29 April Submission - Consultation on the Offshore Petroleum and Greenhouse Gas Storage Amendment (Titles Administration and Other Measures) Bill 2021 April 29, 2021 By AMPLA Admin Oil and Gas, Resources and Energy article 0 30 April 2021 Submission - Consultation on the Offshore Petroleum and Greenhouse Gas Storage Amendment (Titles Administration and Other Measures) Bill 2021 AMPLA appreciates the opportunity to provide this submission in response to the above consultation on the draft Offshore Petroleum and Greenhouse Gas Storage Amendment (Titles Administration and Other Measures) Bill 2021 (Bill), which is proposed to amend the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act). AMPLA also refers to its previous submission in relation to the earlier Consultation on Enhancing Australia’s Decommissioning Framework, dated 3 February 2021 (Previous Submission). About AMPLA AMPLA Limited is a not-for-profit association established to advance the knowledge of law associated with the energy and resources sector. AMPLA was established in 1976 and is the peak body for lawyers in energy, resources, renewables and commodities. AMPLA’s membership represents private practice, inhouse and government lawyers and other industry professionals across Australia, Singapore and other international markets. AMPLA brings together leaders and experts from legal and other professions working in the resources and energy industries to provide opportunities for discussion and research and to contribute to and make recommendations concerning the development of the law and industry policy. AMPLA has drawn on the expertise of its members to make this contribution to the development of the Bill and invites the Government to consider its submission. Summary The Bill will potentially capture a very wide range of ‘change in control’ transactions under the NOPTA approval requirement, including many that have little relevance to a registered titleholder and/or petroleum operations under a petroleum title. This will potentially complicate many corporate re-organisations and investments. Further, the fact that the change in control provisions in the Bill do not reference and are not consistent with analogous Commonwealth legislation will pose problems for industry in interpretation and application of the laws. The imposition of a potential trailing liability, while not a ‘standing’ liability under the OPGGSA, may nonetheless pose significant risks for industry given that the trailing liability may be imposed by the Government using a broad discretionary power and to a very broad class of persons. The series of events or gateways that needs to occur before the trailing liability option of ‘last resort’ is activated by the Government needs to be clearer. The departure of the related person concept under the draft Bill from established approaches can be expected to give rise to significant uncertainty. The combination of discretionary, indefinite trailing liability and the related person concept has the potential to stifle investment, have a negative impact on both the availability and cost of credit to industry, and have a negative effect on board and executive recruitment, retention and company decision making. It is important that there should be appeal or internal review processes for decisions made by the Government about transactions, trailing liability and technical and financial capacity of a titleholder or applicant, to allow for procedural fairness and natural justice. Finally, the provisions of clause 46 of the draft Bill do not specify that a remedial direction that is to be given to a person in respect of whom a determination has been made may only apply in relation to current titles and titles that ceased to be in force on or after 1 January 2021. This should be made clear to avoid concerns about the draft Bill having backdated application and thereby applying laws retrospectively, which should generally be avoided. Changes in company control As indicated in our Previous Submission, AMPLA generally supports the proposal to extend government oversight of commercial transactions that result in substantive changes to ownership and/or control of a titleholder entity through a corporate merger, acquisition or takeover. The Bill as currently drafted however sets a low threshold for the definition of ‘control’ (of 20%) and establishes a tracing regime that means that changes in control right up the corporate chain, potentially in levels of corporate structure well above the level of the registered titleholder, may be subject to NOPTA oversight. The Bill as currently drafted also does not consider the percentage interest held in the petroleum title by the relevant titleholder subject to the change in control. A change in ‘control’, as defined, of a titleholder that holds only a fractional percentage interest in the petroleum title will be subject to NOPTA oversight. The Bill will therefore capture a very wide range of transactions under a NOPTA approval requirement. Large corporate groups that have multiple subsidiaries, one of which might hold a small interest a petroleum title, may require approval from NOPTA for transactions within the corporate group which have little or no impact on the registered titleholder and petroleum operations under the petroleum title. AMPLA acknowledges and supports the Government’s legitimate desire for increased oversight of key commercial transactions that result in substantive changes of control of titleholders. However, AMPLA respectfully submits that by imposing such a low threshold for the definition of ‘control’, and not referring at all to the percentage interest held in the petroleum title by the relevant titleholder affected by the change in control, the Bill will create an additional Government approval requirement that will potentially complicate many corporate re-organisations and investments. This will