ECONOMICS LEGISLATION COMMITTEE ESTIMATES – Wed 23 Feb 2011
Senator SIEWERT—Can I ask about the approval for BP oil exploration in the Great Australian Bight. I also want to ask about PTTEP. I apologise—can I take a step back and ask a more general question first. It does, however, relate to BP. It is on the outcomes and recommendations from the USA’s inquiry into the Deepwater Horizon spill. As you know, there are a great many detailed findings and recommendations— particularly findings. I am wondering how that has generally been incorporated into the department’s decision making, specifically as it relates to the BP grant.
Mr Clarke—You are referring to the most recent report of the President’s commission?
Senator SIEWERT—Yes. I am sorry not to be precise.
Mr Clarke—Because there are, of course, multiple reviews.
Senator SIEWERT—Yes, I do mean precisely that.
Ms Constable—A number of recommendations were made in the US commission inquiry. We have certainly looked at those recommendations very carefully and compared them against the Montara commission of inquiry in Australia. I am pleased to say that there is a lot of crossover that is being incorporated into Australian thinking and certainly what we are doing in the Australian government. They have been incorporated into the draft government response. When the final government response is considered in the next couple of months, I am sure that those two inquiries will be reconciled.
Senator SIEWERT—So you mean the government’s draft response to the BP—
Ms Constable—No, to the Montara commission of inquiry.
Senator SIEWERT—I beg your pardon. As it applied to the decision that was made—the BP decision—I am thinking particularly of the quite strong comments that were made around the fact that the technology for deep-sea drilling had raced ahead but the thinking on how you deal with it had not. There were a number of comments in the report around that, as you will be aware. It seems to me that they have not caught up with that yet in the nearly 12 months since that accident happened. I am just wondering how that was taken into account when you were looking at the additional conditions that were applied to BP—because I actually do not think the conditions adequately deal with it. That is my opinion.
Mr Squire—The specific condition that was applied to the offer of the permits to BP included: ‘Prior to the commencement of drilling activities, the permit team must specify and have approved by the designated authority or his delegate hydrocarbon spill mitigation techniques and risk mitigation processes that it will deploy throughout the drill and maintain for the active life of the well.’ That was a specific response in terms of spill containment and deployment technology.
Senator SIEWERT—How is the designated agency getting up to speed with the requirements for deepwater containment? How are you learning those lessons? The regulatory process in the US was not up to speed in terms of dealing with assessing that sort of thing. My reading of the inquiry report is that all the processes failed—not just the company’s but also the regulatory process. So what lessons have been learned in Australia from that in terms of how the designated authorities make decisions?
Ms Constable—A whole range of lessons have come out of the Montara incident and also the Macondo incident in the United States. The regulatory agencies around Australia and industry have certainly started to discuss the learnings coming from both incidents. We are also holding in Australia an international conference that will draw together industry, regulatory people from around the world—and certainly from Australia—and technical specialists to discuss the learnings that have come from both incidents. That international conference will be held in August alongside the APIA health and safety conference on oil and gas. It will be held between 8 and 11 August.
Senator SIEWERT—I take it from that that there is still a learning process going on.
Ms Constable—There is.
Senator SIEWERT—We are talking now, as I understand it, about three times deeper than deepwater. That is correct, isn’t it, in terms of potential exploration areas?
Ms Constable—This is not new. There are a number of deepwater wells that have been drilled around the world and certainly in Australia. It is fair to say that deepwater drilling is occurring around the world and in Australia right now.
Senator SIEWERT—Yes, and I am also aware of the findings—and I have already been there—that the technology has raced ahead and the regulatory process and how you manage it have not kept up with that. So I ask again: are we confident that you can actually put in place processes whereby, if another spill ever happened, it could be dealt with in a better way than the BP one was?
Mr Squire—The award of exploration permits give the permittee effectively the exclusive right to apply for further approvals. So, although the award of the permit is a significant decision, BP will be required to submit themselves to further approvals—most likely, for example, an environmental referral under the Environment Protection and Biodiversity Conservation Act. They will also need to seek approval for their environment plan under the Offshore Petroleum and Greenhouse Gas Storage Act. They will be required to seek approval for their well operations management plan, which also includes approval for an oil spill contingency plan. So the award of a permit does not give the permittee a right to drill; it provides them with an exclusive right to apply for that opportunity.
