Estimating appropriate levels of financial assurance for offshore petroleum activities in Australia

APPEA has developed a method to assist titleholders estimate appropriate levels of financial assurance for pollution incidents arising from petroleum activities. In 2013 the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act) was amended to strengthen the polluter pays principles of the act and clarify and broaden its financial assurance requirements. Those amendments included provision for regulation requiring titleholders to demonstrate financial assurance as a prior condition for the acceptance of an environment plan (EP) by the National Offshore Petroleum Safety and Environment Management Authority (NOPSEMA). The Australian Petroleum Production and Exploration Association (APPEA) has developed a standard method that can be used by titleholders to estimate the level of financial assurance required under the OPGGS Act. The APPEA method broadly follows the approach first proposed by Oil & Gas UK in their Guidelines to assist licensees in demonstrating Financial Responsibility to DECC for the consent of Exploration & Appraisal Wells in the UKCS. The method involves two steps: (i) estimate the cost of well control (if appropriate); and, (ii) estimate the cost of the operational response. For the purposes of estimating the cost of operational response, a pollution incident is assigned to one of eight cost bands, according to its potential impact, based on three parameters: the hydrocarbon type, the total spill volume and the potential shoreline impact. The APPEA method was applied to 10 case studies, spanning a range of petroleum activities, hydrocarbon types and geographical regions. The case studies demonstrated that the operational response costs for each of the case studies are broadly captured by their respective cost bands.