Oil & Gas Regulation 2013

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Bell Gully New Zealand Waikato, Taranaki, Tasman, the West Coast and Southland, and oil and gas companies from around the world were invited to bid for these blocks up until October 2012. The 23 blocks were selected by the Government because there is the likelihood that they may contain significant quantities of oil and gas, with the Minster of Energy and Resources describing the tender as an important step towards realising the potential of New Zealand’s oil and gas resources. 3.3 If different authorisations are issued in respect of different stages of development (e.g., exploration appraisal or production arrangements), please specify those authorisations and briefly summarise the most important (standard) terms (such as term/duration, scope of rights, expenditure obligations). 3.4 To what extent, if any, does the State have an ownership interest, or seek to participate, in the development of oil and natural gas reserves (whether as a matter of law or policy)? The State does not currently seek to develop oil and gas reserves itself and this policy is expressly recognised in the Minerals Programme for Petroleum. Nonetheless, the State-owned enterprise, Genesis Energy, (100% owned by the Crown), has equity interests in the oil and gas sector (including a 31% interest in the Kupe Gas Project). 3.5 How does the State derive value from oil and natural gas development (e.g. royalty, share of production, taxes)? New Zealand As noted at question 3.2 above, three types of permits are granted by the Minister of Energy and Resources under the Crown Minerals Act: prospecting; exploration; and mining. Prospecting permits allow for the reconnaissance of prospective oil and gas fields, typically by the collection of geological, geophysical and geochemical data. Such permits are allocated on a noncompetitive basis, may be non-exclusive when granted and are valid for up to 2 years. Extensions of prospecting permits are unlikely to be granted. Applications for prospecting permits may be made at any time over land available for petroleum permitting. The permit holder must undertake a specified programme of work with the primary objective of materially adding to the existing knowledge about the potential of the permit area. Conditions relating to the payment of fees and lodgement of data may also be imposed. Exploration permits are granted for the purpose of undertaking work to identify petroleum deposits and to evaluate the feasibility of mining any discoveries made. They allow for geological, geochemical and geophysical surveying, appraisal drilling, and testing of petroleum discoveries. Exploration permits are awarded by the Minister of Energy and Resources as part of a Petroleum Exploration Permit Blocks Offer (a method of allocation by public tender). The winning tenderer in the tender process is afforded exclusive exploration rights, as well as subsequent rights to apply for, and be granted (subject to satisfying certain specified criteria), a mining permit. Exploration permits run for up to 5 years, however a renewal for 5 years is available over no more than 50% of the area. Appraisal extensions to enable appraisal work for a discovery may be granted in some circumstances. Mining permits are normally granted to exploration permit holders who have discovered a petroleum field in an area of their permit. A successful applicant will receive a mining permit in exchange for the surrendered exploration permit area. In evaluating a mining permit application, the Minister must be convinced of the viability of the field, that the applicant’s work programme complies with good mining and exploration practice, and of the technical and financial capability of the applicant. Mining permits allow for operations relevant to the extraction, separation, treatment and processing of petroleum. A mining permit’s duration will depend on the size of the discovery and rate of production, and may be granted for up to 40 years. As noted in question 3.1 above, the Crown Minerals (Permitting and Crown Land) Bill seeks to amend certain statutory provisions relating to prospecting, exploration and mining permits and accordingly, some of the above may change when the Bill is enacted by Parliament (for example, the duration of petroleum exploration permits). A hybrid royalties regime applies to petroleum permits, comprising of an ad valorem royalty and an accounting profit royalty. For mining permits where the net sales revenue has never exceeded NZ$1 million in one reporting period, only the ad valorem royalty is payable. If the net sales revenue exceeds this amount in a reporting period, the permit holder must calculate both the ad valorem and accounting profit royalty and pay whichever is the higher. For any new discoveries, the ad valorem royalty is 5% of the net sales revenue for oil and gas discoveries and the accounting profit royalty is 20% of the accounting profits. 3.6 Are there any restrictions on the export of production? This issue has not yet arisen in the New Zealand natural gas industry. Nevertheless, section 45(2) of the Crown Minerals Act provides that the Minister may direct, in certain circumstances, that petroleum be refined in New Zealand. If the Minister gives such a direction, he may give a further direction prohibiting the export from New Zealand of any petroleum directed to be refined or processed and of all or any of the products manufactured from such petroleum. New Zealand has one oil refinery, being the Marsden Point Oil Refinery, which is near Whangarei in the North Island. It is capable of processing approximately 135,000 barrels of crude oil per day and typically processes between 37 and 42 million barrels of crude oil and other feedstock per year. In 1988, the New Zealand oil industry was deregulated. This resulted in the removal of price controls, government involvement in the Marsden Point Oil Refinery, licensing of wholesalers and retailers and restrictions on imports of refined products. 3.7 Are there any currency exchange restrictions, or restrictions on the transfer of funds derived from production out of the jurisdiction? Generally there are no such restrictions. 3.8 What restrictions (if any) apply to the transfer or disposal of oil and natural gas development rights or interests? Transferability of permits is limited. The Crown Minerals Act provides for the assignment or transfer of a permit interest to allow for risk-sharing and as part of commercial transactions. However, transactions are subject to the consent of the Minister of Energy and Resources (section 41 of the Crown Minerals Act for permits and section 23 of the Petroleum Act for licences granted under that Act). In addition, the Crown Minerals Act provides that any agreement ICLG TO: OIL & GAS REGULATION 2013 © Published and reproduced with kind permission by Global Legal Group Ltd, London WWW.ICLG.CO.UK 233
