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Interview

Graeme Waters – General Manager, National Offshore Petroleum Titles Administrator (NOPTA), Australia

Graeme Waters - NOPTA

NOPTA’s Graeme Waters explains how consolidating titles administration and associated regulatory functions into one entity has helped drive efficiency and improve productivity within Australia’s offshore oil and gas industry. NOPTA will focus on removing uncertainty, maintaining consistency, and effectively regulating relevant company practices.

To begin, Graeme, can you start off providing an overview of NOPTA’s functional activities in Australia and also describe the current focus of your priorities and objectives now, as general manager?

The regulatory reforms that were first introduced on January 1, 2012, have their roots in a productivity review commissioned back in 2007. The purpose of the review was to look at the degree of regulatory burden facing the offshore oil and gas industry. At the time, the regime consisted of seven separate regulatory bodies, which were known as the designated authorities, and were in essence the states and the Northern Territory. These bodies took care of all regulatory aspects regarding the offshore oil and gas industry, except for safety, which at the time was under the jurisdiction of the National Offshore Petroleum Safety Authority (NOPSA). The productivity review recommended easing regulatory burden by creating a national regulator, originally envisaging a body called the National Offshore Petroleum Regulatory Authority (NOPRA). It saw this body as a single entity that would be responsible for all offshore oil and gas – specifically anything beyond three nautical miles of the shore. In responding to that productivity review, however, it was clear that the idea of having safety, environment, and the economic aspects of titles administrator governed under one roof would create conflicts of focus. And so, the government’s response through the regulatory reform program was to expand NOPSA to the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA), covering safety, environment, and well integrity, and create NOPTA to facilitate titles administration, and resource and data management.

The other distinction between the two is that NOPSEMA is characterized as an independent statutory authority with a CEO that reports directly to the minister, whereas NOPTA is a part of the resources division, which sits inside the Department of Industry, Innovation and Science. The primary reason for this is based on the concept that the minister should have direct involvement in the granting and renewal of titles. In terms of bestowing rights, it’s more appropriate that an elected official facilitates the decisions, rather than an appointed official.

The scope of my responsibilities as general manager deals with taking care of the day-to-day operations of the organization and implementing the decisions of the joint authorities (JA).Each state and the Northern Territory has a Joint Authority that comprises the Commonwealth Minister for Resources: Josh Frydenberg and a state or Northern Territory Minister. As titles administrator, I am an advisor to the JA – equally advising both the commonwealth minister and the states and territory ministers. My responsibilities lie in the technical assessments of applications made by oil and gas companies and providing my recommendations to the JA on whether or not a particular title should be granted to an applicant. Under the current regime, Australia now has a single national regulator performing those assessments, as opposed to seven different bodies. So, there is far more consistency with a much more streamlined process – giving much more certainty to oil and gas companies.

And exactly how far does NOPTA’s involvement extend?

The two-part process essentially begins at the time of acreage releases, which takes place each year, during the APPEA conference. If we talk about the cycle of a title, from the acreage release, my involvement commences at the receipt of  the bids for exploration permits. I then advise the joint authority on the assessment of those bids. The JA, however, does not necessarily have to follow my advice. My recommendation is based on a purely objective assessment of whether or not an application fits within the established guidelines, whereas ministers will take into account a whole range of other potentially competing priorities such as local and commonwealth issues, political landscapes, and broader strategic perspectives unique to each minister that could very well go beyond the merits of any individual application.

Putting things in perspective, simply because we’re an island, Australia has the largest offshore area of any of the offshore oil and gas producing nations. Geoscience Australia (GA) and the Offshore Resources Branch (ORB) perform what we call the pre-competitive work, where they determine what acreage should be released in the first place. This is actually done as a consultative process with companies. So, the companies are advising GA and ORB on what kind of acreage they’re seeking.

The exploration permit application focuses on several characteristics such as financial capacity, work programs, exploration strategy, and prior performance. From your experience, what are the most critical consideration factors for companies looking to secure an exploration permit?

The underlying motivator here is for the offshore oil and gas industry to work in the interests of Australia’s growth and prosperity – the stewardship of our country’s offshore oil and gas resources. I’m primarily concerned that the bids meet a certain set of criteria, as published in the guidelines; such as whether or not the company is a bona fide explorer with sound financial capacities and its work program is sufficient enough to advance the geological understanding and ultimately production of a resource base.

It’s a competitive process that considers the relative merits of one application against another. Essentially a title gets granted to the company that will produce the most likely positive outcome for a resource base. Where it becomes difficult, of course, is that many applicants of similar size, experience, and financial capacity will propose similar work programs – painting a very fine line between the strongest contenders. But that’s also why we’ve spent a great deal of resources creating a highly qualified geoscience and engineering team to perform in-depth technical assessments for each application, while also employing a commercial and operations team to evaluate the commerciality aspects.

Unlike many other jurisdictions around the world, the Australian government is granting rights over very large expanses of offshore resources for an extended period of time. So, the people do expect a return over these rights – it is our job at NOPTA to assess and recommend the most qualified and capable applicants that will produce the most chances of making that happen.

