Crown Minerals Amendment Act passes – what it means for the petroleum industry

Publish date: 2 December 2021

The Crown Minerals (Decommissioning and Other Matters) Amendment Act received Royal assent on 1 December 2021 and a number of new provisions are now in force.

The Act also makes other changes that apply across both the petroleum and minerals sectors, most notable being the introduction of new enforcement tools.

Read the Minister’s press release — The Beehive website

Read the Amendment Act — Legislation New Zealand

This article describes the changes that are in force now, and also refers to changes that are likely to come in under regulations at a later time.

New provisions now in force that apply to the petroleum sector

The legal requirement to decommission is now in force

Explicit legal requirement to carry out and fund decommissioning

The Act imposes an explicit legal requirement on all petroleum exploration and mining permit holders and mining licence holders, to carry out decommissioning activities according to all relevant laws, standards and consents.

The new provisions require both current and future petroleum exploration and mining permit holders and mining licence holders, to meet the full financial costs of decommissioning activities under the Act.

Timeframes for decommissioning are set out in the Act.

What is decommissioning?

Decommissioning generally occurs at the end of life of a petroleum permit or licence and is the process of taking petroleum infrastructure and wells out of service or arranging to safely leave them in place. Decommissioning may include removing the infrastructure, plugging and abandoning wells and undertaking any site restoration activities.

Decommissioning can be any activity undertaken under any law – such as the Resource Management Act 1991, the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2021 or the Health and Safety at Work Act 2015.

Responsibility for decommissioning – joint and several liability and transfer of interest

Permit and licence participants are jointly and severally liable for decommissioning under the Act.

Additionally, any person who transfers their interest out of a permit or licence will continue to be held liable to fund decommissioning, if the new permit or licence holder fails to do so.

New record and reporting requirements

Decommissioning plan

The Act requires that a person who is, or will be, obliged under the Act to carry out and meet the costs of decommissioning must submit a decommissioning plan to the Chief Executive of MBIE. This plan must be submitted at a specified time or a time prescribed under regulations.

The plan must describe the planned decommissioning activities and the processes that will be used to carry out those activities.

Decommissioning cost estimate

The Act requires that a person who is, or will be, obliged under the Act to carry out and meet the costs of decommissioning must submit a cost estimate of the anticipated decommissioning work to the Chief Executive of MBIE. This cost estimate must be submitted at a specified time or a time prescribed under regulations.

The Minister can also require further information about the cost estimate to be submitted within a time specified by the Minister.

Ongoing financial monitoring

The Act requires that a permit or licence holder who is obliged under the Act to carry out and meet the costs of decommissioning must keep records of any information, to enable the Minister to monitor their financial position. This information must be submitted on request from the Minister or at times that may be prescribed under regulations.

Financial capability assessments

The Act allows the Minister to carry out an assessment to determine whether the permit holder or licence holder who is obliged to fund and carry out decommissioning is highly likely to have the financial capability required to meet the cost of decommissioning. The Minister may carry out an assessment at any time while the permit is in force.

Field development plans

The Act requires field development plans to be submitted on the request of the Minister, or at times that may be prescribed by regulation. The Act requires the field development plan to detail the planned development of the field over its productive life. Further requirements for field development plans may be prescribed by regulations. 

Asset registers

The Act requires asset registers to be submitted on the request of the Minister, or at times that may be prescribed by regulation. An asset register is expected to be a complete and accurate list of the petroleum infrastructure and wells that the permit and licence holder must decommission to provide a comprehensive view of the scope of decommissioning. Further information may be required under regulations.

Notice of expected cessation and notice of cessation

The Act requires the holder of a petroleum mining permit to submit a notice of the expected cessation to the Chief Executive, if required through regulations or on request from the Minister. Information required to be included in a notice of cessation, or expected cessation, may be prescribed by regulations.

Decommissioning completion report

The Act requires anyone who is obliged to carry out decommissioning to submit a decommissioning completion report to the Chief Executive, on the request of the Minister, or at times that may be prescribed by regulation. Information required in a decommissioning completion report may also be prescribed by regulations.

