off shore and on shore petroleum laws

8/8/2019 Off Shore and on Shore Petroleum Laws

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Offshore and Onshore Petroleum Laws

Gavin Jahn,School of Business Law

Curtin University of Technology

Abstract

This paper considers the onshore and offshore petroleum laws dealt with by the Seas and Submerged Lands Act 1973 , the Offshore Petroleum Act 2006 (Cth), the Petroleum (Submerged Lands) Act 1982 (WA), and the Petroleum Act 1967 (WA). It examines whether the State or Commonwealth parliament hasthe right to make laws with respect to petroleum matters, together with an explanation of these specificlegislative provisions.

Introduction

When Jed Clampett struck oil while out shooting and subsequently moved to Beverley Hills, 1 laws and regulations were

probably the last things on his mind. 2 Today nothing could be further from reality than compliance with petroleum laws

and regulations before any type of exploration program or drilling program (even if such programs are as primitive as

shooting at the ground) can be implemented in respect to onshore and offshore petroleum.

This article is designed to introduce the reader to onshore and offshore petroleum laws enacted by both the

Commonwealth parliament and the Western Australian parliament. 3 We will examine specific legislative provisionsand whether the State or Commonwealth parliament has the right to make laws with respect to petroleum. In addition,

the relevance of both commonwealth and state laws to offshore mining will be considered.

By way of introduction, petroleum is any naturally occurring, or mixture of naturally occurring hydrocarbons or mixture

of hydrocarbon accumulations, which can be in the form of a solid, liquid or gas. 4 Hydrocarbon compounds are found

naturally underground. The liquid form of petroleum is called crude oil. Petroleum can be processed (refined) into a

number of useful products including asphalt, diesel fuel, fuel oil, gasoline, jet fuel, lubricating oil, and plastics .

The legal minefield

Several laws pertain to onshore and offshore petroleum mining. Onshore petroleum mining is legislated under state

jurisdiction including the Petroleum Act 1967 (WA) and Mining Act 1978 (WA), whereas offshore mining is legislated

by both the State ( Petroleum (Submerged Lands) Act 1982 (WA)) and Commonwealth ( Offshore Petroleum Act 2006

(Cth)). State legislation for offshore mining is limited to the coastal waters of Western Australia (three nautical miles

1 Jed Clampett was the character played by Buddy Ebdsen in the CBS television comedy series The Beverly Hillbillies fromSeptember 26, 1962 - September 7, 1971.2 Unlike Australian landowners, landowners in the United States are generally entitled to the minerals and resources found above andbelow the surface of the land.3 Commonwealth: Offshore Petroleum Act 2006 (Cth), Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities)

Regulations 1996 (Cth) . State: Petroleum (Submerged Lands) Act 1982 (WA), Petroleum Act 1967 (WA).4 Section 5, Petroleum Act 1982 (WA) and also includes hydrogen-sulphide, nitrogen, helium and carbon dioxide, as well ashydrocarbons or mixtures thereof returned to a natural reservoir, but excludes oil shale.


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off the Australian territorial sea), 5 and the Commonwealth controls legislation beyond the three nautical mile limit from

the coastal waters. 6

General petroleum laws

In accordance with relevant legislation, the Commonwealth, States and the Northern Territory endeavour to share

common rules, practices and principles in the control and regulation of petroleum exploration and exploitation. 7

At common law the position is that the owner of land owned everything on the surface as well as that below the

surface. 8 Petroleum minerals, at the time, were not really defined and the common law never developed principles with

respect to petroleum, particularly in Australia. In fact the Mining Act 1904 (WA) defined minerals to include coal and

oil. The Western Australian Parliament enacted special purpose legislation for petroleum, the Petroleum Act 1936 ,

which has since been repealed by the Petroleum Act 1967 (since repealed and replaced with Offshore Petroleum Act

2006 ), after the Commonwealth and States ended their constitutional battle in 1967. Prior to 1967 it was unclear whoheld the jurisdictional power over offshore petroleum, nevertheless the subsequent enactment of legislation provided

explorers with some certainty that their interests were protected.

In 1967 the Commonwealth and the States came to an agreement for the administrative process for offshore petroleum.

