Submission - DISER Consultation Paper December 2020 ‘Enhancing Australia’s decommissioning framework for offshore oil and gas activities’

3 February 2021

Submission - DISER Consultation Paper December 2020 ‘Enhancing Australia’s decommissioning framework for offshore oil and gas activities’

AMPLA appreciates the opportunity to provide this submission in response to the Government’s December 2020 Consultation Paper.

1    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 framework for offshore oil and gas decommissioning and invites the Department to consider its submission. 

2    Summary
•    In general, the proposed revisions outlined in the Consultation Paper which relate to the assessment and reassessment of the technical and financial capacity of a titleholder are sensible and AMPLA supports these changes. 

•    The Objectives have been clearly set out and should appropriately guide the approach to implementation. AMPLA supports drawing on measures from other jurisdictions with a long history of dealing with decommissioning issues, rather than developing new measures afresh, for example, forms of security.
•    Titleholder liability for all title obligations is a joint liability under the Offshore Petroleum and Greenhouse Gas Storage Act 2006. This is independent of agreements between titleholders and obligations must be discharged jointly.
  
•    Where there are multiple titleholders and decommissioning liabilities have been properly managed contractually by the titleholders (self-regulation), the Government should be wary of introducing a security regime. If introduced, it should operate strictly as a fall-back measure only - if self-regulatory measures are not in place or are inadequate. Different considerations will need to apply when there is a sole titleholder. 

•    NOPTA’s role in the regulation of petroleum resources, in particular the regulation of tenure of title, makes it the appropriate regulator to provide oversight of titleholder financial capacity.  While NOPTA takes input from NOPSEMA, the nature of the credit assessments required are aligned with those involved in licensing and differ from financial assurance for environmental liability assessments. 

•    A trailing liability should only be imposed as a measure of last resort for use in extreme circumstances, where the current titleholders have not performed their decommissioning obligations and titleholder security has been inadequate to fulfil any outstanding decommissioning liabilities. Care is needed to ensure that a party is not exposed to liability for operations that they did not participate in, had no control over and/or no knowledge of. 

•    We strongly support promulgating such key changes to the regulatory environment through transparent amendments to the underlying legislation and not predominantly through changes to policy and guidance materials. Guidance materials have a role in prescribing the obligations and discretions of the regulator specified in legislation, and to educate regulated parties, rather than being pseudo-legislation in and of themselves.
•    Implementation should be prioritised in staged components to ensure that the scope does not overwhelm industry and advisors and create uncertainty and further impact investment in the sector.  

3    Financial Oversight
3.1    Titleholder assessment and reassessment
•    In general, the proposed revisions outlined in the Consultation Paper which relate to the assessment and reassessment of the technical and financial capacity of a titleholder are sensible and AMPLA supports these changes. 

•    If the regulator is able to regularly assess titleholder technical and financial capacity, this should provide a higher degree of comfort and assurance that titleholders have the requisite ability to meet, and continue to meet, their statutory commitments. Key to this is developing regulator capabilities and establishing sound guidance for assessments. 

•    The Consultation Paper does not provide any detail as to how such assessments would be performed or how technical and financial capacity will be assessed in the case of multiple titleholders for a single title. AMPLA submits that the regulator should be required to consider the technical and financial capacity of the titleholders together, including in the context of the contractual relationships they have to manage the title.

•    AMPLA notes the significant undertaking involved in such financial assessments given the potentially complex corporate structures that can be associated with ownership and operation of offshore resources projects. Appropriate resources will be key and consideration should be given, at least at the outset, to retaining an external financial advisor to access relevant and current expertise when needed, given the technical nature and possibly intermittent nature of this work.
   
•    AMPLA generally supports the proposal to extend assessments under the OPGGSA to a change of ownership or control of a titleholder. However, further detail is required on how this proposal would operate and the potential ramifications for titleholders who are listed entities subject to continuous disclosure obligations. Any definitions of change in control concepts that are eventually introduced to the OPGGSA should be drafted with regard to relevant Corporations Act definitions and concepts, for consistency with existing Commonwealth legislation.

•    We have identified a number of areas that will require further consideration in implementation and addressed appropriately in any new framework:

o    appeal or internal review processes for decisions made by the regulator about the technical and financial capacity of a titleholder to allow for procedural fairness and natural justice;

o    the inclusion of objective measures of technical and financial capacity against which a regulator’s decision can be reviewed; and
o    the proposed consequences of a titleholder being unable to provide financial assurance upon a reassessment event.

3.2    Self-regulation and Security 
•    Liability for title obligations is a joint liability under the Offshore Petroleum and Greenhouse Gas Storage Act 2006. This is independent of agreements between titleholders and obligations must be discharged jointly.  In other words, if one titleholder fails to perform, the remaining titleholders remain obliged to fully discharge the obligations – both their own share and that of the defaulting titleholder. The Government’s real exposure to risks posed by insolvent titleholders therefore occurs when the titleholders do not include a strong participant. 

•    The petroleum industry has a long history of self-regulation of liabilities associated with petroleum operations through the contractual and security arrangements, such as those under Joint Operating Agreements between multiple titleholders.  The principles are well established and reflected in model agreements such as AMPLA’s “Petroleum Joint Operating Agreement” and the Association of International Petroleum Negotiators “Model Joint Operating Agreement”.
 
•    These agreements use a combination of joint and several liability as between multiple titleholders to manage liability in respect of petroleum operations with cascading provisions dealing with agreement as to the works, timing, cost and assurance. The resulting contractual framework provides:

o    robust protection to ensure that adequate financial assurance is in place; and

o    a strong incentive for multiple titleholders to collectively manage financial assurance for decommissioning liabilities. 

•    NOPTA should have visibility of these key agreements between titleholders and ensure that key provisions required for self-regulation are reflected. Where these issues have been properly managed contractually by the titleholders, the Government should be wary of introducing a security regime, in particular one that would apply to existing projects with retrospective effect. 

•    If a new security regime is introduced, AMPLA submits that it should operate as a fall-back measure only if self-regulatory measures are not in place or are inadequate. Different considerations will need to apply when there is a sole titleholder. 

•    Any financial assurance requirements for decommissioning should include an assessment of the resource project itself – including factors such as available remaining resources, and the extent of decommissioning / rehabilitation already completed. 

