	gas	FAR	$2000m	Consideration
Greater Sunrise	gas	Woodside	$6000m	Consideration
Montara	oil	Coogee		Consideration
Petrel/Tern	gas	Santos	$1000m	Consideration

[2] The Schedule of Directions provides a set of prescriptive directions for offshore petroleum operations.

[3] Typical risks to integrity of petroleum wells include well casing corrosion, loss of mud circulation, hole collapse and surface/underground blow outs.

[4] Good oil-field practice is defined in the PSLA as, "all those things that are generally accepted as good and safe in the carrying on of exploration for petroleum, or in operations for the recovery of petroleum, as the case may be".