The Petroleum Act 1967 (Cth) was then enacted with all states passing mirror legislation. 9 However in 1973 the

Commonwealth decided to enhance its offshore petroleum control by enacting the Seas and Submerged Lands Act 1973

which provided sovereignty over the territorial sea. In New South Wales v Commonwealth (Seas and Submerged Lands

Case) 10 the High Court upheld the validity of the Act. 11 Therefore the state seaward boundaries were held to end at the

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5 Offshore Area s 7 Offshore Petroleum Act 2006 (Cth), ss 4, 5, 59A and Schedule 2 of Petroleum (Submerged Lands) Act 1982(WA).6 Section 13 of Offshore Minerals Act 1994 (Cth) provides definitions of terms including coastal waters and baseline. Section 16provides the following in respect to coastal waters:

(1) The coastal waters of a State are so much of the area off the coast of the State that is described in Schedule 1 of the OffshorePetroleum Act 2006 as is constituted by:

(a) the first 3 nautical miles of the Australian territorial sea from the baseline; and(b) any waters that are inside the baseline and not within the limits of the State.

(2) The following diagram illustrates the coastal waters of a State:

Note: For the baseline see Australias territorial sea baseline (AGPS) 1988: generally the baseline is the lowest astronomical tidealong the coast but it also includes lines enclosing bays and indentations that are not bays and straight baselines that depart from thecoast.7 Western Australias petroleum laws, the Petroleum (Submerged Lands) Act 1982, are very similar to those provided by theCommonwealth Offshore Petroleum Act 2006 (Cth).8 Except gold and silver, R v Earl of Northumberland (1957) 1 Plowd 310.9 Petroleum Act 1967 (WA).10 (1975) 135 CLR 337.


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low water mark. By way of a further agreement the Commonwealth and States agreed to enact laws over the coastal

waters. 12 The effect of such legislation was grant to the states right and title in respect to lands beneath the coastal

waters to the three nautical mile limit.

Ownership

Ownership of petroleum on or below the surface of all land within this State, irrespective of whether that land is

alienated from the Crown or not, is deemed to be the property of the Crown.

As for offshore petroleum, section 6 of the Seas and Submerged Lands Act 1973 (Cth) states that the sovereignty of the

territorial sea, and the airspace over it and the sea bed and subsoil, is vested in the Crown in right of the

Commonwealth. While the Seas and Submerged Lands Act 1973 does not specifically vest title in petroleum in the

Crown it has been submitted that this is the case. However s 248 of the Offshore Petroleum Act 2006 (Cth) and the

Western Australian equivalent13

states that if petroleum is recovered by a permittee , lessee or licensee in the permitarea, lease area or licence area the petroleum becomes the property of the permittee , lessee or licensee .

Administration

Onshore petroleum is administered by the State Ministers concerned under the relevant act or regulation 14 which

usually provides for the Ministers to delegate their powers and functions. With offshore petroleum the Offshore

Petroleum Act 2006 provides for a Joint Authority for the administration of laws with respect to the offshore area. 15 The

Commonwealth Joint Authority is made up of the Commonwealth and the responsible Minister of the State. The day to

day administration of the Commonwealth offshore area is delegated to the state.

General provisions

Many of the provisions for onshore and offshore petroleum are very similar as outlined below.

Notification of any discovery of petroleum must be given to the Minister within 3 days. The notification must declare

the location and relevant blocks. Royalties are payable for the recovery of petroleum, based on a specified percentage of

the royalty value. Typically the fees are 10% of the royalty value.

Blocks that are not being utilised with respect to issued permits, leases or licences can be applied for the grant of a

Special Prospecting Authority. In addition, permittees, licensees, lessees, holders of drilling reservations and special

prospecting authorities may apply for Access Authority to areas not part of their existing exploration area.

General provisions of petroleum legislation include penalties for breaches, work practices, occupational health and

safety, insurance, environmental concerns, operational structures, maintenance and other relevant conditions. Strict

penalties apply to any person who breaches the provisions of petroleum legislation.