4    Planning and management
4.1    Processes
•    AMPLA notes the Government’s intent to enhance and modernise the Field Development Plan (“FDP”) framework and related policy, recognising the central importance of the FDP in the development and management of a field to maximise its economic recovery.

•    AMPLA considers that assessment of financial capacity and assurance requirements are most appropriately conducted by a single regulator so as to avoid overlapping regimes. It promotes the development of expertise and allows for a robust understanding of a titleholder’s ongoing financial standing.

•    The proposal to do this by amending the Annual Title Assessment Report requirements to mandate the consistent collection of financial information from all titleholders is a sensible approach. 

4.2    Appropriate regulator for assessing financial assurance requirements
•    The Walker Review  recommended NOPTA, as the appropriate regulator, to obtain requisite information from titleholders and monitor financial performance and technical capacity throughout the tenure of the title, including decommissioning.  This recommendation recognises NOPTA’s role in the resource governance framework which aligns with its role in regulating financial performance and technical capacity throughout the tenure of title. 

•    AMPLA respectfully submits that what is required here is a separate and distinct analysis from NOPSEMA’s current financial assurance assessments which looks at coverage for environmental risks arising from petroleum operations.

•    The nature of environmental liability financial assurance assessments conducted by NOPSEMA for the purposes of section 571 of the Act are very different from the credit assessments required for financial assurance in relation to decommissioning liabilities.  The latter is similar to the credit assessment undertaken between titleholders and which will be required by NOPTA for the purposes of confirming financial capacity.

•    Clear legislative provisions and/or guidelines (preferably legislative provisions) should be developed to delineate NOPTA’s powers in the conduct of these measures and the exercise of any discretion, to ensure that titleholders have certainty of the basis upon which any financial assurance requirements are assessed and determined. 

•    We suggest that the framework be enhanced to ensure that NOPTA has sequential periodic opportunities to review and assess a titleholder’s financial capacity.  This will allow consideration of current circumstances and will require titleholders to refresh details of their financial capacity to objectively demonstrate capability to discharge their share of current decommissioning obligations. 

5    Accountability and trailing liability
5.1    Quantifying the decommissioning liability
•    Many of the protective measures proposed in the Consultation Paper first require a determination of what is a decommissioning liability and when such liability falls due. 

•    AMPLA supports a formal decommissioning plan (prepared as part of an FDP) which would create certainty for all stakeholders as to the nature of the work envisaged and would provide a reference point against which future funding capability could be measured by the regulator.

•    AMPLA supports the Government’s recommendation that the decommissioning plan should be periodically reassessed and reviewed over the life of a project.

•    Certainty is desirable in order to crystallise a financial measure. The UK experience is instructive. 

•    AMPLA further submits that the type of financial assurance that may be available for decommissioning liabilities is very different from what has been mainly used to date for environmental liability financial assurance (which has largely been covered by insurance products which become increasingly expensive year on year).

•    AMPLA encourages the Government, before it imposes any new decommissioning security requirements, to consult widely and in detail regarding the financial assurance products that are actually available in the market to satisfy the proposed new requirements. For instance, “bonds and securities” may not be practically available to cover decommissioning liabilities which can involve very substantial sums.
 
5.2    Proactive use of directions - residual liability
•    AMPLA supports the need for clear provisions regarding how residual liabilities (i.e. post-decommissioning / post-surrender / post-repurposing of infrastructure) will be determined and managed. 

•    Remedial directions are a tool available to manage residual risks. However, unless legislation confirms that the titleholder is no longer liable after surrender (perhaps with limited exceptions, e.g. for fraud or misleading conduct), contingent liability will never be removed from company balance sheets. This will be a barrier to ‘clean exit’ by investors and has the potential to deter investment. 

5.3    Trailing liabilities
•    In principle, former and current titleholders should be able to contractually manage these risks satisfactorily as between themselves (see item 3.2) and the risks which are sought to be addressed by trailing liability are best addressed through the exercise of NOPTA’s enhanced risk assessment powers upon the dealings or change of control approvals. 

•    Adapting the existing title-based regime for trailing liability protections will be a challenging exercise in drafting and implementation. AMPLA is concerned that the complexities and burdens associated with implementing such reforms are not underestimated.  The UK experience in relation to decommissioning reforms is informative and relevant.  

o    Complex tax considerations arise when trailing liability is engaged, including with respect to PRRT. AMPLA encourages the Government to consult with accountants and tax/fiscal experts before any new measures are introduced. 

o    Consistent with the UK position, if the Government decides to implement a trailing liability, it should only be imposed as a measure of last resort and to be used in extreme circumstances. AMPLA envisages potentially significant conflict with the Corporations Act if any amendments to the legislation seek to pass on any such trailing liabilities to separate (though related or connected) legal persons. The potential for persons such as directors or external administrators to carry primary responsibility or a personal liability even where they have acted honestly and reasonably should be avoided.
       
o    AMPLA is concerned that the concept may impose a primary obligation / liability on related persons for decommissioning, rather than (for example) those persons only being liable where it is established that they contributed to or were aware of conduct which resulted in the titleholder failing to meet its decommissioning obligations. 

o    If trailing liability is to be imposed on a previous titleholder, it should only apply to facilities to which they were involved and over which they had control and/or knowledge of the relevant operations. Former titleholders should not be exposed to liability for operations that they did not participate in, had no control over and/or no knowledge of, and decommissioning liabilities should be fairly and evenly distributed amongst those concerned. Liability should not automatically cascade to those former titleholders who simply have the greatest financial capacity to satisfy the liabilities. 

•    The concept of ‘related persons’ will be a very important one in the context of the proposed new decommissioning framework and trailing liabilities. AMPLA encourages detailed consultation on this concept and its implementation. 

•    AMPLA is also concerned that a definition of ‘related persons’ that is too wide has the potential to capture persons who may have limited or no connection with the titleholder’s activities. These issues could stifle investment, have a negative impact on both the cost and supply of credit to industry, and have a negative effect on board and executive recruitment, retention and company decision making. 

6    Retrospectivity
•    The Consultation Paper indicates that the Government’s intention is to backdate the effect of proposed legislative measures to implement the enhanced decommissioning framework to 14 December 2020. 

•    A fundamental principle of the rule of law is that laws should be capable of being known in advance so that those who are subject to those laws can act in accordance with the law.  
•    Consistent with this principle, 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.

•    Given the nature of the proposed measures in the Consultation Paper, it is not entirely clear why backdated application of the proposed new measures is necessary.  