In which areas of the titles administration process do you see the most opportunity for improvement?

The whole premise underlying the establishment of NOPTA was to relieve regulatory burden. That remains our commitment and is a key performance indicator in the regulatory performance framework. We must ensure that our regulatory processes align to how industry is operating. So, for the regulator to be able to effectively streamline regulations it must align its processes with what industry does by automating workflows and opening up portals by which industry can better communicate with governments. Essentially, it’s about giving companies the opportunity to engage in dialogue about how they can facilitate change for themselves and not just be on the end of it.

Regarding the decision making process, NOPTA processes about 700 applications a year, spanning title grants and renewals; variations, suspensions, or extensions in work programs; field development plans; or rates of recovery. That has result in roughly 350 decisions being made by the JA and the others being made by the titles administrator. The operational review that was done into NOPTA – the government’s response – revealed that some of those decisions made by the JA could’ve actually been made by the titles administrator to help oil and gas companies save money without weakening the regime and, in turn, providing greater certainty and quicker turnarounds times.

I think it is also worth making the point that NOPTA’s role is not to second guess companies’ proposals, but glean sufficient information to advise and then enable the Joint Authorities to make informed decisions on development strategies. And then to, monitor and ensure compliance with the approved licenses and plans.

In terms of your engagement with industry stakeholders, what type of feedback have you received so far?

Overall, feedback has been very positive and most encouraging. We have made some good progress, particularly in data management through our arrangements with GeoScience Australia and the on-line publication of the national offshore titles register. Nevertheless, there is still work to be done if we are to continue delivering the full breadth of services whilst relieving regulatory burden and keep costs low.

Currently out for discussion is the resource management review interim report. This is a review of the entire offshore oil and gas industry cycle in Australia looking at it from acreage all the way to retention and production.. That was done with quite a lot of industry engagement on the kinds of things that can assist industry and how Australia can remain competitive in terms of seeking and encouraging investment in exploration on a global stage.

One Company Senior Executive recently talked about the oil and gas industry as having three domains. The first domain is all about acreage with good prospectivity, and that responsibility largely rests with government – getting the pipeline of acreage release right to stimulate investment. The second and broadest domain is about technology – the big leaps forward, as well as the small changes. Onshore versus floating LNG, for example, represents a quantum shift in technology. At the other end of the spectrum, however, there are constant changes being made around the way seismic is interpreted and the software that exists around that. Small changes; the 1 percenters that happen every day. That’s where the industry is really dynamic. The last domain then is how companies are confronting falling prices and rising costs and, overall, tackling the massive costs that are required to bring a discovered field to production. This is where companies need to work better at “sharing their kit” – coordinating infrastructure, sharing assets and sequencing development.

From the number of applications that the organization has processed in 2015, how would you characterize the general sentiment in the industry when it comes to initiating new exploration activities compared to previous years?

We have seen a change in the pattern, possibly in the number of bids received per block. In terms of the quality of bids, I haven’t seen any degradation there. The applicants are all bona fide explorers, still developing work programs that they themselves need to carry out. Certainly, however, they are being far more selective about the drilling of wells – particularly in frontier areas where it’s typically much more expensive.

The volume of bids hasn’t been impacted by the industry’s downturn?

Not particularly. The other factor at play here is the transition of the major gas fields from construction to production. So, it’s normal to see the entire industry as moving from exploration and retention into development. It’s more of a natural progression rather than the downturn in commodity prices. The decrease in applications had actually already started sometime before the initial decline in oil prices. I can’t say the volume hasn’t been impacted at all by the prices, but I don’t believe a one-to-one correlation can be drawn with other salient elements at play.

In challenging times like these, how do you foresee the role of organizations like NOPTA evolving to ultimately support the productivity and growth of Australia’s offshore oil and gas industry?

Indeed, we’re certainly working in very challenging times at the moment, where companies are undertaking significant re-evaluations of their portfolios and overall exploration investment strategies. It can be quite an unsettling time for these oil and gas companies because they’re not only competing with each other, but also internally. For example, exploration divisions of companies in Australia would be seeking budget from their respective affiliates around the world. These players have to carry out a lot of internal selling to essentially depict the prospects in Australia as being equal or greater than the prospects elsewhere.

I also see that one of the strengths of NOPTA is the opportunity and willingness of companies to discuss their plans and options without fear or favour before they submit applications. I believe that kind of detached engagement model allows for open and frank discussion and provides us with a good understanding of what is coming along. That early engagement often leads to better quality in the assessment.

Given this backdrop, our efforts will focus on removing uncertainty and maintaining consistency, while also introducing efficiencies and cost-savings. Those things impact us as much as the industry we regulate. But it’s also about making sure we’re regulating what the companies are doing, not what they’ve done – keeping pace with the industry’s development. And this isn’t just a local issue, but a global one. We have very close relations with our counterparts in Norway, the UK, Iceland, Canada, Nova Scotia, Mexico, Brazil, and the US to understand how this inherently global and ever-changing industry is currently operating, as well as to gain a better grasp on what exactly it will evolve into moving forward.

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