11 Seas and Submerged Lands Act 1973 (Cth).12 Coastal waters is defined in the schedule mentioned in s 2 of the Constitutional Powers (Coastal Waters) Act 1979 (WA) asincluding the territorial sea adjacent to the State; and the sea on the landward side of the territorial sea adjacent to the state that wasnot within the limits of the State, and including the airspace over and the seabed and subsoil beneath any such sea.13 Petroleum (Submerged Lands) Act 1982 (WA).14 Sections 25, 118, 119, 153 Petroleum Act 1967 (WA).15 State adjacent area is the area from the mean low water mark to the three nautical mile limit. Commonwealth offshore area is fromthe state adjacent area extending to the outer limits of the continental shelf.
http://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#petroleumhttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#permitteehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#lesseehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#licenseehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#permit_areahttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#permit_areahttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#lease_areahttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#licence_areahttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#petroleumhttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#permitteehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#lesseehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#licenseehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#licenseehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#lesseehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#permitteehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#petroleumhttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#licence_areahttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#lease_areahttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#permit_areahttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#permit_areahttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#licenseehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#lesseehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#permitteehttp://www.austlii.edu.au/au/legis/cth/consol_act/pla1967267/s5.html#petroleum


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In addition, the Petroleum Pipelines Act 1969 (WA) is applicable to onshore and offshore petroleum mining with

regards to the operation, construction and maintenance of conveyance facilities. Petroleum exploration and production

is also affected by the Native Title Act 1993 (Cth), the Aboriginal Affairs Planning Authority Act 1972 (WA) and the

Aboriginal Heritage Act 1972 (WA).

Conflicts of legal interest occasionally occur between petroleum legislation and the Mining Act 1978 (WA), due to the

close proximity of land areas. The Acts are not mutually exclusive; hence disputes can arise between petroleum permit

holders and mining tenement licensees. Under section 159 of the Mining Act 1978 (WA), problems concerning

operations can be referred to the warden. The warden then investigates and reports on the situation to the Minister. The

Minister then makes a just and equitable judgement to determine how each party must proceed, whilst taking into

account public interest and individual circumstances. Under section 159(3) 16 both parties must comply with the

Ministers orders or risk jeopardising their permit or licence.

State legislation onshore petroleum

State legislation for onshore petroleum mining is covered by the Petroleum Act 1967 (WA). The Crown owns

petroleum in Western Australia in accordance with section 9 and 10 of the Act. However the private sector is entitled to

discover and develop the resource. A title system is in place to allocate the rights of petroleum to private sector

developers. The Minister responsible for the Mining Act 1978 (WA) also administers the Petroleum Act 1967 (WA)

legislation.

Exploration or exploitation 17 of petroleum requires a permit, 18 drilling reservation, 19 retention lease 20 or productionlicence. 21 A person must hold a permit or drilling reservation to explore for petroleum as per section 29 of the Act. The

Minister may advertise blocks in the Gazette, 22 whereby applications are invited for the grant of a permit. Applications

for permit must be made on approved forms and in an appropriate manner 23 as in accordance with section 31. Up to 400

blocks can be applied for. Applications are granted or refused by the Minister, and if granted, prescribed fees and a

specified deposit are payable as required by section 33(4)(d).

Permits have a term of six years, further renewable for a period of five years. 24 The permit entitles the holder to rights

for exploration and carrying on operations for that purpose. The permit instrument may have conditions attached as the

Minister thinks fit. 25

Drilling reservations have similar provisions to permits. However, their rights also entitle the holder to drill for

petroleum. 26 The term is usually for one year however it is possible to obtain a permit for a three year period, 27

16 Mining Act 1978 (WA) . 17 Petroleum Act 1967 (WA) Part III Div 2.18 Sections 5(1) and 38.19 Section 43D.20 Sections 48A and 48C.21 Section 62.22 Section 30.23 Section 31.24 Section 39.25 Section 43.


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extendable by 12 month periods as stated in section 43F. Such extension must be sought before the expiry of the drilling

reservation, however the extension shall not be granted if the holder of the drilling permit has previously been granted

an extension under this section.

Division 2A of the Act pertains to retention leases for petroleum. Holders of a permit or drilling reservation may apply

for a lease using approved forms in the appropriate manner. 28 An application can be made to transfer between two and

four years of holding the permit or reservation. 29 The Minister may grant or refuse the lease. Rights conferred by the

lease include continuing exploration and carrying on operations for that purpose within the lease area. 30 Terms of lease

encompass five years, and are renewable. 31

Division 3 of the Act covers production licences for petroleum. Section 50 states that permit or reservation holders may

apply to the Minister to grant a licence. Applications may be made on the approved forms and manner, after two years

of holding the respective instrument, and within four years.32

A licence may also be applied for by the lessee33

on theterms stated in section 51. Licences are granted corresponding with the number of blocks and the discovery size

concerned. 34 Royalties are payable at a rate between 5 to 10% of the royalty value of petroleum. 35 The Minister notifies

the grant of licence in the form of an instrument. It is possible to transfer existing permits, drilling reservations or leases

to a license as per section 54A. A licence entitles the holder to recover, explore and carry on relevant operations for that

purpose. Licences are for a term of 21 years and are renewable. 36 Conditions may be imposed at the Ministers

discretion and are specified in the licence. 37 For example; the Minister can direct the licensee to reduce, increase or

maintain recovery rates.