•    AMPLA encourages the Government to re-consider backdated application of the proposed measures, unless strong policy reasons dictate otherwise. Further, to the extent that measures within the new framework will apply to incumbent titleholders and impact on existing projects, AMPLA encourages Government to ensure that appropriate transitional measures are implemented to reduce the financial and administrative impacts of the new framework. 

 
 
Annexure A    
 

AMPLA LIMITED 

2018 ANNUAL CONFERENCE 
PERTH, WESTERN AUSTRALIA 

17 – 19 OCTOBER 2018

SESSION 6B 

END OF LIFE FOR OFFSHORE OIL AND GAS FACILITIES 

Jane Ballard 
Herbert Smith Freehills
Perth, Western Australia
 

Decommissioning – the UK experience

Jane Ballard*

SUMMARY
On 5 October 2018, the Commonwealth Department of Industry, Innovation and Science (Cth Department) commenced a review of Australia’s decommissioning laws.  The aim of the review is to ensure that the legislative framework for decommissioning offshore petroleum infrastructure in Australian Commonwealth waters is fit for purpose, continues to meet community and industry expectations, and positions Australia to respond to decommissioning challenges and opportunities now and into the future.  The Cth Department’s review included the release of a comprehensive discussion paper which comprises a comparative analysis of the laws and practices in the United Kingdom (UK), Norway, the United States and Canada. It is clear from the discussion paper, that many of the themes that the Cth Department is considering and seeking to stimulate discussion on with stakeholders for the Australian offshore framework, originate from the key features of the decommissioning laws of the UK. 

Decommissioning has been at the forefront of petroleum regulation in the UK for the last two decades. The UK has already had to confront what Australia is yet to confront and is, without doubt, many years ahead in the development of its decommissioning laws. Notably, the regulatory regime in the UK has developed over time to impose prescriptive and detailed joint and several liability provisions that apply to current and prior licensees and their affiliates, as well as a broad-ranging system of decommissioning security requirements.  The UK experience, therefore, serves as a useful analysis of the types of issues faced by the petroleum industry in response to the introduction of new decommissioning laws and the measures that have been adopted to try and manage the potential cost impacts of the regime. This article tracks the development of the decommissioning laws in the UK over this time and provides an overview of the current decommissioning regime. It also provides an insight into the challenges that are likely to be faced by regulators in Australia in the coming years, as oil and gas fields mature, and it becomes necessary to redirect the focus towards the regulation of decommissioning of oil and gas infrastructure and installations.
 
OVERVIEW OF UKCS DECOMMISSIONING REGIME 
In the 1970s and 1980s, the UK Continental Shelf (UKCS) underwent a period of major offshore developments. These developments are now increasingly being decommissioned. In June 2018, the UK Oil & Gas Authority (OGA)  estimated the cost of decommissioning the UKCS at 58 billion pounds.  This represents the estimated cost of decommissioning in excess of 250 fixed installations, 250 subsea production systems, 3000 pipelines and approximately 5000 wells.
 
The sheer volume of oil and gas infrastructure to be decommissioned in the UKCS is indicative of the UK government’s approach to decommissioning regulation in the past two decades and, in anticipation of the maturation of the UKCS, a new decommissioning regime was introduced in 1998. Since then, the decommissioning of offshore oil and gas installations and pipelines in the UKCS has been regulated by:

(a)    Part IV of the Petroleum Act 1998 (UK) (Petroleum Act); 
(b)    the model clauses applicable to each petroleum licence; and 
(c)    decommissioning regulations or “soft law”, including the OGA Decommissioning Strategy  and the Guidance Notices on the Decommissioning of Offshore Installations and Pipelines.  

These laws were established within the broader context of the UK’s international obligations under the OSPAR Convention 1992  and the OSPAR Decision 98/3 . In the majority of cases, these international conventions require offshore installations to be removed in full and prohibit the dumping of offshore installations at sea or leaving them wholly or partly in place. These international conventions do not apply to the decommissioning of pipelines. 
The OGA and the Offshore Petroleum Regulator for Environment and Decommissioning, which sits within the Department for Business, Energy and Industrial Strategy, are responsible for overseeing compliance with the regulatory regime. 

Triggering Lability for Decommissioning Obligations
The requirement to decommission offshore oil and gas installations and pipelines is triggered by the Secretary of State serving a notice to a person under section 29 of the Petroleum Act (Section 29 Notice).  The Secretary of State can issue a Section 29 Notice:

•    in respect of an offshore installation, to the operator, licensees, parties to a joint operating agreement or similar agreement or to the owners of, or owners of an interest in, the offshore installation; or
•    in respect of a submarine pipeline, to the owners of, or owners of an interest in, the pipeline. 

Generally, the process of issuing Section 29 Notices is initiated when a field development plan is approved or the construction of an offshore installation or pipeline has commenced. 

The potential recipients, as noted above, are referred to as the “Frontline Recipients”. However, Section 29 Notices can also be issued to persons who are “associated with” the Frontline Recipients. These persons are referred to as the “Secondary Recipients” and are persons in the same corporate group as, or who otherwise have “control” over, the Frontline Recipients. 

Secondary Recipients, therefore, act as the reserves of the Frontline Recipients. By virtue of this aspect of the legislation, the Secretary of State is able to pierce the corporate veil to ensure that those companies within a corporate group that have sufficient financial resources will also be “on the hook” for the performance of decommissioning obligations. The most obvious example of the Secretary of State’s utilisation of this power is in respect of special purpose vehicles that are incorporated to hold an interest in a specific asset, but which do not have any financial capacity of their own. 

Historically, the Secretary of State did not issue Section 29 Notices to Secondary Recipients. However, as insolvencies and distress scenarios in the UKCS have increased, the Secretary of State has begun to issue Section 29 Notices more widely and has stated that it will continue to do so if it is judged that satisfactory arrangements, including financial arrangements, have not or will not be made to ensure that decommissioning activities are satisfactorily carried out.

Section 30(8A) of the Petroleum Act lists the circumstances in which a person is considered to have “control” over a Frontline Recipient and will therefore be potentially liable to receive a Section 29 Notice as a Secondary Recipient.  The test operates such that, company “A” will control company “B”, if company A possesses or is entitled to acquire:
(a)    one half or more of the issued share capital of B;
(b)    such rights as would entitle A to exercise one half or more of the votes exercisable in general meetings of B;
(c)    such part of the issued share capital of B as would entitle A to one half or more of the amount distributed if the whole of the income of B were in fact distributed among the shareholders; or
(d)    such rights as would, in the event of the winding up of B or in any other circumstances, entitle it to receive one half or more of the assets of B, which would then be available for distribution among the shareholders.

