I INTRODUCTION

i Overview

New Zealand's geological history has endowed it with rich petroleum resources, only a small proportion of which have been tapped. These largely unexplored petroleum resources represent one of the country's most significant economic opportunities.

New Zealand's producing oil and gas fields are primarily located in the Taranaki basin on the west coast of the North Island.

Oil

In 2018, oil prices continued to recover after the lows of 2016. Total oil consumption increased 3.1 per cent between December 2017 and March 2018.2 In the same quarter, petrol imports were up 26.6 per cent and diesel imports were up 6.8 per cent, while indigenous crude oil production was down 11.4 per cent largely because of the shutdown of the Pohokura field after a small leak was discovered in an offshore pipeline.3

Most of the oil produced by New Zealand is exported, owing to its high quality and the configuration of New Zealand's sole domestic refinery. In the December 2017 to March 2018 quarter, the domestic refinery saw output of regular petrol increase by 33 per cent, diesel increase 6.5 per cent and jet fuel increase 14.5 per cent, while premium petrol decreased 6.8 per cent.4

Gas

Gas use for power generation was up 45.2 per cent from the December 2017 to the March 2018 quarter, with overall gas supply up 6.4 per cent.5 Production of gas is dominated by the Pohokura and Maui fields, which are responsible for over half of New Zealand's domestic gas production.6

New Zealand does not currently export natural gas, and lacks LNG facilities, but natural gas is a vital input into the domestic energy market. Direct consumption of natural gas by consumers is low, with use by households accounting for only a small percentage of total use. Gas used for electricity generation and cogeneration has continued to fall, with the share of electricity generated from renewable sources continuing to rise.7 Natural gas is transmitted throughout the North Island through high-pressure gas transmission pipelines which connect to medium and low-pressure gas distribution pipelines. These pipelines connect the oil fields of Taranaki with industry and consumers throughout the North Island.

Government policy towards the sector

A change of government in November 20178 has seen a shift in focus regarding the oil and gas sectors in New Zealand, especially in relation to offshore exploration. The new government announced that it would not issue new permits for offshore oil or gas exploration, meaning that future block offers would be restricted to onshore locations.

This decision was stated to not affect current permit holders (who will be entitled to continue to explore for and produce any commercial quantities of hydrocarbons that are discovered). Onshore block offers are set to continue.9

The decision to no longer grant new permits for offshore exploration was stated to be in support of the government's goal of New Zealand becoming a net zero-emission economy by 2050, with an interim goal of making New Zealand's electricity system 100 per cent renewable by 2035. The decision was subject to significant criticism at the time for failure to sufficiently identify how the change contributes to the desired outcome (as in the absence of other actions that reduce use, there will simply be an increase in the net imports of hydrocarbons).

The government intends to introduce a Zero Carbon Bill that will encapsulate these goals to Parliament later this year.

In 2011, the then government released the New Zealand Energy Strategy 2011–21, Developing our Energy Potential. The strategy sets out how the government intends to help develop New Zealand's energy resources. In 2017, the government released the New Zealand Energy Efficiency and Conservation Strategy 2017–22, Unlocking our energy productivity and renewable potential. The strategy supports the New Zealand Energy Strategy 2011–21 and sets out the objectives, actions and targets for energy efficiency and renewable energy for the next five years. The ongoing validity of these policy statements is questionable in light of the changes made by the new government.

Several reforms to oil and gas regulation were passed in 2013. Experience under those reforms is limited and ongoing changes to the detailed rules of operating in the sector are expected to continue for the foreseeable future.

II LEGAL AND REGULATORY FRAMEWORK

i Background

Constitutional structure

New Zealand is a constitutional monarchy, where decision-making power is distributed across three branches of government: Parliament, the Executive and the judiciary. Parliament makes the law, the Executive administers the law and the judiciary interprets the law through the courts.

New Zealand has no single written constitution or any form of law that is higher than the laws passed in Parliament. The legal rules of New Zealand are contained in a number of sources, concentrated in legislation passed by Parliament and court decisions made by judges.