Senator SIEWERT—I have heard that lots of times before. How many applications to drill have ever been refused from the company that has been granted an exploration permit? I am not talking about those that have not been taken up; I am asking how many have been refused once a company has been granted an exploration permit. You can take that on notice if you cannot answer it.
Mr Squire—Just so I understand specifically the question you are asking—you are after the number of wells for which approval has been refused to be granted?
Senator SIEWERT—Where they already had an exploration permit or a licence to explore in that particular acreage, yes.
Mr Squire—Sure, Senator, I appreciate it. I will have to take that on notice.
Senator SIEWERT—I appreciate that. I realise you probably do not carry that information around on the top of your head. In terms of the conference and the process that comes from there, what will happen beyond that? Is it the plan that you will then establish best practice standards for the industry?
Ms Constable—A number of things will occur. What we learn from the conference as it relates to cultural and leadership issues and any new learnings that have occurred on technical matters will be taken on board by the government of Australia, the states and also the industry to determine how they will be incorporated into our operations in Australia.
Senator SIEWERT—Thank you.
Mr Clarke—Senator, your question that Mr Squire took on notice is of course a direct question to which there is a factual answer but there is a context that I would like to give. The Montara incident of itself was, I believe, a game-changing incident in terms of the regulation of offshore activities in Australia. When Macondo came on top of it—which was a world-scale incident, as we understand—we are now talking about a different sense of understanding about the risks and regulation of these activities. The government’s final response on Montara, which will incorporate what we can learn from Macondo, is such that I am very confident that the regime that will apply to future permits for actual drilling, especially in deep water but not only in deep water—Montara, of course, was a shallow-water operation—will have an entirely different feel about them to what was the case 18 months ago.
Senator SIEWERT— I am not suggesting that there has not been a change. I have seen it myself. But, particularly in deepwater areas, there may be some issues that we can never overcome because it is so also. Also a number of things are involved—I do not need to teach you to suck eggs, but there was the regulatory side of things and there was the company responsibility side of things. Many of the things that came out of the US inquiry around what the companies did are very similar to the way that PTTEP also behaved. In other words, some lack of corporate rigorousness—you know it as well as I do.
Mr Clarke—I agree. There were striking similarities between the two incidents.
Senator SIEWERT—Exactly. In some instances you could think you are reading about the same incident. So there are two things here. I have been asking about the regulatory process and I want to get to get to PTT in a minute. My next question was going to be—that led nicely into it—how you can be confident that, for example, BP’s corporate responsibility and approach has significantly changed from that that was evident in the Deepwater Horizon incident?
Mr Clarke—First, as Mr Squire has indicated, what has been awarded to BP is an exclusive licence to apply to drill; it is not a permit to start drilling. So the actual question on drilling is still to come. The special conditions that have been imposed on that deepwater Great Australian Bight operation—similar conditions have been imposed on PTTEP’s future operations. We believe that the conditions focused on those two companies reflect the experience we have of those two companies in recent times and are an appropriate response, on one part. On the other part, the attention to the overall regulatory regime—the reform and strengthening of it—is the overall response. So how can we be confident? We believe that we are following best practice in applying it and we have future decision points on which we will need to be fully informed and satisfied before those operations commence.
Senator SIEWERT—I want to ask a couple more questions about BP and then a couple on PTTEP. On the acreage that they have been granted under this new licence, am I correct in understanding that it was one that was held before by, I think, Woodside—or were similar areas held by Woodside in around the late 1990s and early 2000s?
Mr Squire—That is correct. There previously was an area under title in the Great Australian Bight.
Senator SIEWERT—And in that same area Woodside did do some preliminary working—am I correct in that also?
Mr Squire—That is correct. There was a well drilled in the Great Australian Bight by Woodside called Gnarlyknots.
Senator SIEWERT—And Woodside decided not to proceed for what reason?
Mr Squire—The well was drilled but my recollection is that it did not get to the target reservoir.
Senator SIEWERT—So they did not go down far enough—is that the point?
Mr Squire—That is correct.
Senator SIEWERT—Did they pull out because they considered it uneconomic—it was too deep?