Company A will also control company B, if company A has the power, directly or indirectly, to impose A’s wishes on B and to ensure that B acts in accordance with those wishes. This may occur indirectly through an agreement or where B’s interests are otherwise superseded by A’s interests. 
It is evident that the government sought to formulate this “control” test in as wide a manner as was reasonably practical in the circumstances. This is not to say, however, that parties doing business in the UKCS have not been able to get around the test. Many in fact do, by finding novel ways of structuring their transactions to ensure that they do not have, or that no one has, “control” over the Primary Recipient. 
Obligations of Section 29 Notice Holders
 
Once Section 29 Notices have been issued by the Secretary of State, the holders of Section 29 Notices (whether they are Frontline Recipients or Secondary Recipients) are obligated to:

•    prepare a costed decommissioning plan and submit it to the regulator for approval (noting that there is no right for Section 29 Notice holders to carry out any decommissioning activities other than in accordance with an approved decommissioning plan);
•    fund and complete decommissioning works in accordance with the approved decommissioning plan up to the completion of post-decommissioning site surveys; and
•    comply with other decommissioning-related obligations, including monitoring, maintenance and management of the decommissioned site and any remains of offshore installations or pipelines that may exist.

Importantly, all holders of Section 29 Notices are treated equally in law and will each be jointly and severally liable for the performance of these decommissioning obligations. This liability applies regardless of whether the holder has subsequently sold their interest in the offshore installation or pipeline, unless the regulator has agreed to withdraw the holder’s Section 29 Notice. Joint and several liability of licensees and former licensees is one of the key features of the decommissioning regime in the UK and sets the UK apart from other decommissioning regimes. 

The process of issuing Section 29 Notices will generally be initiated when a field development plan has been approved by the regulator or construction of an offshore installation or pipeline has commenced. However, the time between the service of an initial Section 29 Notice and the point in time that a decommissioning plan is required to be submitted to the regulator for approval, can be considerable. This is because the decommissioning plan is generally called for towards the end of the life of the field, when the cost of producing the remaining petroleum reserves is close to the expected costs of decommissioning. 

It follows that those who will be liable for decommissioning are made aware of those obligations well in advance of them crystallising, with those licence holders first having to accept responsibility for decommissioning prior to being able to benefit from production activities. 

Withdrawal of Section 29 Notices and Claw Back Powers
The Secretary of State has the ability, but is not obliged, to release a person from a Section 29 Notice once that person ceases to own an interest in an offshore installation or pipeline via a notice of withdrawal under section 32(5) of the Petroleum Act.  Generally, the regulator will only grant a release where it is satisfied with the credit of the incoming participant’s company group and the financial strength of the remaining licence holders.  The party seeking the release will generally establish this by demonstrating to the regulator that the remaining licence holders have adequate security in place in respect of future decommissioning obligations under a decommissioning security agreement. Decommissioning security agreements are discussed in more detail below.  If, in connection with a sale transaction, an incoming party will be the only licensee and the licence will become 100% owned, then the regulator will require the prior owner of the licence to continue to police the obligations owed under the decommissioning security agreement and will refuse to withdraw the prior owner’s Section 29 Notice. 

Until such time as a notice of withdrawal has been issued, the Section 29 Notice will remain “live” and the holder will be liable for decommissioning obligations. It is therefore possible for a person to remain jointly and severally liable for decommissioning obligations notwithstanding that they may have since divested of their interest in a UKCS asset. 

That is not the limit of the government’s powers.  Even if a Section 29 Notice has been withdrawn, contingent liability is retained pursuant to the operation of section 34 of the Petroleum Act. Under this provision, the Secretary of State can claw back into liability anyone who previously held or could have been issued with a Section 29 Notice, within the period commencing from the issue of the first Section 29 Notice. These claw back powers are referred to as the regulator’s power of “last resort”.  

The regulator’s guidance indicates that these claw back powers would only be used in extreme circumstances, where the existing security arrangements and financial capacity of the current Section 29 Notice holders has proved inadequate to fulfil the outstanding decommissioning obligations.  Notwithstanding this, the imposition of contingent liability for former licence holders and their affiliates has the potential to have far reaching consequences and is a primary area of concern for UKCS producers. Whilst the regulator has indicated that if it had to exercise this power it would work with the relevant companies to distribute any liabilities fairly and evenly amongst those concerned,  and having regard to the revenues earned by the various companies during their involvement in the field, there is nothing in the Petroleum Act that restricts the government from targeting those former licensees or their affiliates who have the greatest financial capacity to satisfy these liabilities.

Security for Decommissioning Costs
The government’s power to issue a Section 29 Notice is given teeth under section 38 of the Petroleum Act.  If the regulator is not satisfied that the Section 29 Notice holder is capable of carrying out an approved decommissioning plan, the regulator may require that licence holder to “take such action as may be specified”. This may require, amongst other things, a person to put up security in favour of the government.  As a result, whilst the liability of a Section 29 Notice holder to incur decommissioning costs will not arise until decommissioning works are actually undertaken, the Section 29 Notice holder may be required to post security for decommissioning costs, well in advance of any such decommissioning works actually taking place. 

In practice, the regulator prefers for security for decommissioning costs to be provided by Section 29 Notice holders to each other by voluntary agreement (e.g. under decommissioning security agreements). If the regulator is satisfied that appropriate security arrangements are in place, then it is unlikely to require separate or additional security be provided to government. Notably, as the regulator may require a licence holder to “take such action as may be specified”, the regulator could also require a licence holder to enter into a decommissioning security agreement.
 
By virtue of this position, voluntary security arrangements between industry participants take on a very important role, as they prevent licence holders from having to provide security to the government as well as to their joint venturers. The regulator’s burden is also reduced, as it is then able to rely on the operation of the parties’ commercial interests to police the security obligations, vis-à-vis each other. The key elements of decommissioning security agreements and how they operate are discussed in further detail below. 