be a concern in particular for listed entities that are subject to continuous disclosure requirements at law and under stock exchange rules. It is notable also that the change in control provisions in the Bill do not reference and are not consistent with equivalent definitions and concepts in analogous Commonwealth legislation, for example the Corporations Act and Foreign Acquisitions and Takeovers Act. In its Previous Submission, AMPLA urged the Government to have regard to other similar Commonwealth legislation in drafting the change in control provisions. AMPLA notes the possibility to define ‘change in control’ as occurring if an entity starts or stops controlling the register holder under section 50AA of the Corporations Act, or the holder starts or stops being a subsidiary of a corporation under section 46 of the Corporations Act. Utilising such definitions would assist industry greatly with interpretation and application of the new requirements. From AMPLA’s perspective there are certain other potential issues in the Bill which Government might seek to address: There is no right for the parties to a change in control transaction to seek an ‘indicative’ approval from NOPTA, in advance of the transaction being entered into, as to whether the change in control will be approved. An ‘indicative’ approval mechanism would provide more certainty for parties involved in the transaction. There is no appeal or internal review processes for decisions made by NOPTA in respect of whether to approve a change in control transaction. Allowing for appeal or at least internal review to be requested by an affected party for a transaction should be considered to facilitate procedural fairness and natural justice. Finally, the ability for NOPTA to revoke its decision to approve a change in control if there is a ‘change in the circumstances’ and NOPTA ‘considers it appropriate’ is concerning and will lead to significant uncertainty for parties to a transaction, even after NOPTA’s approval has been given. If this provision is retained in the Bill and subsequently enacted, clear guidance will need to be given by Government as to what will constitute a ‘change in circumstances’ and in what circumstances NOPTA will consider it ‘appropriate’ to reverse a decision that has been given. AMPLA notes that allowing NOPTA this right will also significantly complicate share sale agreement / sale and purchase agreement transaction mechanics, which may deter investment. Trailing liability AMPLA acknowledges the findings of the Government’s review of Australia’s decommissioning framework and those of the Walker review, which identified the need to enhance existing trailing liability provisions to protect the interests of the broader community and taxpayers. AMPLA re-emphasises its comments made in its Previous Submission in this respect. In principle, AMPLA’s view is that current and former titleholders should be able to contractually manage the trailing liability risks satisfactorily as between themselves, and the risks which are sought to be addressed by the proposed expanded trailing liability provisions are best addressed through the exercise of NOPTA’s enhanced oversight over transfers, dealings and now changes in control. The proposal that current and former titleholders, related bodies corporate and other ‘related persons’ may be subject to trailing liability to remediate or decommission a site even post-approval to sell or post-consent to surrender will pose significant issues for industry. The possibility of a requirement to maintain financial assurance to cover trailing liabilities as long as a remedial direction is in force (as per clause 43 of the draft Bill), possibly indefinitely post-sale or post-surrender, will also pose significant issues for industry. In many instances, contingent liabilities related to trailing liabilities will not be able to be removed from company balance sheets. This will be a barrier to ‘clean exit’ by investors and has the potential to deter investment. If expanded trailing liability provisions are to be implemented, then the proposal that such provisions will function only as a “last resort measure”, consistent with the position in the UK, is supported. Further, the intention to generally apply the trailing liability provisions to “ensure the risks and liabilities of petroleum activities remain the responsibility of those who have derived the greatest financial benefits from the project” is acknowledged. Policy and guidance material that supports the trailing liability provisions will need to strongly emphasise these principles (which are not apparent prima facie from the text of the Bill itself). The legislation, policy or guidance materials (ideally legislation) should also clearly specify what is the series of events or gateways that need to occur, before the trailing liability option of ‘last resort’ will be activated by Government. Again, this is not apparent prima facie from the text of the Bill itself – as it is, the trailing liability provisions may be activated in respect of a current or former title simply by determination of the relevant regulatory body, which is subject to few constraints. Unless the series of events or gateways that need to occur before the trailing liability option of ‘last resort’ is activated is made clear, then the uncertain prospect of a trailing liability obligation being imposed at any time at the discretion of a regulator – with that liability then attaching to potential criminal liabilities including imprisonment – will be a significant issue for industry, and essentially no better than the alternative option the Government considered imposing of a standing obligation in respect of trailing liability under the OPGGS Act. AMPLA also has significant concerns regarding the concept of a ‘related person’ under the Bill. The breadth of this concept (i.e. possibly applying to any