Crown Minerals (Decommissioning and Other Matters) Amendment Bill

2.1. Are there any publicly available inquiry, review or evaluation reports that have informed, or are relevant to, the policy to be given effect by this Bill?

YES

Parliamentary Commissioner for the Environment - Drilling for oil and gas in New Zealand: Environmental oversight and regulation

(June 2014)

https://www.pce.parliament.nz/media/1265/fracking-report-web-may2015.pdf

The Ministry of Business, Innovation and Employment - Discussion Document - Review of the Crown Minerals Act 1991

(November 2019)

https://www.mbie.govt.nz/dmsdocument/7320-discussion-document-review-of-the-crown-minerals-act-1991

2.2. Does this Bill seek to give effect to New Zealand action in relation to an international treaty?

NO

2.3. Were any regulatory impact statements provided to inform the policy decisions that led to this Bill?

YES

Three impact assessments were prepared by MBIE for the policy proposals in this Bill:

1. Regulatory Impact Assessment: Regulation governing legal and financial responsibility for decommissioning petroleum infrastructure and enforcement tools under the Crown Minerals Act 1991, June 2020, available on MBIE’s website:

https://www.mbie.govt.nz/dmsdocument/11619-regulation-governing-legal-and-financial-responsibility-for-decommissioning-petroleum-infrastructure-and-enforcement-tools-under-the-crown-minerals-act-1991-proactiverelease-pdf

1. Regulatory Impact Analysis: Residual liability for petroleum wells and infrastructure following decommissioning, April 2021, available on MBIE’s website:

https://www.mbie.govt.nz/dmsdocument/14681-residual-liability-for-petroleum-wells-and-infrastructure-following-decommissioning

1. Regulatory Impact Summary: Additional options to address limitations with petroleum infrastructure decommissioning regime under the Crown Minerals Act 1991, April 2021, available on MBIE’s website:

https://www.mbie.govt.nz/dmsdocument/14678-impact-summary-additional-options-to-address-limitations-with-petroleum-infrastructure-decommissioning-regime-under-the-crown-minerals-act-1991

2.3.1. If so, did the RIA Team in the Treasury provide an independent opinion on the quality of any of these regulatory impact statements?

NO

The impact assessments identified above did not meet the threshold for receiving an independent opinion on the quality of the impact statements from the RIA Team based in the Treasury. MBIE’s Regulatory Impact Analysis Review Panel reviewed the regulatory impact assessments, and considered that the information and analysis summarised in the impact assessments met the criteria necessary for Ministers to make informed decisions on the proposals.

2.3.2. Are there aspects of the policy to be given effect by this Bill that were not addressed by, or that now vary materially from, the policy options analysed in these regulatory impact statements?

NO

2.4. Has further impact analysis become available for any aspects of the policy to be given effect by this Bill?

NO

2.5. For the policy to be given effect by this Bill, is there analysis available on:

(a)   the size of the potential costs and benefits?

YES

(b)   the potential for any group of persons to suffer a substantial unavoidable loss of income or wealth?

NO

The cost/benefit analysis for 2.5(a) can be found in Appendix One, and in the impact assessments identified under 2.3 above.

Specifically, MBIE acknowledges that as described in the Regulatory Impact Assessment Residual liability for petroleum wells and infrastructure following decommissioning, all plugged and abandoned wells pose a small level of residual health, safety and environmental risk due to the possibility of failure of barriers. However, there is limited evidence around the risk that wells and related infrastructure pose after decommissioning has been completed, and the associated costs involved. Each instance of well and infrastructure failure would need to be assessed on a case-by-case basis for environmental and cost impact. There have only been a few instances of this occurring in New Zealand, and no instances in relation to offshore petroleum fields which are yet to be decommissioned, so MBIE has been unable to accurately assess the likely risks and costs involved.

2.6. For the policy to be given effect by this Bill, are the potential costs or benefits likely to be impacted by:

(a)   the level of effective compliance or non-compliance with applicable obligations or standards?