Information Gathering Powers 
To support the powers referred to above, the Secretary of State also has access to broad ranging powers under section 38 of the Petroleum Act, to satisfy itself that a person has the ability to fund its future decommissioning obligations. These powers include the right to:
•    gather information about the financial affairs of a person prior to serving a Section 29 Notice;
•    gather information about whether a person is capable of carrying out a decommissioning plan after a Section 29 Notice has been served; and
•    require a person who has been served with a Section 29 Notice to establish their financial security.
   
INDUSTRY RESPONSE TO DECOMMISSIONING REGIME - DECOMMISSIONING SECURITY AGREEMENTS
It follows from this snapshot of the decommissioning regime in the UK, that the UK government has broad ranging and draconian powers available to it, which seek to minimise the risk of the taxpayer having to pick up the cost of decommissioning. This includes the government’s ability to impose joint and several liability for decommissioning obligations on current and former licensees and their affiliates and to require that security for future decommissioning obligations is provided to the government.  It is not surprising, that upon being faced with this new regime, that the petroleum industry in the UK was quick to develop mechanisms to seek to manage the uncertainties inherent in the new regime and to minimise their exposure to the potential cost impacts of the new regime.  
These mechanisms seek to mitigate these risks by re-allocating contractual liability for decommissioning obligations through complicated security and indemnity arrangements, including as between current and former licence holders.  Whilst these measures go some way to protect those who are, or may be, liable for decommissioning obligations, it is important to note that the arrangements to be discussed in this section are commercial constructs only and ultimately, they do not detract from the UK regime of joint and several liability of current and former licensees (and their affiliates) or the Secretary of State’s claw back powers. 
Decommissioning Security Agreements.

The most commonly adopted measure which seeks to contractually re-allocate decommissioning liability under the Petroleum Act is a decommissioning security agreement, which is a model form agreement that was developed by the petroleum industry in collaboration with government.  The model form decommissioning security agreement is now widely used within the petroleum industry in the UK. 

Decommissioning security agreements are entered into by owners of a field (e.g. those persons who, at the time, are jointly and severally liable for decommissioning obligations). Its key objective is to ensure that each person who has an interest in the field provides adequate security in proportion to their share of potential decommissioning liability. A parties’ share of decommissioning liability will generally (but, not always) track their participating interest in the field. 
By the provision of security, each co-owner in the field is sought to be protected from the possible credit risks posed by its co-owners. As well as providing protections for the current owners of the field, decommissioning security agreements also provide sufficient comfort to sellers who have sold down their assets, but who retain a contingent liability under the Petroleum Act. If there is a decommissioning security agreement in place, the seller will have a greater level of comfort that the buyer will have adequate security in place to perform the contractual obligations that it has assumed from the seller. 
The owners of a field may enter into a decommissioning security agreement at any time, as it is intended to be a standalone agreement from a joint operating agreement.  It is industry practice, however, for field owners to enter into them at the time that a field development plan is submitted to the regulator for approval or otherwise at the time that liability for decommissioning obligations is triggered by the Secretary of State issuing Section 29 Notices. 

Security for Decommissioning Costs  
As the name suggests, the most important feature of a decommissioning security agreement is the obligation that is imposed on the parties to provide their share of security for the estimated costs of future decommissioning activities.  The model form requires each party to provide security for its share of the estimated net aggregate cost to the parties to decommission the offshore installations or pipelines located in the field, less that party’s share of estimated production and other applicable revenue. In the past, the security under the majority of decommissioning security agreements was calculated on a gross basis and without taking account of any available tax reliefs. Newer decommissioning security agreements, however, calculate security on a post-tax basis. This method of calculation is supported by the regulator.  The value of the security will be re-calculated on at least an annual basis to ensure that the value of the security reflects up-to-date cost estimates, particularly where decommissioning is a number of years away. In addition, to cater for the uncertainties inherent in estimating the cost of decommissioning, the parties will commonly include a percentage risk factor to provide a safety buffer for cost overruns.  

The security must either be in the form of cash paid into a trust account, which is held and managed by an independent trustee under the terms of a separate trust deed, or alternative forms of security such as letters of credit, on-demand performance bonds and parent company guarantees. These alternative forms of security and any cash drawn down from them are also held and managed by an independent trustee under the terms of a separate trust deed.

If the Secretary of State is a party to the decommissioning security agreement, then the forms of security able to be provided under the decommissioning security agreement are more limited. The regulator will only accept forms of security that are payable on demand, such as irrevocable standby letters of credit or on-demand performance bonds from prime banks or regulated insurers.  Parent company guarantees are not accepted, as claims against guarantors are challengeable and do not necessarily provide for automatic payment on demand. 

The trust structure that is adopted under the decommissioning security agreement ensures that, amongst other things, if a party fails to meet its obligations under the decommissioning security agreement, is in default of its obligations under the relevant joint operating agreement or becomes insolvent,  then the beneficiaries can access the defaulting party’s share of the security in the trusts. Where alternative forms of security are provided, the security will be liquidated by the trustee upon the default or insolvency occurring and the cash drawn will be held in trust until it is required to be accessed to pay for the costs of decommissioning. 

Decommissioning Tax Relief Deeds
In the past, security calculations in decommissioning security agreements were often calculated on a gross basis and without making any allowances for tax reliefs that would be available to the parties at the time of decommissioning. As this resulted in higher levels of security having to be provided by the parties to the decommissioning security agreement, newer decommissioning security agreements now calculate the required security on a post-tax basis. As tax reliefs are not generally available until the time of decommissioning and security must be provided well in advance of such activities, the government has introduced the concept of decommissioning tax relief deeds. These deeds are separate to decommissioning security agreements. They are entered into between the government and companies operating in the UKCS to provide certainty to the company of the tax reliefs that they will receive at the time of decommissioning. Decommissioning tax relief deeds therefore play an important role in calculating the levels of security that a party will be required to provide under the decommissioning security agreement. Further legislative developments are occurring in relation to decommissioning tax reliefs, which are discussed further below. 

