Under section 571(2) of the Offshore Petroleum and Greenhouse Gas Storage Act 2006, titleholders are required to have sufficient financial assurance to meet the costs, expenses and liabilities that may arise in connection with carrying out petroleum activities, particularly in the event of a major oil spill, as a prior condition of acceptance of an environment plan. This requirement applies to new and revised environment plans.
NOPSEMA conducts environmental inspections to monitor titleholder compliance with the financial assurance requirements. The inspections focuses on confirming titleholders are maintaining sufficient financial assurance throughout the life of the activity in accordance with the legislative requirements and the advice provided in GL1381 - Financial assurance for petroleum titles - Rev 6 - September 2017 (PDF 7.7MB)
How to demonstrate financial assurance
GL1381 sets out the steps a titleholder is required to follow to demonstrate financial assurance. Broadly, they include:
Step 1: Calculating the total costs, expenses and liabilities that may arise in connection with carrying out petroleum activities under a petroleum title.
Step 2: Identifying the type(s) of financial assurance that will be available.
Step 3: Submitting a financial assurance declaration (FM1519) and confirmation (FM1465) to attest that sufficient funds will be available.
How to calculate financial assurance
The Australian Petroleum Production and Exploration Association (APPEA) has developed a Method to assist titleholders in estimating appropriate levels of financial assurance for pollution incidents arising from petroleum activities (APPEA method). On 9 December 2014, NOPSEMA confirmed that the APPEA method is suitable for titleholders to use to calculate the required level of financial assurance for an activity.
In 2016-17, APPEA will conduct a review of their method to ensure it remains valid and can continue to be used by industry for the majority of offshore petroleum titles. APPEA’s review is expected to be completed by April 2017 at which time it will require independent validation. NOPSEMA has extended its endorsement of the APPEA method until this review and validation is complete.
Other cost-calculating methodologies may be used to calculate the required level of financial assurance, however, as per GL1381, this will generally require independent validation prior to consideration by NOPSEMA. If another method is used, NOPSEMA strongly encourages titleholders to engage with NOPSEMA early to allow timely validation of the alternate methodology.