Financial securities

The Act requires permit and licence holders to have and maintain one or more financial securities that may be accessed if they fail to carry out or fund decommissioning. As soon as practicable after commencement, the Minister will write to permit and licence holders setting out the time that they must obtain one or more financial securities.

The Minister will determine the kind and amount of security that the permit or licence holder must obtain and maintain, taking into consideration various matters including:

  • how much time left before a field will be decommissioned
  • any emerging risks and
  • any conclusions from a financial capability assessment.

New pecuniary and criminal sanctions for not decommissioning

The Act includes new pecuniary penalties and criminal sanctions for not decommissioning petroleum infrastructure and wells.

The pecuniary penalty for an individual is up to $500,000, and for a body corporate, the greater of either $10,000,000, three times the commercial gain, or 10 percent of the turnover of the body corporate and all its interconnected bodies corporate. 

Knowingly failing to carry out certain obligations can also result in criminal sanctions:

  • an individual, could face imprisonment for a term of up to two years, or a fine not exceeding $1 million
  • a company, could be fined up to $10 million or a fine of up to three times the cost of decommissioning, whichever is greater.

Directors would only be criminally liable if they are the director of a permit or licence holder at the time the breach occurs. Directors would have a defence if they could demonstrate that they took all reasonable steps to make sure decommissioning obligations would be met.

Restrictions on indemnities and insurances

The Act also includes restrictions on indemnities and insurance for a director, employee or agent or former director, employee or agent.

Provisions now in force that apply across the CMA

The Act also introduces changes that apply across the Crown Minerals Act (the CMA). These changes affect both the petroleum and minerals sectors. 

New enforcement tools for the regulator

The Act gives the regulator new enforcement tools to improve compliance and enforcement under the Act, including:

Compliance notices

A compliance notice is issued by the Chief Executive of MBIE, or an enforcement officer, to a person that they believe, on reasonable grounds, is breaching one or more of the requirements of the CMA or its regulations. A compliance notice sets out what the breach is and a time by which the breach will need to be remedied. If the person issued with the compliance notice doesn’t comply within the set time they could be fined on conviction of up to $200,000.

Enforceable undertakings

An enforceable undertaking is an agreement between the regulator and a non-compliant party that the regulator will not prosecute if the non-compliant party agree to certain conditions, activities, or actions. A person who contravenes an enforceable undertaking while it is in force could be fined on conviction of up to $200,000.

Infringement offences 

Infringement offences are instant fees for non-compliance with certain requirements. NZP&M as the regulator, cannot use infringement offences until regulations defining the infringement offences are passed.

These new enforcement tools can only be applied to offences that take place on, or after, the date of Royal assent – 1 December 2021.

Changes to the tests used when someone acquires a permit

The Act also amends the test used when:

  • someone applies for a new permit
  • someone transfers their interest in a permit
  • a change of control for a Tier 1 permit operator is consented.

The Act now requires the decision-maker to be satisfied that a proposed permit holder will be highly likely to comply with work programmes, permit conditions, health and safety requirements, environmental requirements and obligations relating to fees and royalties.

This change is intended to reduce the chance of people getting a permit if they:

  • don't have the right technical or financial capability, or
  • have a poor history of compliance.

New offence for not providing information when requested in a written notice

The Act includes a new offence and penalty for any person that doesn’t provide information requested in a written notice by the Minister, the Chief Executive or an enforcement officer under section 99F of the Act.

Consistent with existing penalties in the Act, a person could be fined up to $20,000, and, if the offence continues, to a further fine of up to $2,000 for every day or part day the offence continues.

Other amendments made in the Act that affect the petroleum industry

The Act also makes other amendments to improve its administration, including:

  • clarifying the type of records and reports expected to be kept by permit and licence holders
  • enabling the proactive release of reports once the relevant non-disclosure periods have passed.

NZP&M is working to implement these new provisions

NZP&M is working to implement the new provisions and will keep permit and licence holders informed of our approach and expectations.

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