Beneficiaries
As well as the primary parties that will benefit from the cash or other security provided under the decommissioning security agreement, other persons can also be a party to or benefit from the decommissioning security agreement. These are:
•    "second tier participants" - being persons who have received a Section 29 Notice and who remain jointly and severally liable for decommissioning obligations, despite having subsequently exited the licence or the joint operating agreement. Second tier participants are generally entitled to be signatories to the decommissioning security agreement and will remain party to the decommissioning security agreement even after having sold their interest in the field. The second tier participants are therefore able to benefit from the trusts or alternative forms of security established under the decommissioning security agreement directly as a party. They will also be able to ensure that the decommissioning security agreement cannot be amended without their approval. 
•    "third tier participants" - being persons who were, but are no longer, holders of a Section 29 Notice or persons who could have been the recipient of a Section 29 Notice. These are people who could become jointly and severally liable for decommissioning obligations pursuant to the government’s claw back powers. Third tier participants will generally not be signatories to the decommissioning security agreement, but will benefit from the trusts or alternative forms of security established under the decommissioning security agreement by virtue of the Contracts (Rights of Third Parties) Act 1999 (UK). 
The Secretary of State may also be a party to a decommissioning security agreement on order to benefit from the security and trusts provided under it and ensure that it cannot be amended without its approval. This generally occurs where there is only one or a small number of operators in the relevant field.  In these circumstances, the Secretary of State will take over the role of policing the provision and maintenance of the security and, in a last resort situation, would arrange for the security to be drawn upon and for actual decommissioning activities to take place. The Secretary of State is currently party to a small number of decommissioning security agreements.
  
Insolvency Risk
To ensure that the security provided under decommissioning security agreements are fit for purpose, legislation has been introduced to ensure that funds set aside for decommissioning are protected from creditors in the case of insolvency (other than from the beneficiaries under the decommissioning security agreement).  This protection will apply whether the security is established before or after the approval of a decommissioning plan, provided it is clear that the relevant arrangement has been established to secure the decommissioning obligations provided for under the decommissioning plan. The types of securities protected are, amongst other things, charges over bank accounts, deposits of money, performance bonds or guarantees, insurance policies and letters of credit. 

Bilateral Decommissioning Security Agreements
In addition to decommissioning security agreements which apply on a field-wide basis, decommissioning security agreements are also put in place between buyers and sellers on a bilateral basis. Bilateral decommissioning security agreements also govern the provision of security for decommissioning liability, but in this case, the security is provided by the buyer to the seller. If the seller is able to demonstrate that the buyer has provided adequate security, then this may provide sufficient grounds for the seller to convince the government to withdraw its Section 29 Notice. Bilateral decommissioning security agreements will generally fall away at the time a broader field-wide decommissioning security agreement is entered into.
 
As discussed in further detail below, it was once common for sellers to achieve a “clean break” from decommissioning liability when selling out of an asset. However, as production in the UKCS has matured and assets the subject of M&A transactions are nearing the end of their productive life, the market has seen a shift away from this “clean break” methodology to it becoming increasingly more common for sellers to have to retain a portion of liability for decommissioning costs. This will often be the case where the target assets or installations are to be decommissioned within a short period of time after completion of the deal, as a buyer is unlikely to agree to assume the entire costs of decommissioning. As the covenants of a party are only as good as its ability to perform, buyers are also incentivised to ensure that any indemnity or contractual obligations that are retained by a seller, are backed by the provision of adequate security.
 
CURRENT ISSUES AND TRENDS 
As has been discussed above, the petroleum industry in the UK was quick to act to adopt a sophisticated regime of decommissioning security arrangements in response to the new regime. To date, these security arrangements have been successful at contractually managing certain of the risks created by the regime. This does not mean, however, that the regime has not been subject to other potentially unintended issues and consequences. This section of the article highlights some of the issues that have arisen in recent years and also comments on some of the recent trends that have developed within the market.  
It is commonly argued that there are four key themes that have emerged since the introduction of the UK regime. Most prominently, the decommissioning regime (and the underlying liability to provide security) may:
•    act as a barrier to specialist late stage extractors or smaller market participants from participating in production activities in the UKCS;  
•    incentivise the early decommissioning of assets despite that there may still be residual economic value that could be extracted from late life fields; 
•    cause a greater number of disputes resulting from the calculation and estimation of decommissioning costs and security; and
•    prevent sellers from being able to obtain a “clean exit” from decommissioning liability, resulting in novel ways of decommissioning liability being apportioned in M&A transactions.
 
These issues have been particularly exacerbated in recent years due to sustained periods of low and volatile oil prices within the market. As decommissioning obligations represent a significant potential liability for persons participating in activities in the UKCS, the cost of complying with the regime may be seen to outweigh the benefits of participating in activities in the UKCS. The unintended consequence of this is that there is a risk that the regime is stifling M&A activity in the UKCS. 
As is discussed in more detail below, the government has now recognised that the above issues need to be addressed, and consequently current government policy has shifted its focus upon increasing production in the UKCS through M&A activity and extracting maximum economic value from the UKCS.
 
The Rise of the Small Producer  
Production from the UKCS has been ongoing for many decades and many fields are nearing the end of their economic life. Whilst significant levels of undeveloped late-life resources remain in the UKCS,  these resources are more difficult to produce with the same level of economic benefit. 

The difficulty in extracting the same level of economic benefit from these resources for oil and gas majors, along with the introduction of a burdensome decommissioning regime, appears to have resulted in a trend of  these majors transferring their assets to smaller companies who specialise in late stage extraction. Since the introduction of the new regime, the UKCS has experienced a significant period of divestments, with a number of the traditional “big players” having significantly sold down their UKCS assets or having exited the jurisdiction entirely.  For example, M&A activity in recent years has seen E.On sell all of its UKCS assets. Shell and BP each also sold down a significant portion of their respective UKCS assets, including BP’s sale of the Forties Pipeline System to INEOS.  This trend is continuing, with recent reports suggesting that ConocoPhillips, Total and Chevron are also intending to sell off their UKCS assets or a substantial portion of them, leading to a reported $8.8 billion worth of assets currently up for sale, as the big players continue to scale back their presence.  Whilst there have not been any explicit statements from these entities that they no longer want to do business in the UKCS, it is difficult not to see a correlation between the introduction of the decommissioning regime and these divestment trends, particularly within the context of an aging industry.   

The result of the exodus of the “big players” from the UKCS is that smaller industry players have been given the opportunity to pick up assets which they may not otherwise have been able to acquire. Whilst this creates benefits for smaller and private equity producers to participate in the market, the trend also comes with a downside; the cost of providing decommissioning security. Whether security is provided pursuant to a decommissioning security agreement or a sale transaction, one of the critical benefits that is generally available to larger companies, is their ability to meet the requisite security requirements through the provision of parent company guarantees. This form of security is unlikely to be available to smaller producers, who tend to have weaker balance sheets than their larger counterparts, and who are unlikely to have a credit rating. If they do have a credit rating, then chances are, that it will be insufficient to meet the minimum thresholds that are generally acceptable in the market. It therefore becomes likely that any security to be provided by these smaller producers will need be in the form of cash security or security that is required to be cash collateralised, such as letters of credit. These forms of security are expensive to provide, will often involve ongoing costs, will provide a black mark on a company’s balance sheet and may also have a dampening effect on future cash flows. Similarly, it is not common for private equity funds to be able to provide parent company guarantees, meaning that they must also resort to less cost effective forms of security.
  