Regional and local government

Regional and local government decision-making is an important consideration for investors in the oil and gas sector. New Zealand has 11 regional councils and 67 territorial authorities. Regional and local government make decisions and set the direction for promoting the social, cultural, environmental and economic wellbeing of their communities within the parameters set by central government.

Ownership of oil and gas

The Crown owns all of New Zealand's in-ground petroleum resources, and has exclusive sovereign rights to petroleum resources in New Zealand's Exclusive Economic Zone and Continental Shelf.10 A permit must be obtained from the Crown to carry out any prospecting, exploration or mining activities.11 If extracted in the course of activities authorised by a permit, ownership of petroleum passes to the holder of that permit.12

Domestic oil and gas legislation

New Zealand's oil and gas sector is governed by the Crown Minerals Act 1991 (CMA). The CMA sets the broad legislative policy for prospecting, exploration and mining of minerals, which includes petroleum, in New Zealand. The CMA is administered by NZ Petroleum & Minerals (NZP&M), which is a branch of the Ministry of Business, Innovation & Employment. The Continental Shelf Act 1964 extends the application of the CMA to include petroleum in the seabed and subsoil of the continental shelf.

The CMA is supplemented by important pieces of subordinate legislation, including the:

  1. Minerals Programme for Petroleum 2013, which establishes the policies, procedures and provisions relating to petroleum that are to be applied under the CMA. The CMA requires functions and powers exercised under the CMA to be carried out in a manner that is consistent with the policies, procedures and provisions of any relevant minerals programme;
  2. Crown Minerals (Royalties for Petroleum) Regulations 2013, which cover royalties and royalty reports for petroleum mining permits issued after 24 May 2013;
  3. Crown Minerals (Petroleum) Regulations 2007, which specify the information that permit or licence holders must supply and includes forms for applying for, transferring and surrendering permits;
  4. Crown Minerals (Petroleum Fees) Regulations 2016, which outline the fees payable for petroleum under the CMA;
  5. Crown Minerals (Royalties for Minerals Other than Petroleum) Regulations 2013, which cover royalties and royalty reports on mining permits;
  6. Crown Minerals (Minerals other than Petroleum) Regulations 2007, which cover requirements and procedures for permit applications, permit changes applications, royalty returns and payments, reporting to the Crown on prospecting and exploration and lodging core and samples with the Crown; and
  7. Crown Minerals (Minerals Fees) Regulations 2016, which outline the fees payable for minerals and coal under the CMA.

The government has signalled a probable review of these rules and regulations in light of its policy to no longer issue new offshore prospecting or exploration permits.

Environmental legislation relevant to the oil and gas sector is discussed at Section VII. The most important statutes are the Resource Management Act 1991 (RMA) and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2012 (EEZCSA).

New Zealand has developed an internationally competitive royalty regime. The regime stipulates that mining permit holders pay either an ad valorem royalty or an accounting profit royalty, whichever is greater in any given year. The royalty rates are either:

  1. 5 per cent ad valorem, that is 5 per cent of the net revenue obtained from the sale of petroleum; or
  2. 20 per cent of the accounting profit of petroleum production.13

ii Regulation

NZP&M is the regulatory body with primary responsibility for oil and gas regulation in New Zealand. Other agencies involved in regulating the sector include district and regional councils, the Environmental Protection Authority (EPA), WorkSafe New Zealand, Maritime New Zealand and the Department of Conservation (DOC).

NZP&M's role includes managing the permitting regime, managing regulatory compliance and collecting Crown revenue. NZP&M also consults with Māori stakeholders and provides the public with information about regulation of the industry.

iii Treaties

New Zealand is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and the United Nations Convention on the Law of the Sea 1982. New Zealand is party to a number of trade treaties and international conventions, including the New Zealand–China Free Trade Agreement, Australia and New Zealand Closer Economic Relations and the Trans-Pacific Strategic Economic Partnership. New Zealand has a network of 40 double tax agreements in force. These include agreements with Australia, China, the United Kingdom and the United States.

III LICENSING

i Overview

The main instruments required to undertake petroleum activities in New Zealand are:

  1. a permit under the CMA;
  2. the required consents under the RMA or the EEZCSA; and
  3. if necessary, an access arrangement with the land owner and occupier.