Bell Gully New Zealand New Zealand which deals either directly or indirectly with any interest in or which affects a permit, or any agreement which relates to the production of minerals from the land to which a permit relates, is subject to the consent of the Minister of Energy and Resources. However, the Crown Minerals (Permitting and Crown Land) Bill proposes to significantly narrow the scope of the Ministerial consent provision for dealings so that it will only apply to certain kinds of agreements that impose on permit holders an obligation relating to the proceeds of production. 3.9 Are participants obliged to provide any security or guarantees in relation to oil and natural gas development? zone and on the continental shelf. A person seeking to undertake discretionary activities must apply to the EPA for a marine consent. The Department of Conservation has recently released a 2012 Code of Conduct for Minimising Acoustic Disturbance to Marine Mammals from Seismic Survey Operations and is also developing new Conservation Management Strategies (the regional planning documents the Department of Conservation uses for managing public conservation land and waters). 3.12 Is there any legislation or framework relating to the abandonment or decommissioning of physical structures used in oil and natural gas development? If so, what are the principal features/requirements of the legislation? Under the Crown Minerals Act, the Minister of Energy and Resources may require a permit holder to deposit a bond with Crown Minerals as a condition of granting that permit holder a permit. In addition, participants must make commitments to the Government which are contained in the work programmes that are required to be furnished to the Minister. It is also becoming increasingly common for the Minister to require parent company guarantees or support for lowly-capitalised subsidiaries on the transfer or grant of a permit or permit interest. Under the Petroleum Act 1937, licence holders were required to lodge a deposit or bond, to be returned when the licence has expired or ceased. 3.10 Can rights to develop oil and natural gas reserves granted to a participant be pledged for security, or booked for accounting purposes under domestic law? A security interest may be granted over a licence or permit granted under the Petroleum Act or the Crown Minerals Act. However, the transfer restrictions in section 23 of the Petroleum Act and section 41 of the Crown Minerals Act apply upon the exercise of any such security interest (as noted above in question 3.8). 3.11 In addition to those rights/authorisations required to explore for and produce oil and natural gas, what other principal Government authorisations are required to develop oil and natural gas reserves (e.g. environmental, occupational health and safety) and from whom are these authorisations to be obtained? Development of the natural gas resource may require resource consents, building consents, permits, and compliance plans under the following acts: the Resource Management Act; the Building Act 2004; the Maritime Transport Act; the Hazardous Substances and New Organisms Act; and the Overseas Investment Act 2005. Further, the Health and Safety in Employment Act 1992 (and relevant regulations under that act) require compliance with certain workplace safety standards. In addition, as noted in question 3.1 above, the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2012 was recently enacted. This legislation aims to increase the protection of New Zealand’s Exclusive Economic Zone and the continental shelf by regulating certain activities. The consenting regime classifies activities as either: permitted; discretionary; or prohibited. Certain activities, such as seismic data acquisition, are expected to be permitted activities, while higher impact activities, such as drilling, are expected to be discretionary activities which will require a permit. The recently established EPA has primary responsibility for regulating petroleum and other activities in the exclusive economic Decommissioning and abandonment procedures typically constitute part of the work programme included as part of a permit granted under the Crown Minerals Act. While the decommissioning of facilities has not been of particular significance in New Zealand to date, the Ministry of Business, Innovation and Employment has indicated that there will be significantly more emphasis on the decommissioning of facilities going forward and it is currently undertaking a review of the decommissioning of offshore facilities. It has also announced that greater requirements in relation to decommissioning will be specified in the relevant minerals programmes, regulations and permit conditions, and it is also likely that bonds will be required in respect of such activities. In addition, the requirements of the EEZ Act, the Resource Management Act, the Health and Safety in Employment Act, the Maritime Transport Act, and the Hazardous Substances and New Organisms Act will have to be observed in respect of any decommissioning activities. 3.13 Is there any legislation or framework relating to gas storage? If so, what are the principle features/requirements of the legislation? There is no specific legislation or framework relating to underground gas storage; however it can be carried out under the Crown Minerals Act. As noted above in question 1.1, the first underground gas storage facility has recently been developed at the Ahuroa reservoir in Taranaki. 4 Import / Export of Natural Gas (including LNG) 4.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of natural gas (including LNG). Due to the entirely indigenous supply of natural gas in New Zealand, and the absence of exports, no specific regime exists. If New Zealand were to import LNG, for example, companies importing LNG would need to comply with the environmental and safety provisions of the Maritime Transport Act and the Hazardous Substances and New Organisms Act. 5 Import / Export of Oil 5.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of oil and oil products. The oil industry in New Zealand was highly regulated up until 234 WWW.ICLG.CO.UK ICLG TO: OIL & GAS REGULATION 2013 © Published and reproduced with kind permission by Global Legal Group Ltd, London
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