As a result, there is a widespread view within the industry, that the high costs of compliance with the decommissioning regime can act as a barrier to investment for smaller and private equity producers and reduces the pool of potential buyers for UKCS assets. This is particularly so in circumstances where potential returns are already diminished by the very nature of a late life asset. If the pool of buyers is reduced and assets are unable to be shifted, then it has also been suggested that this could lead to the owners of late life assets electing to decommission rather than trying to extract the remaining value from the field. 

There have been positive signs in 2017 and 2018 that M&A activity is on the rise, with a continued focus on M&A activity by smaller and private equity producers. However, with decommissioning activities due to increase in coming years, the key test will be whether these smaller and private equity producers will be able to fund the cost of decommissioning activities at the relevant time and, if insolvency or financial distress scenarios arise, whether the security that has been put in place by the relevant parties will be adequate to pay for the actual costs of decommissioning. If it is not, then this is the type of situation where it would be expected that the government’s broad powers under the Petroleum Act, to seek redress from former licence holders or other Section 29 Notice holders, would come into play.  

Clean Exit
It was once commonplace for sellers to be able to achieve a “clean exit” from and to transfer their decommissioning and environmental liabilities to buyers upon the sale of an asset. However, since the imposition of residual liability for decommissioning obligations upon former licence holders, there has been a renewed focus on the allocation of risk between sellers and buyers in M&A transactions, and various trends have started to emerge, as parties are finding novel ways of allocating risk. 
First, the shift away from “clean exits” has seen sellers having to agree to retain a portion of decommissioning liability. In November 2017, Shell divested a package of UKCS assets to Chrysaor for US$3.8 billion. At the time, the total decommissioning costs were estimated at $US3.9 billion. Shell agreed to retain a fixed liability of $1 billion for decommissioning costs.  Similarly, in 2016, E.ON sold all of its UKCS assets to Premier Oil and agreed to remain liable for approximately 50% of the eventual decommissioning cost bill.
  
Secondly, in combination with sellers having to retain liability for decommissioning costs, there have also been a number of transactions in recent times where sellers have elected to retain a nominal interest (e.g. 1%) in the licence or the right to take a re-transfer of the licence during the period from production ceasing and the commencement of decommissioning activities. The rationale for these transaction structures is that they enable a seller to maintain a measure of control or transparency over decommissioning activities, in circumstances where it will be footing all or part of the decommissioning bill. When BP transferred its Bruce and Keith assets to Serica Energy in 2017, BP retained a 1% interest in the licence and an option to become operator, in order to oversee its future interests and liabilities. If a seller remains on the hook for decommissioning costs, then it will be incentivised to ensure that there is no gold plating and that the costs are being managed appropriately, which is what these transaction structures are seeking to achieve.   

Finally, with investment activities by private equity investors said to be on the rise anecdotally, it remains to be seen how the changing nature of M&A activity in this space may affect these activities. When an asset is divested by a private equity fund, it generally follows that the fund will be wound up and the proceeds of the investment distributed back to its investors. If private equity sellers are unable to achieve a “clean exit” or are required to retain residual liability for decommissioning obligations for many years in the future, then this is likely to have an impact on the manner in which these funds conduct themselves and how they go about their investment activity. In the absence of structuring transactions in such a way as to avoid the private equity investor ever being the subject of a Section 29 Notice, it is difficult to see how typical private equity investment strategies will not continue to be impacted by the regime.  

Acceleration of Decommissioning 
It is anticipated that there will be a marked increase in decommissioning activities in the UKCS from 2020 onwards,  with more than half of decommissioning activities to potentially take place between 1919 and 2026.  As noted above, there is a risk that lower levels of M&A activity could result in field and infrastructure owners electing to decommission early, particularly in low oil price environments.
 
In the UK, a significant amount of producers rely upon third party access to shared infrastructure. Most commonly, this includes the various pipeline networks that transport petroleum from field to market, such as the Forties and Frigg Pipeline Systems, as well as various processing infrastructure. It follows that if a pipeline or processing infrastructure is decommissioned by its owners, then any adjacent producers that relied on that infrastructure will be required to find alternate means of transportation or processing capacity, which will often inflate costs for the remaining producers.  Likewise, if the viability of a new project requires access to existing infrastructure and that infrastructure is to be decommissioned. A recent report from KPMG characterised this issue as a “prisoners’ dilemma” and noted that “fears about other players’ choices suddenly incentivise each player to move quickly and decisively” and potentially decommission fields which still have residual economic value.  It follows that the decommissioning of shared infrastructure may render fields that were otherwise economic no longer profitable and this, in turn, may provoke further decommissioning. 

In the years to come it is likely that there will need to be an increased focus on infrastructure that has regional importance. The next challenge for the government will be to strike a balance between those parties who want to decommission their offshore installations and those parties who are seeking access to that infrastructure in order to facilitate new developments. The question that has been asked is whether the decommissioning of such infrastructure will necessitate different treatment, for example, whether a positive decision to decommission will become a decision that will have to be made by the authorities, rather than the owners of the asset, in order to focus the broader regional picture, as opposed to the individual interests of field and asset owners.

The calculation of Decommissioning Costs and Disputes 
Calculating decommissioning costs requires the relevant costs to be estimated and is not an exact science.   Despite this, such calculations and estimates are necessarily a key feature of the system. First, for the Secretary of State to determine the levels of security that it may require licence holders to provide to the government and, secondly, for the purpose of calculating the security required to be provided by parties under a decommissioning security agreement. 
It is also a natural consequence of the system, that the end costs of decommissioning may be higher or lower than these estimates. There is therefore a risk that the secured funds available for such costs could be less than what is made available. Due to the inherent uncertainties in estimating future costs, sellers are incentivised to ensure that any security that is provided to them pursuant to a bilateral arrangement, or which is provided under a decommissioning security agreement, are towards the higher end of the scale. Higher levels of security can further exacerbate the ability of smaller producers to participate in UKCS investment activity, particularly where, in connection with the transaction, there is unequal bargaining power between the seller and the smaller producer.  