State legislation offshore (coastal waters) petroleum

In Western Australia petroleum mining in coastal waters, 38 within three nautical miles from the Australian territorial sea

from the baseline 39 is addressed by the Petroleum (Submerged Lands) Act 1982 (WA). The Act addresses permits, 40

leases, 41 production licences, 42 pipeline licences, 43 special prospecting authority 44 and access authority. 45

The Minister advertises available blocks in the Gazette. Application for permits can be submitted in the approved form

and manner. Up to 400 blocks can be applied for over an area 46 but where less than 16 blocks are so advertised, only

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Section 43D.27 Section 43E.28 Section 48A.29 Section 48A(4).30 Section 48C.31 Section 48D.32 Section 50(4).33 Section 50A.34 Sections 50(1) and 50A(1).35 Section 52.36 Section 63.37 Section 66.38 Sections 13 and 16 Offshore Minerals Act 1994 (Cth).39 With all terms defined in s 13 of the Offshore Minerals Act 1994 (Cth).40 Section 21.41 Section 38A.42 Section 44.43 Section 64.44 Section 111.45 Section 112.


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that number advertised can be applied for. The Minister has the power to grant or refuse the application, and may

impose conditions. 47 Application fees are applicable as per section 24 including the prescribed fee of the greater of

$1,100 or $55 per block. The permit holder is then entitled to explore for petroleum and carry on operations pertaining

to such, for a term of six years. 48 Terms are renewable for five year periods, 49 however the number of blocks available

is reduced. 50 Applications for renewal must be submitted to the Minister not less than three months before the initial

permit expires. 51

Permit holders may apply for retention leases 52 and production licences. 53 The provisions pertaining to these

instruments are similar to those provisions relating to onshore legislation. However, the rate of royalty is 10% of the

royalty value of petroleum. 54

Division 4 of the Act addresses pipeline licences for the transportation of petroleum. Applications 55 are submitted in the

approved manner56

and form to the Minister, who grants or refuses the pipeline licence.57

Rights of these licencesinclude pipeline construction, pumping, valve and tank stations, and carrying on operations pertaining to conveyance.

The term of licence is for a period of 21 years, 58 which is renewable. The Minister may impose conditions, 59 and may

direct the licensee to be a common carrier in respect of the pipeline. 60 More specific information pertaining to

petroleum pipeline operation is covered by the Petroleum Pipelines Act 1969 (WA) .

Instrument holders pay royalties to the State, 61 and the State in turn makes payments to the Commonwealth in

accordance with the formula specified in section 129.

Commonwealth legislation offshore petroleum

Offshore petroleum mining and exploration is regulated by the Offshore Petroleum Act 2006 (Cth) and the Petroleum

(Submerged Lands) Legislation Amendment Act 2001 (Cth). These Acts apply to coastal waters beyond the three

nautical miles off the territorial sea extending to the outer limits of the continental shelf.

The Offshore Petroleum Act 2006 addresses several issues pertaining to the exploration and development of operations.

Issues covered include licensing, health and safety. 62

46 Section 21(1).47 Section 22(2).48 Section 29.49 Section 55(b).50 Section 31.51 Section 30(3).52 Section 38A.53 Section 44(3).54 Section 144.55 Section 64.56 Section 20.57 Section 65.58 Section 67.59 Section 70.60 Section 73.61 Section 143.62 Section 140H.


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Commonwealth and State Ministers have Joint Authority over offshore petroleum mining. 63 In Western Australia the

Department of Industry and Resources (DoIR) and the Commonwealths Department of Industry, Tourism and

Resources administer the Joint Authority. The Joint Authorities may delegate to Designated Authorities. Any offshore

areas of land are under the jurisdiction of state governments; state courts are vested with federal jurisdiction under

section 9 of the Act.