The CMA separates mining operations into three stages: prospecting, exploration and mining. A permit under the CMA is required for each of these stages.14

ii Prospecting

Petroleum Prospecting Permits (PPP) are required for prospecting activities such as desktop studies, grab sampling and geophysical, aerial and seismic surveys. An application for a PPP is submitted in respect of an area nominated by the applicant, and is assessed on the applicant's technical and financial capability to undertake the proposed work and on the applicant's record of compliance. Prospecting permits are granted on the basis that prospecting will increase knowledge of New Zealand's petroleum resources; if the proposed prospecting is unlikely to materially add to existing knowledge, a permit will only be granted if special circumstances exist.15

Prospecting permits are typically non-exclusive and are granted on the basis that the holder has no subsequent right to obtain an exploration or mining permit.16 They are granted for a maximum four-year period, with no right of extension.

iii Exploration

A petroleum exploration permit is required for activities such as seabed sampling, detailed seismic surveying and the drilling of exploration wells. Exploration permits are allocated in an annual tender process known as a petroleum exploration permit round (or block offer).17 The geographical scope of future block offers has been substantially reduced by the government's decision to stop offshore block offers altogether and for 2018 to limit onshore block offers to acreage in the Taranaki region. See more discussion of government policy in Section I.

The block offer is a competitive allocation process. In the majority of cases the permit will be allocated to the party proposing an exploration programme that has the best information-gathering value and that is most likely to find petroleum deposits in a timely manner, provided that the programme is technically appropriate and credible.18 Where there is high prospectivity and particularly strong competitive interest, the permit may instead be allocated to the party that makes the highest cash bid (subject to the party meeting other requirements).

Regardless of the method of allocation, NZP&M will assess each applicant's technical and financial capability and compliance history. A high-level assessment will also be undertaken to determine whether an applicant is likely to meet health, safety and environmental legislative requirements. Exploration permits are granted for up to 15 years, depending on their location, but may be extended for appraisal activities.19 Any exploration permit granted is subject to the conditions advertised in the Notice of Permit Round, or agreed upon by the Crown and the person seeking the permit.20 Exploration permits include a subsequent right to apply for a mining permit.21

Permit holders must notify NZP&M as soon as practicable, and not later than 20 working days after making a discovery of petroleum.22

iv Mining

Petroleum Mining Permits (PMP) authorise the holder of a permit to mine petroleum in a particular area.23 Exploration Permit holders who have discovered petroleum in the exploration area are entitled to exchange their permit for a mining permit provided that they can satisfy the Minister that they have discovered a petroleum field and can satisfy certain requirements in the CMA and Petroleum Programme.24 A mining permit can be granted for up to 40 years.25

v Iwi and Hapū consultation

NZP&M will consult with local Māori Iwi and Hapū (tribes and family groups) before issuing a prospecting, exploration or mining permit. This is consistent with the Crown's obligations under the Treaty of Waitangi and Treaty settlements. Permit holders have an obligation to provide NZP&M with an annual report detailing the permit holder's engagement with Iwi or Hapū in the area to which the permit relates.26

vi Information sharing

Permit holders of all types have an obligation to collect and share particular information with NZP&M.27 In the case of exploration and mining permits, NZP&M will make this information publicly available five years after it is collected, or when the permit to which it relates expires. Information obtained under a prospecting permit will generally not be made publicly available until 15 years after it is collected, unless the information is collected by a non-speculative prospector and a block offer for the area to which the prospecting permit relates has closed.

vii Revocation of permits

A permit may be revoked if a condition of the permit, the Act or the regulations has been contravened, or if a payment is overdue.28 Prior to revocation, the permit holder must be given a notice specifying the grounds for revocation and given an opportunity to remedy these grounds or provide a reason why the permit should not be revoked or transferred.