In addition, there is increasing concern that the estimation of decommissioning costs is uncertain due to the fact that the decommissioning industry in the UK remains a developing and changing industry. Whilst decommissioning activities are due to increase in the next few years, the government has recognised in its decommissioning strategy (which is discussed in more detail in the next section) that decommissioning capability and expertise is not yet in full supply within the UK petroleum industry.  
Given the uncertainty with which such costs are estimated, this is tipped to be an area which has the potential to give rise to disputes in the future, as the consequences of getting the numbers wrong could be high. If the security that is contractually provided under a decommissioning security agreement is less than what is required and the current licence holders are unable to make up the difference, then this is where the ability of the government to exercise its claw back powers against former licence holders and their affiliates would be likely to come into play and liabilities of former licence holders and their affiliates could be triggered.
 
WHAT’S NEXT FOR THE UK 
A number of legal developments have occurred in this regulatory space in recent years. In particular, the approach to decommissioning regulation in the UK has seen the government shift away from its single focus on the importance of decommissioning to a broader world view. This broader world view encompasses the implementation of measures that will optimise production and continue to encourage investment in the sector. These measures can potentially be seen as an admission by the government that its initial approach to decommissioning regulation went too far and that steps are now required to try and correct the balance; to remedy the unintended consequences which have resulted from the 1998 regime.  

The first action of the government in 2013 was to commission a review of oil and gas recovery in the UKCS and its regulation. The Wood Report was published in response in February 2014 by Sir Ian Wood.  One of the key recommendations of the Wood Report was the strategy for maximising economic recovery, which was subsequently adopted by the government (MER Strategy).  Implementation of the MER Strategy commenced on 18 March 2016. The MER Strategy focuses on maximising the amount of economically recoverable petroleum from the UKCS and requiring licence holders to act in a manner best calculated to give rise to the recovery of the maximum amount of petroleum as a whole, and not just that which is recoverable under their own licences.  This central obligation is binding on UKCS licence holders who are required to take steps, in the exercise of their functions, to achieve this goal.  

The MER Strategy also underpins the work of the OGA. The OGA was established in 2015 pursuant to the Energy Act 2016 (UK). In addition to the OGA’s responsibility for the regulation of activities relating to the decommissioning of wells and associated approvals, the Energy Act 2016 (UK) imposed a number of duties on the OGA relating to decommissioning. These duties include: 
•    reviewing decommissioning plans to assess whether decommissioning costs being are minimised; 
•    considering opportunities to reuse offshore infrastructure;
•    engaging the decommissioning supply chain; 
•    maximising economic extensions of asset field life; and
•    developing guidance on late-life asset management. 

The OGA also introduced a decommissioning strategy which seeks to achieve:  
•    cost certainty and reduction in decommissioning activities;
•    the delivery of technically competent, efficient and cost effective decommissioning capability and supply chain expertise; and 
•    early stage stakeholder engagement between the petroleum industry and the OGA to deliver evidence based cost efficiencies and fit for purpose options for late life decommissioning activities. 

It is clear from the nature of the OGA’s obligations and the key targets of the decommissioning strategy, that these documents were prepared in conjunction with and using the MER Strategy as their base. Their primary objective is to significantly reduce decommissioning costs and, by reducing costs, increase levels of production and investment activity, particularly for smaller or late-life fields. The government is also incentivised to reduce the costs of decommissioning as, although the petroleum industry will carry out decommissioning activities, it is estimated that more than half of the cost will be picked up the taxpayers through the government’s payment of decommissioning tax reliefs. 

Finally, in March 2016, the UK treasury department published a discussion paper on tax issues for late life oil and gas assets and subsequently announced that it will introduce legislation to allow companies selling UKCS oil and gas fields to transfer part of their tax payment history and tax reliefs to the buyers of those fields, thereby allowing buyers to set off the costs of decommissioning against their tax portfolios.   The intention of the government is to level the playing field between buyers and sellers and to provide new investors with certainty that they will be able to access tax reliefs available for decommissioning costs.  These reforms signify the government’s intent to encourage new investment in the UKCS and eliminate certain of those barriers to investment that have arisen in recent years. This is a direct response by government to remedy the negative impacts of the decommissioning regime on M&A activity in the UKCS. It follows that it is in government’s interest to do so. If government revenues from oil and gas end up being lower than the cost of its tax repayments for losses, then this may increase the burden on taxpayers.  
These actions of the government demonstrate that the approach to decommissioning regulation in the UK continues to be an iterative process. As the implementation of these strategies is still in its infancy, it remains to be seen whether they will be effective to achieve the government’s principles and objectives. 

CONCLUSION
The regulation of decommissioning activities has featured prominently in the UK in the last twenty years. Notwithstanding this, recent developments in the decommissioning regulatory space in the UK signal that the regulation of decommissioning activity has not been without its challenges and resolving these challenges will continue to be an ongoing process. The government’s renewed approach demonstrates that it is focused upon further increasing collaboration with industry stakeholders in order to find workable and pragmatic solutions to the issues as they present themselves. Notably, the government is recognising and taking action to tackle the challenges that have arisen in recent years, and is seeking to redress the balance between decommissioning being carried out in a regulated and orderly manner, whilst also seeking to ensure that the petroleum industry in the UKCS continues to be an attractive investment option. 

The release of the Cth Department’s discussion paper in Australia signals that decommissioning is set to become the next “hot topic” in the regulation of oil and gas activities in Australia. The comparative analysis presented by the discussion paper on the decommissioning regimes that have been adopted globally and their benefits and shortcomings will be critically analysed to determine if they, or aspects of them, can be adopted in Australia. Whilst the Cth Department has indicated that all options are on the table, many of the key themes that the Cth Department is considering, such as residual liability of titleholders and decommissioning security, originate from the UK’s decommissioning regime. This raises the question of whether the UK system is appropriate for Australia? The answer to this question is not the subject of this paper, but I will go so far as to say, that it is neither a simple or straight forward question to answer. What the UK experience does demonstrate, however, is that there is a need for extensive collaboration between industry and government to find effective and workable solutions that will continue to promote the development of oil and gas resources in Australia, whilst at the same time, providing for environmentally safe and cost effective solutions for decommissioning. This will require a careful balancing exercise between the interests of the state and the interests of private investment.