Joint Authorities may advertise available blocks. 64 Applications for permits are submitted in the approved manner for

up to 400 blocks. 65 The Joint Authority may also advertise the blocks in the Gazette to invite applications for three

different types of exploration permits - work bid, cash bid or special exploration permit. 66 The Designated Authority

has the power to grant or refuse the issue of permits, and may attach certain conditions. 67 Permit holders have the right

to explore for a term of six years. The permit is renewable for a five year period; however the area available is reduced

from the number of blocks originally held. 68 Certain permits cannot be renewed more than twice. 69

Retention leases can be obtained by exploration permit holders 70 and production licensees. 71 Applications are lodged to

the Designated Authority, 72 for grant or refusal by the Joint Authority, as per section 38A. Alternatively, exploration

permits can be transferred to retention leases by seeking approval from the relevant authority. 73 Lease rights entitle the

holder to explore and carry on operations pertaining to exploration. 74 Once a retention licence is granted over either an

exploration permit or production licence those permits or licences cease to apply. The term of the lease is five years and

is renewable. 75 Providing the Designated Authority does not require any further information, the Joint Authority will

grant the lease. 76

Permittees 77 and lessees 78 may apply for a petroleum production licence. Applications are directed to the DesignatedAuthority 79 for grant or refusal by the Joint Authority. Different provisions come into effect depending on whether the

Royalty Act 80 applies or does not apply. 81 Applications are lodged in the approved manner with the prescribed fee.

Rights of production licenses include the ability to recover and explore for petroleum and carry on any required

operations. Licences are granted for 21 years, and renewable for another 21 years; the second renewal is for an

indefinite period. 82

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Section 38.64 Section 82.65 Section 83(4).66 Sections 79, 82, 83.88, 89,93.67 Section 79.68 Sections 80 and 97.69 Section 81.70 Section 117.71 Section 123.72 Sections 117 and 123.73 Section 122.74 Section 38C.75 Section 75.76 Section 132.77 Section 142.78 Section 144.79 Section 137.80 Offshore Petroleum (Royalty) Act 2006 81 Section 141.82 Section 139.


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Petroleum mining requires the construction of facilities which require an infrastructure licence. 83 Infrastructure licences

can be applied for to the Designated Authority for approval by the Joint Authority. 84 Conditions may be attached to

licences approved, and the licence is in force indefinitely. 85 Infrastructure licenses generally enable the holder to further

process petroleum beyond the basic production process.

Part III Division 4 of the Act provides for pipeline licences. Legislation is also provided to address pipeline licences.

These licences give rights for the design, routing, construction, size and capacity of pipelines. Applications are made in

the general manner as specified in section 64. The Joint Authority grants or refuses these licences for an indefinite

term. 86 The Joint Authority is entitled to serve the instrument requiring the licensee to be a common carrier of

petroleum. 87

Offshore mining

Offshore mining refers to the exploration and mining of minerals, with the exception of petroleum. Under the Offshore Minerals Act 1994 (Cth) the Western Australian government agreed for the Commonwealth to enact laws pertaining to

offshore mining. However, in accordance with section 35, petroleum is not covered by this Act. Hence, offshore

petroleum laws do not fall under offshore mining legislations. The Western Australian state parliament was to introduce

legislation to provide for offshore mining within State coastal waters, however to date such legislation has not been

enacted although a bill was raised in parliament. Applications for offshore tenements, although rare, are to date dealt

with under other legislation including the Mining Act 1978 (WA). Therefore, although some provisions in their laws are

similar, offshore mining bears little relevance to petroleum legislation.

Summary

In conclusion, in order to explore and exploit petroleum, approval is required from the relevant authority. Approval is

granted in the form of permits, drilling reservations, leases and licenses. Both offshore and onshore petroleum

legislation is administered at state level. Onshore petroleum laws are determined by the relevant state. Offshore

petroleum is controlled by the state within coastal waters, and with shared authority by the State and Commonwealth

outside coastal waters. However, the relevant state administers the Commonwealth legislation on its behalf. In Western

Australia, the petroleum legislations share a common mining code. The Department of Industry and Resources plays a

pertinent role in managing and administering these laws. Furthermore, offshore mining legislations do not intimately

relate to petroleum mining in accordance with the Offshore Minerals Act 1994 (Cth).

83 Section 166.84 Section 167.85 Section 167.86 Sections 179 and 181.87 Section 192.

off shore and on shore petroleum laws

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