YES

(b)   the nature and level of regulator effort put into encouraging or securing compliance?

YES

In relation to 2.6(a) - Decommissioning costs can be substantial, with hundreds of millions of dollars typically required to decommission offshore infrastructure. These costs are an ordinary component of petroleum field exploration and mining activities, and are expected to be provided for as part of good industry practice.

The policy to be given effect by this Bill may impose additional costs on petroleum companies that do not currently follow good industry practice, and do not provide for an adequate discharge of their decommissioning obligations. These permit and licence holders may be subject to civil proceedings and a pecuniary penalty, or, in the most egregious cases, criminal proceedings and a custodial sentence or fine or both.

In relation to 2.6(b) - The benefits to the Crown are dependent to an extent on permit and licence holders complying with the new requirements. The Bill does not entirely eliminate the risk of a permit or licence holder not complying with the obligation to carry out and fund decommissioning, and therefore there is a risk of decommissioning costs falling to the Crown.

However, the provisions in the Bill provide the regulator with powers designed to mitigate this risk, including the ability to carry out periodic financial capability assessments, determine the amount of financial security a permit or licence holder must establish, and use a range of new enforcement tools to encourage compliance, such as compliance notices and enforceable undertakings.

3.1. What steps have been taken to determine whether the policy to be given effect by this Bill is consistent with New Zealand’s international obligations?

The Ministry of Foreign Affairs and Trade has provided advice on the consistency of the Bill with New Zealand’s international legal obligations.

3.2. What steps have been taken to determine whether the policy to be given effect by this Bill is consistent with the principles of the Treaty of Waitangi?

Most proposals in the Bill were included the Government’s 2019 Discussion Document - Review of the Crown Minerals Act 1991, and were subject to public consultation.

Officials contacted certain iwi in Taranaki, where most petroleum mining takes place, offering to meet to understand and incorporate views, or receive written feedback.

Some policy proposals were not consulted on publicly or with iwi.

Further detail is provided in 3.6, below.

3.3. Has advice been provided to the Attorney-General on whether any provisions of this Bill appear to limit any of the rights and freedoms affirmed in the New Zealand Bill of Rights Act 1990?

YES

Advice will be provided to the Attorney-General by the Ministry of Justice, and will be publically available at https://www.justice.govt.nz/justice-sector-policy/constitutional-issues-and-human-rights/bill-of-rights-compliance-reports/advice/ upon the Bill's introduction to the House.

3.4. Does this Bill create, amend, or remove:

(a)   offences or penalties (including infringement offences or penalties and civil pecuniary penalty regimes)?

YES

(b)   the jurisdiction of a court or tribunal (including rights to judicial review or rights of appeal)?

YES

The Bill:

• Provides for new offences under the Crown Minerals Act 1991 (CMA) in the event of failure to comply with the statutory obligation to undertake and fund decommissioning, specifically:
  • A civil pecuniary penalty for failure to carry out and fund decommissioning or failure to establish and maintain an adequate financial security, with a fine of up to $500,000 for individuals and up to $10 million for a body corporate.
• Enables the regulator to accept enforceable undertakings and issue compliance notices, and an infringement offence scheme. These will be accompanied by the following relevant offence and penalties provisions:
  • Accepting enforceable undertakings. Contravention of an enforceable undertaking would attract a maximum penalty of $200,000.
  • Issuing compliance notices. Failure to comply with a compliance notice would be a strict liability offence under the CMA and attract a maximum penalty of $200,000. However, the defendant has a defence if they can prove that they had a reasonable excuse for failing to comply with the compliance notice within the required period.
  • Authorising an infringement offence regime to be developed in regulations, with a maximum infringement fee of up to $1,000 for an individual and up to $3,000 for a body corporate, per infringement offence.
• Amends the CMA to make it an offence if a person who does not hold a permit fails to comply with a requirement to provide information under the CMA.
  • Any person who fails to comply with a written notice given under section 99F commits an offence. Like the other offences specified in section 100(2), this new offence will have a maximum fine of $20,000 and, if a continuing offence, $2,000 for each day or part day that the offence continues.  This offence will be a strict liability offence.