person that was capable of significantly benefiting, or has significantly benefited, financially from the operations, has been in a position to influence compliance and/or acts or has acted jointly with the titleholder) is notable. Under these broad powers, a determination could conceivably be made – and remedial direction issued to – not only certain company officers (which AMPLA acknowledges may be appropriate in certain circumstances) but also potentially other employees in management positions, external administrators, receivers and liquidators, financiers, consultants and advisors (including legal advisors). These classes of person may have benefited financially or been in a position to influence compliance by the current or former registered titleholder or related body corporate, which would trigger the provisions. However, AMPLA’s view is that such persons should not have any primary obligation / liability for decommissioning, at least in the absence of it being established that they contributed to or were aware of conduct which resulted in the titleholder failing to meet its decommissioning obligations. In the absence of amendment to the Bill or detailed additional policy/guidance material being released to support the provisions of the Bill in this respect, such a broad and amorphous concept of who is a ‘related person’ has the potential to stifle investment, have a negative impact on both the availability and cost of credit to industry, and have a negative effect on board and executive recruitment, retention and company decision making. AMPLA also has concerns regarding the breadth of obligations that former titleholders, related bodies corporate and other ‘related persons’ can be subject to if a remedial direction is in force – i.e. not only those relating to restoration of the environment but also more general obligations included in the provisions of section 569 OPGSSA (work practices), section 571 (provision of financial assurance), part 6.1A (polluter pays), part 6.2 (directions relating to petroleum), part 6.5 (compliance and enforcement), schedules 2A and 2B (environmental management and well integrity), clause 13A of Schedule 3 (duties related to wells) and Part 4 of Schedule 3 (OHS inspections). In other words, a former titleholder, related body corporate or other ‘related person’ can essentially be required to assume all of the usual statutory obligations and liabilities of an actual titleholder entity, for the time that a remedial direction is in force (i.e. indefinitely). Suitability AMPLA supports the provisions of the Bill related to assessment and reassessment of technical and financial capacity of titleholders, via the provisions for examination of ‘whether the technical advice and financial resources available’ available to the titleholder or applicant are sufficient. Such provisions should provide a higher degree of comfort and assurance that titleholders have the requisite ability to meet their statutory commitments. As noted in the Previous Submission, AMPLA believes that it is important that the OPGGS Act and related guidance establish clear and objective criteria for the regulators’ assessment of technical and financial capacity, and there should be appeal or internal review processes for decisions made by the regulator about the technical and financial capacity of a titleholder or applicant, to allow for procedural fairness and natural justice. Certain clear and objective criteria have been outlined in the amendments contained in Schedule 3 of the Bill and in the proposed new s695YB of the OPGGS Act, contained in the Bill, which is helpful. However, there does not appear to be any appeal or review processes included. Other matters AMPLA strongly supports the provisions of the Bill aimed at facilitating electronic submission of various documents to NOPTA. This should reduce administrative burden and streamline application processes for industry. AMPLA urges the Government and NOPTA specifically to continue working with the legal community and industry on the roll-out of these electronic/digital processes, an initiative which is appreciated. AMPLA notes that the Bill and accompanying information do not appear to contain any provisions materially amending the financial assurance provisions of the OPGGS Act (other than as outlined above, to apply those provisions to persons issued remedial directions under the new trailing liability framework). AMPLA urges the Government to comprehensively consult on any new or revised financial assurance requirements, before their implementation, whether that implementation occurs via legislation, policy and/or guidelines. Transitional provisions It is noted that the remedial directions power is generally proposed to only apply in relation to current titles and titles that ceased to be in force on or after 1 January 2021. AMPLA supports the decision by Government not to apply the measures ‘retrospectively’ to titles that ceased before 1 January 2021. AMPLA notes that the provisions of the draft Bill do not specify that a remedial direction that is to be given to a person in respect of whom a determination has been made may only apply in relation to current titles and titles that ceased to be in force on or after 1 January 2021. AMPLA queries whether Government is intending to allow for remedial directions to be given to persons in respect of whom a determination has been made irrespective of whether or when the relevant title ceased to be force. AMPLA would not support such a position given this would be a law of broad application (see comments on breadth of concept of ‘related person’ above) having backdated application. Where laws are to be imposed with backdated application, there should be strong policy reasons for doing so, general caution should be exercised and careful consideration should be given. 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