There is a Crown Minerals Amendment Bill before Parliament which, if passed, would extend the grounds for revocation of tier 1 permits. Under this Bill, a tier 1 permit would be able to be revoked if a change of control of a permit holder occurs without the prior consent of the relevant minister.29

Tier 1 permits are required for all prospecting, exploration or mining operations that relate to petroleum, as well as for complex, higher-risk-and-return mineral operations.

viii Access to land

A permit under the CMA does not give the permit holder any rights to access the land to which the permit relates.30 The permit holder must enter into an access arrangement with the land owner before it can commence prospecting, exploration or mining.31 There is an exception to this rule for minimum impact activities which, subject to conditions, may be carried out without an access arrangement provided that written notice is provided to the land owner and occupier.32

Access to minerals on Crown-owned land has special challenges, particularly when the land is administered by the Department of Conservation (DOC). The CMA provides that an access arrangement in respect of Crown land can be entered into by the land-holding minister, which in most cases is the Minister of Conservation. An access arrangement cannot be granted in respect of any land listed in Schedule 4 of the CMA, except in very limited circumstances.33 Schedule 4 protects land that has been given a high conservation status and includes most National Parks and Marine Reserves.

Where the land in question is administered by the DOC, a range of information is required to be submitted with the application, including an assessment of the environmental effects of the activity. In practice, the DOC will not grant an access arrangement until a permit under the CMA and all necessary consents under the RMA have been obtained.

Once an access arrangement has been agreed then an Authority to Enter and Operate must be obtained before prospecting, exploration or mining can commence. Further information, including current insurance details, may need to be provided to the DOC before authority will be granted. An Authority to Enter and Operate can be granted for up to 12 months at a time, after which it will need to be renewed.

IV PRODUCTION RESTRICTIONS

Restrictions on production entitlements (if any) are set in mining permit conditions. There are no general restrictions on exports of oil and gas from New Zealand nor are there any requirements for sales of production into the local market. However, the Minister of Energy and Resources does have the power under the CMA to require a permit holder to refine or process in New Zealand any petroleum that the permit holder extracts.34 Where permit holders are required to refine or process in New Zealand, the Minister may make a further order prohibiting that petroleum from being exported.35

New Zealand has one domestic refinery located in the North Island and owned by a publicly listed company. It principally refines imported crudes.

There are no laws regulating oil and gas price setting in New Zealand. However, price setting is subject to competition law and the provisions of the Commerce Act 1986 will apply generally to oil and gas pricing. See more discussion of the Commerce Act at Section VIII.iv, infra.

V ASSIGNMENTS OF INTERESTS

i Petroleum and oil transfers

Petroleum prospecting permit holders can transfer or assign their interest if the relevant Minister consents. The Minister must be satisfied as to the transferee's technical and financial capability to assume the permit interest. This may also require the provision of a guarantee from the parent entity of the incoming permit holder. There is a small fee payable – currently NZ$2,530 including goods and services tax. Once the relevant criteria are satisfied, no other payments are required to complete the assignment.

An application for consent must be made within three months of the date of the agreement assigning the interest. This time limit and a similar process also applies to changes of control of a permit holder. However, under the Crown Minerals Amendment Bill currently before Parliament, this position may change in relation to applications for consent to a change of control of a tier 1 permit holder. Under this Bill, applications for consent to a change of control of a tier 1 permit holder would need to be made to the relevant minister at least three months before the date on which the proposed change of control takes place. Failure to obtain consent before a change of control takes place would provide grounds for the relevant minister to revoke the permit of the relevant operator.36

The government generally does not have a right of first refusal or preferential purchase right in the event of a transfer.

Depending on the value of the transaction and whether and land is involved, the assignment of an interest may also give rise to further consent requirements (discussed below in Section VIII).

VI TAX

i Taxation overview

Oil and gas companies operating in New Zealand will pay income tax and goods and services tax (GST). There is no capital gains tax in New Zealand, although certain instances of acquiring and disposing of assets may be taxable, including the disposal of petroleum mining assets. There is no stamp duty in New Zealand.

Income tax

A New Zealand resident company is taxed in New Zealand on its worldwide income, whether derived locally or from overseas. A non-resident company operating in New Zealand is only subject to tax on income sourced from New Zealand. This includes offshore activity within the Exclusive Economic Zone. The corporate income tax rate in New Zealand is 28 per cent, although some entities may have different tax rates.