• A criminal penalty for knowingly failing to carry out or meet the costs of decommissioning or both, with a prison sentence of up to 2 years for individuals and/or a fine of up to $1 million. The fine for businesses would be up to $10 million or up to three times the cost of decommissioning. 

3.4.1. Was the Ministry of Justice consulted about these provisions?

YES

The Ministry of Justice was consulted on both Cabinet papers and on the draft Bill. Specific consultation occurred in respect of matters relating to offences and penalties prior to the Bill’s introduction.

3.5. Does this Bill create, amend or remove any provisions relating to the collection, storage, access to, correction of, use or disclosure of personal information?

YES

The Bill proposes new provisions relating to financial monitoring, financial capability assessments, and provision of financial securities and requires information to be provided for these purposes. A permit holder could be an individual, and in that case an individual would be required to submit information about their circumstances and on their finances. Disclosure of this information would be treated as confidential and its disclosure would be restricted in accordance with section 90A of the CMA and, were these new provisions to come into force, all information would be treated in accordance with the requirements of the Privacy Act 2020.

3.5.1. Was the Privacy Commissioner consulted about these provisions?

NO

3.6. Has there been any external consultation on the policy to be given effect by this Bill, or on a draft of this Bill?

YES

For provisions in the Bill that relate to the:

• Decommissioning obligation, financial capability assessments and financial security, high-level policy options were included in the Discussion Document - Review of the Crown Minerals Act 1991 (November 2019) (referred to in 2.1), which MBIE consulted on publicly from 19 November 2019 to 27 January 2020. 55 submitters commented on the issues and high-level options that relate to decommissioning activities. All but one agreed that the CMA is currently unclear and possibly inconsistent in its application of the obligation to decommission. There was also general support for ensuring that permit/licence holders have access to sufficient funds available for decommissioning to mitigate the risk of these activities and their associated costs being passed on to the Crown or other third parties. However, some proposals on more detailed design characteristics of the decommissioning requirements were not consulted on. Stakeholders are likely to have a further opportunity to comment on those through the standard legislative change process.
• Post-decommissioning requirements, MBIE did not consult. However, the policy was informed by a 2017 discussion document, Managing third party risk exposure from onshore petroleum wells, on a related subject where stakeholders provided views on managing third party risk exposure from onshore petroleum wells. MBIE notes that the scope and objective of that consultation was different to the impact assessment carried out: the consultation was limited to onshore wells; also included historic wells that had been abandoned; and had the main objective of limiting third party risk arising from current, future and historic wells. Stakeholders are likely to have a further opportunity to comment on those through the standard legislative change process. MBIE also intends to consult on the design features of the regulations that will implement the legislative provisions to strengthen decommissioning obligations.
• Penalties (criminal and civil pecuniary) for failing to comply with the obligation to decommission, the policy proposal was not publicly consulted on.  Stakeholders are likely to have a further opportunity to comment on those through the standard legislative change process.
• Threshold for permit acquisition provisions, the policy proposal was not publicly consulted on. Stakeholders are likely to have a further opportunity to comment on those through the standard legislative change process. 
• Power to impose enforceable undertakings and issue compliance notices and infringement notices, and other technical amendments to improve the administration of the CMA, high level policy proposals were also included for feedback in the Discussion Document - Review of the Crown Minerals Act 1991.

3.7. Have the policy details to be given effect by this Bill been otherwise tested or assessed in any way to ensure the Bill’s provisions are workable and complete? 

NO

4.1. Does this Bill contain any provisions that could result in the compulsory acquisition of private property?

NO

4.2. Does this Bill create or amend a power to impose a fee, levy or charge in the nature of a tax?

YES

The Bill does not impose a fee, levy or tax. However, it does propose a power which will allow the regulator to collect one or more payments (i.e. cash funds) from permit and licence holders to contribute to the cost of any work to be carried out to remediate wells and associated infrastructure after decommissioning has been completed.