Mr Squire—The economics of deepwater drilling are challenging. Daily rig rates can be anything in excess of $750,000 or $1 million plus per day. Delays in or extensive drilling time can challenge the economics for companies.
Senator SIEWERT—So was that area re-released as a standard practice or was a decision made to put it back when Woodside forfeited it? I apologise if I have used the wrong word. Has it always been since then back out there as acreage or has it been re-released again?
Mr Squire—No, Senator, the payments themselves expired and the acreage in a sense disappeared. Quite often where areas are re-released, if I can use that expression, it is quite often as a result of new information that Geoscience Australia, for example, has acquired—pre-competitive geoscience—something fundamental that has changed in terms of the market or the economics, or improvements in technology. Those sorts of issues may lead to areas that have previously been under title being re-released at a later stage.
Senator SIEWERT—So in this case for this acreage, which of the above was it?
Mr Squire—It was support by new information that had been acquired by Geoscience Australia.
Senator SIEWERT—And that is that it is more prospective than they thought?
Senator SIEWERT—Thank you. I want to turn quickly to PTTEP. Part of the conditions there is a rigorous monitoring program for 18 months?
Ms Constable—That is correct.
Senator SIEWERT—It will be monitored each month—is that correct?
Ms Constable—Who will be undertaking the monitoring? And I understand that the monitoring plan is still being developed—is that correct?
Mr Clarke—For clarity on the record, we are talking about the monitoring that will follow the minister’s consideration of the show cause notice and the action plan?
Senator SIEWERT—Yes. The action plan has been released. Some commitments were made by the government—requirements, I should say, that they put on the company that were going to require monitoring. So I am asking about who is going to be doing the monitoring—
Mr Clarke—The department will be responsible for the monitoring, reporting to the minister, but I am sure we will contract in expertise to assist us with that monitoring task.
Senator SIEWERT—Has the monitoring plan been developed?
Senator SIEWERT—So it is ready to go? You will then be looking for somebody to do that monitoring?
Mr Clarke—Yes. We are talking to the potential experts about their assistance to us in that process.
Senator SIEWERT—Will that information then be publicly released?
Mr Clarke—You are familiar, obviously, with the minister’s announcement about the shape of it?
Mr Clarke—The commitment of the government to do the monitoring, and the undertaking of the company to cooperate in that, is captured in a deed of agreement. That deed has been finally executed in the last 48 hours and we will be publishing that deed on our website. That is the formal document that scopes the undertakings of the company and the role of the government in the monitoring. As to whether or not the results of the actual monitoring will be published, I am not sure that a decision has been made on that. I do not know. I would have to take that one a notice.
Senator SIEWERT—If you could, that would be appreciated.
Ms Constable—May I just add to what Mr Clarke was just saying about the website. The deed of agreement, the action plan associated with it and the monitoring program are now public and on the department’s website.
Mr Clarke—As of today.
Senator SIEWERT—The deed is there now, is it?
Ms Constable—That is correct.
Senator SIEWERT—The last time I looked—
Mr Clarke—Literally the final execution of this with the various signatories took place over the last 48 hours. So hopefully it is up there right now, if not tomorrow.
Senator SIEWERT—I will go and find it. Thank you for that. My other question was about trigger points. What happens if PTTEP are not meeting their undertakings through the actual plan? Do we go 18 months and they have not met it?
Senator SIEWERT—What are the triggers?
Ms Constable—If there are significant problems they will be identified during the course of the monitoring program, which could take the form of discussions with the department, with the DA—designated authority— concerned or, indeed, by the company that will continuously audit the company over the 18-month period. At any point where there is a failure or significant failure to meet the obligations within the action plan then that will come back to the department, which will then provide advice to the minister for consideration about how he might handle that matter.
Mr Squire—The minister made it very clear in his ministerial statement that he retained the right to issue a show-cause notice to PTTEP if he was not satisfied with the implementation of the action plan.
Senator SIEWERT—I did see that in the ministerial statement. My question was around what the triggers are for him making that decision to show cause.
Mr Clarke—The input to that process will be the monthly reports, and you will recall that there is a quarterly regime. There is quite an intensive regime. So it will be that very close monitoring and advice to the minister on the progress horizon.