Company losses can be carried forward if certain levels of ownership are maintained, and dividends paid may have imputation credits attached to them (designed to prevent double taxation). Certain business expenses may be deductible, including exploration costs, development costs and removal or restoration costs.

Withholding taxes

In New Zealand, withholding taxes may be required to be withheld and paid to the Inland Revenue Department on some payments (for example, payments of interest, royalties or dividends, or payments made to non-resident contractors). There are different rates for resident withholding tax and non-resident withholding tax, and different rates apply for different types of payment.

ii Tax treaties

New Zealand has 40 double tax treaties, which generally follow the Organisation for Economic Co-operation and Development (OECD) model and can override the application of domestic New Zealand tax rules in some situations. There are a further 21 countries (mostly offshore financial centres) that have concluded Tax Information Exchange Agreements (TIEAs) with New Zealand. Out of these, 17 are in force.

iii Other tax considerations

Goods and services tax is generally chargeable on supplies of goods and services made in New Zealand. GST is generally imposed at 15 per cent, but certain supplies of certain goods or services can be exempt, or have GST charged at zero per cent.

New Zealand has transfer pricing and thin capitalisation rules that can apply to all businesses with non-resident owners. The New Zealand transfer pricing rules are modelled on guidelines developed by the OECD.

In addition, specific tax rules (and exemptions) may apply to certain oil and gas industry participants and to specific petroleum exploration expenditure, petroleum development expenditure or petroleum mining assets.

VII ENVIRONMENTAL IMPACT AND DECOMMISSIONING

i Resource Management Act 1991 (RMA)

Most mining operations located onshore or within 12 nautical miles of New Zealand's territorial limit will require resource consent under the RMA in addition to a permit under the CMA.

The RMA is the principal environmental and development statute in New Zealand. Under the RMA, local authorities are largely responsible for the enforcement of environmental rules and the issuing of individual resource consents. Whether resource consent is required depends on the activity taking place and on local councils' district or regional plans. The consent process weighs potential benefits for the community against potential impacts on the environment and other interests.

A resource consent application must be accompanied by an assessment of the effects that the activity is likely to have on the environment. In the case of mining activities, several expert reports may be required to satisfy this requirement.

ii Marine and Coastal Area (Takutai Moana) Act 2011

The Marine and Coastal Area (Takutai Moana) Act 2011 provides for the special status of the common marine and coastal area as an area that is incapable of ownership. The common marine and coastal area is the area extending from the line of mean high-water springs (essentially the high-tide mark) to the 12-nautical-mile territorial limit.

The Act guarantees public access to the common marine and coastal area and recognises and protects customary interests within it. Interests can take the form of protected customary rights or customary marine title. Customary marine title confers on the title group a set of rights to influence what activities take place in the area and the management of these activities. Customary marine title has significant implications for the mining sector as it will be necessary to negotiate with iwi to obtain access to a customary titled area.

A number of applications have been made since the Act was passed in 2011, but no customary marine titles areas have yet been established. Applications closed in early April 2017.

iii Emissions trading scheme

To address New Zealand's obligations under the Kyoto Protocol, the government has established an emissions trading scheme. Oil and gas that is used in New Zealand is covered by the scheme. Exports of oil and gas are, consistent with international practice, not subject to the regime.

iv The Exclusive Economic Zone

The Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2012 (EEZCSA) came into force on 28 June 2013. The Act established a legislative framework for environmental management in New Zealand's Exclusive Economic Zone and Continental Shelf, with the purpose of promoting sustainable management of the natural resources in this area. It applies to activities taking place more than 12 nautical miles from the coastline.

The Act classifies activities as permitted, discretionary or prohibited. The classification depends on the degree of harm or potential harm from an activity. Marine consents from the Environmental Protection Agency (EPA) are required for those activities that are not permitted. Marine consent applications must also include an impact statement, which will be publicly notified by the EPA. Similar to resource consents, the marine consent process weighs the potential benefits and impacts of an activity.