Specifically, the Bill provides that payments would be collected from current and future petroleum permit and licence holders affected by the new explicit obligation to decommission and held in a pooled central government account (i.e. post-decommissioning fund). The fund would be used solely for the purpose of any future remediation work required for those wells and infrastructure where decommissioning has been accepted by the relevant regulatory bodies.

These provisions are necessary as, in practice, it is likely that government agencies will be left to carry responsibility for remediation work post-decommissioning on the grounds of environmental effects and/or health and safety concerns. Most petroleum permits and licences are held by limited subsidiary liability companies, by multiple participants, that cease to exist after the permit has been relinquished. It is therefore difficult to identify and hold previous permit and licence holders to account for any future failure to wells that have been plugged and abandoned and any infrastructure left in place after decommissioning has been completed.

The Bill requires the Minister to set the amount of the payment in accordance with prescribed criteria. The Minister must require that the post-decommissioning payment is made in either a lump sum or instalments taking into account the most recent report on the person’s financial capability and any prescribed criteria set out in regulations. 

The payment(s) will be assessed on a case-by-case basis following a risk assessment, the criteria of which will be subject to consultation as part of the proposed consultation for the regulations.  The Bill allows the Minister to exempt a permit or licence holder from the obligation to make a post-decommissioning payment. Criteria that the Minister must consider when granting an exemption include the Minister being satisfied that events have occurred that make the requirement unnecessary or inappropriate in the particular case.

4.3. Does this Bill affect rights, freedoms, or impose obligations, retrospectively?

YES

Decommissioning costs are an ordinary component of petroleum field exploration and mining activities, and permit holders are expected to cover these as part of good industry practice.

The Bill makes the obligation to carry out and fund decommissioning explicit.

It also imposes requirements on permit and licence holders in respect of existing petroleum infrastructure and wells. Permit and licence holders will be required to hold financial securities to secure or partly secure performance of this obligation should the permit or licence holder fail to carry out or fund the decommissioning.

Permit and licence holders will also be required to pay an amount to meet the cost of any post-decommissioning work required in relation to that same petroleum infrastructure or wells. This requirement is designed to ensure permit and licence holders financially contribute to any work required post-decommissioning.

There are powers to exempt in relation to decommissioning of petroleum infrastructure, and payment towards post-decommissioning work. Exemptions may be granted if the requirements are unreasonable or inappropriate in a particular case, or the events have occurred that make the requirements unnecessary or inappropriate in a particular case.

The requirement to carry out and fund decommissioning, and to provide a financial security, could be perceived as the creation of new obligations retrospectively as they apply to actions taken in the past (for example, wells that have already been drilled), as well as prospectively, to actions that will occur in the future (any new wells). However, it is important to note that there is an generic statutory requirement in the CMA for permit holders to act in accordance with ‘good industry practice’, and many existing permit and licence holders already have explicit conditions in relation to decommissioning. Some also have financial securities in place.

The requirement to provide payments towards any post-decommissioning work will also apply to existing operations and could be considered as the creation of a new obligation retrospectively. The current CMA does not impose residual liability on permit holders when decommissioning has been completed, however clarifying that industry should take some of the financial responsibility for risk of any future failure is consistent with the polluter-pays principle. The proposed provisions in the Bill make it clear and explicit what is expected, and that obligations must be discharged by those who undertake exploration and mining activities, not the Crown or other third parties.

4.4. Does this Bill:

(a)   create or amend a strict or absolute liability offence?

YES

(b)   reverse or modify the usual burden of proof for an offence or a civil pecuniary penalty proceeding?

YES

Strict liability offences reverse the usual burden of proof as the defendant must prove the existence of a statutory defence or absence of fault. 