The Act was amended by the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Amendment Act 2013, which enables existing petroleum operators to continue operating while a decision is made on their consent application or applications, and any subsequent objections or appeals are determined. To benefit from this provision, existing operators must submit a marine consent application to the EPA and have it accepted as complete nine months before their Crown minerals mining permit or privilege expires.

v Code of Conduct for Minimising Acoustic Disturbance to Marine Mammals from Seismic Survey Operations

This Code was issued by the Department of Conservation in 2013 and established a regime to minimise the impact of seismic surveys on marine mammals. It is a condition of the grant of a marine permit under the EEZCSA that permit holders comply with the Code. The Code is also open to voluntary adoption and represents industry best practice.

vi Maritime Protection Rule Part 131

The Environmental Protection Authority administers the Maritime Rule Part 131, which provides rules for offshore installations. Part 131 requires operators to develop an oil contingency plan which must be individually approved for all offshore installations before drilling can begin.

vii Decommissioning

Oil companies and contractors contemplating the decommissioning of facilities and infrastructure need to obtain approval to remove or discard a structure. Approval is obtained either through the marine consenting process (EEZCSA) or resource consenting process (RMA). Under the new Health and Safety at Work (Petroleum Exploration and Extraction) Regulations 2016, a safety plan must also be provided to WorkSafe New Zealand for approval before a production facility can be retired. Wells must also be plugged in accordance with regulations.

Recent changes to the EEZCSA have introduced the concept of a decommissioning plan in relation to decommissioning offshore facilities. These changes do not apply until the date on which the first decommissioning plan regulations made under Section 29E come into force. A decommissioning plan must identify the offshore installations, structures, submarine pipelines, and submarine cables that are to be decommissioned, fully describe how they are to be decommissioned, and include any other information required by the regulations. All New Zealand's offshore fields remain in production so decommissioning is yet to take place in our marine environment. However, the Tui Area oil field in the Taranaki Basin is likely to be decommissioned by 2020.

VIII FOREIGN INVESTMENT CONSIDERATIONS

i Establishment

When choosing to enter New Zealand, foreign investors can:

  1. register a branch of an overseas company on the New Zealand register;
  2. incorporate a different entity such as a partnership or limited partnership; or
  3. incorporate a New Zealand subsidiary of an overseas company.

Incorporating a limited liability company in New Zealand is a relatively quick and easy process. If all the information is at hand (which may include identification information required for anti-money laundering purposes), the process can take as little as one to three business days.

Companies are not required to have a constitution, but will need at least one shareholder, one director and a registered office address in New Zealand.

Under recent changes to company law legislation, all New Zealand companies are required to have at least one director who is resident in New Zealand, or resident in, and a director of a company resident in, Australia (a prescribed country). The list of prescribed countries may be expanded in the future.

ii Capital, labour and content restrictions

There are no generally applicable restrictions on the movement of capital or access to foreign exchange in New Zealand. Oil and gas operators are permitted to hire foreign workers, provided that immigration and employment requirements are met. There are no local content or local hiring requirements.

iii Overseas Investment Act 2005

The New Zealand government regulates foreign investment though the Overseas Investment Act 2005 (OIA). Under the OIA an overseas person must obtain consent for a transaction which will result in overseas investment in 'significant business assets' or 'sensitive land.'

An overseas investment in significant business assets is defined as:

    1. acquiring 25 per cent or more of rights or interests in securities if the consideration, or the value of the securities or the New Zealand assets of the target and its 25 per cent or more subsidiaries, exceeds NZ$100 million; or
    2. establishing a business (that is carried on for more than 90 days in any year, whether consecutively or in aggregate) or acquiring property used to carry on a business if the consideration exceeds NZ$100 million.37

An overseas investment in sensitive land may include an investment involving farmland, certain types of reserves and conservation land, and land adjoining the foreshore, if this land exceeds the area prescribed in the OIA.38 A permit under the CMA or a licence under the Continental Shelf Act is not considered an interest in land for the purpose of the OIA.