There is one new strict liability offence in the Bill:

• Failure of a non-permit/ licence holder to respond to an information request. This offence is consistent with the existing penalties in the CMA and other comparable legislation. In the event that a person failed to provide the information, they will be best placed to establish absence of fault because those matters will be primarily within their knowledge.

There are three offences that may be considered strict liability offences in the Bill:

• The civil pecuniary penalty for failure to undertake and fund decommissioning. This offence is subject to a civil pecuniary penalty. This penalty has a ‘reasonable mistake’ defence, which allows a person a defence if they prove that the breach was due to a reasonable mistake or events outside of their control and the breach was remedied, and the person has compensated or offered to compensate those who suffered any loss as a result of the breach;
• Failure to comply with a compliance notice. This offence is subject to a civil pecuniary penalty. This penalty has a ‘reasonable excuse’ defence, which allows a person a defence if they prove that they had reasonable excuse for failing to comply with the compliance notice within the required period.; and,
• Breach of an enforceable undertaking. This offence could fit the category of strict liability offence. In the event that a person breaches an enforceable undertaking, they will be best placed to establish absence of fault because those matters will be primarily within their knowledge.

4.5. Does this Bill create or amend a civil or criminal immunity for any person?

NO

4.6. Does this Bill create or amend a decision-making power to make a determination about a person’s rights, obligations, or interests protected or recognised by law, and that could have a significant impact on those rights, obligations, or interests?

YES

The policy to be given effect by the Bill proposes allowing the Minister to make individual assessments and determinations about a person who has a petroleum permit or licence.

This includes the power to determine the amount and kind of financial security that a permit or licence holder must obtain and hold, and the amount of payment required for any post-decommissioning work.  The Minister will also have the power to exempt a permit or licence holder from the requirements to decommission a particular petroleum infrastructure or to plug and abandon a well, and the power to exempt a permit or licence holder from the post-decommissioning obligations.

4.7. Does this Bill create or amend a power to make delegated legislation that could amend an Act, define the meaning of a term in an Act, or grant an exemption from an Act or delegated legislation?

YES

The Bill allows the Minister to grant permit or licence holders or a class of permit or licence holders exemptions or deferrals from requirements to decommission. It also provides that class exemptions and class deferrals may be granted by regulations. This is intended to allow flexibility in the application of the decommissioning obligation, for example when infrastructure is shared or may be repurposed.

The Bill also allows the Minister to grant permit or licence holders or a class of permit or licence holders exemptions from their obligation to make post-decommissioning payments. Regulations may define a class of permit or licence holders for the purpose of this provision.

Certain provisions of the Bill also allow for regulations to be made to add to or exclude things from the following defined terms:

•  petroleum infrastructure;
•  relevant older petroleum infrastructure; and,
•  relevant older well.

4.8. Does this Bill create or amend any other powers to make delegated legislation?

YES

Cabinet has agreed that the overarching statutory obligation is to be supported by sufficient regulatory flexibility to impose specific requirements, and can be applied to individual circumstances. Therefore, the Bill allows the following details to be prescribed in regulations:

• requirements in relation to monitoring and financial capability assessments; and,
• criteria to be taken into account by the Minister when setting the amount and kind of financial securities that permit/licence holders may be required to obtain and maintain;
• the making of payments for post-decommissioning work, the management of accounts into which those payments are deposited, and the use of those payments;
• criteria the Minister will apply in setting the amount to be paid and in determining whether to grant exemptions from post-decommissioning associated payment(s);
• regulations in relation to infringement offences and compliance notices; and,
• the records, statements, or any other documentation or information required under other legislation that must be retained for the purposes of the CMA.

The Bill also allows for additional details to be prescribed in regulations, such as: things that may or may not be defined as relevant older petroleum infrastructure and wells, and defining activities that may be included in the obligation to decommission.

Further details, including the relevant provisions of the Bill, can be found in Appendix Two.

4.9. Does this Bill contain any provisions (other than those noted above) that are unusual or call for special comment?

NO