Consent will generally be granted to an overseas investment where the overseas person can demonstrate that they have the business experience, acumen and financial commitment to make the investment successful and that the investment will, or is likely to, benefit New Zealand.

iv Competition

Entrants into the New Zealand oil or gas markets should also consider whether their investment will trigger any requirements under the Commerce Act 1986. The Commerce Act prohibits acquisitions that would have the effect, or likely effect, of substantially lessening competition in a market.39

v Anti-corruption

New Zealand has a reputation for being a country with a transparent system of government and low levels of corruption. In 2016, New Zealand was ranked number one as the least corrupt country, equal to Denmark, in Transparency International's corruption perceptions index.

Bribery and corruption are offences in relation to both the private sector40 and the public sector.41 The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 requires financial institutions and casinos to take steps to prevent money laundering and the financing of terrorism. New Zealand ratified the United Nations Convention against Corruption in 2015.

IX CURRENT DEVELOPMENTS

i Permit changes and withdrawals

Under the current permit regime, the Crown is able to attach conditions to any permit it grants. Invariably, this will result in a permit incorporating a time based work programme under which the holder commits to undertake certain work by a series of set dates.

Holders may be given the option after completing certain work (e.g., acquisition of seismic data and its processing) of committing to complete the next defined task (such as the drilling of a well) or of surrendering the permit.

The sharp downturn in oil prices in 2016 reduced the financial incentive for permit holders to fulfil these conditions and the potential for farm-in partners to be found to contribute to the cost of complying with the work programme obligations. Changes to conditions and extensions of time to complete work are permitted under the Act and it is expected that the number of such applications submitted to NZP&M increased. To amend the conditions of a permit, permit holders must apply to NZP&M at least 90 days before a permit condition is due to have been completed. Applications must be supported by sufficient justification for the change to be approved.

Where the change involves a total withdrawal from a permit before committed work is done, the permit holder can be required to complete that work or, if released from that obligation in that instance, the holder's future ability to obtain permits in New Zealand may be adversely affected.

ii Trans-Pacific Partnership (TPP)

New Zealand and 11 other Asia-Pacific countries, including the United States, signed the TPP fair trade agreement in February 2016. In January 2017, the United States' president signed a Presidential Memorandum to withdraw the United States from the TPP. The agreement as it stands cannot enter into force without the United States. The aim of the agreement is to lower trade barriers and establish a common legal framework in areas such as intellectual property and environmental law. If acceded to, the agreement is likely to have consequences for the oil and gas sector.

In light of the United States withdrawing from the TPP, New Zealand has signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with 10 other Asia-Pacific countries. The aim of the CPTPP is much the same as the TPP. The CPTPP has not yet been ratified by the New Zealand government.

iii GNS Science research programme for petroleum exploration

MBIE has awarded NZ$9.6 million over four years to GNS Science to fund a research programme focusing on improving the chances of finding oil and gas accumulations in New Zealand's sedimentary basins.

The research will focus on petroleum movement underground, and how petroleum is affected by the particular rock formations that generate, or are likely to generate, petroleum ('source rocks'). The research has also attracted co-funding from international oil exploration companies and has a broad scope. It is hoped that this programme will help encourage and assist new exploration investment in New Zealand.

iv Health and safety

The Health and Safety at Work Act 2015 came into force on 4 April 2016. The Act, which was modelled on Australian health and safety legislation, introduced the concept of persons conducting a business or undertaking (PCBUs). PCBUs have a primary duty of care to ensure 'so far as is reasonably practicable' the health and safety of workers and others. The implications of the new PCBU concept require particular consideration by non-operators within joint ventures.

The Act also introduced strict new due diligence obligations on directors, partners and senior managers of businesses operating in New Zealand. The penalties for non-compliance for both individuals and companies have increased under the new Act, and there is likely to be a stronger focus from the regulator on ensuring the health and safety of workers in the future.

v Financial security regime for offshore installations

The Marine Protection Rules, Part 102, were amended in August 2017. The amendment followed the publication of a discussion paper, Improving the Financial Security Regime for Offshore Oil and Gas Installations, by the Ministry of Transport in December 2016, as well as extensive consultation between the Ministry of Transport and the Ministry of Business, Innovation and Employment.

The Marine Protection Rules Part 102 applies to oil tankers carrying more than 2,000 tonnes of persistent oil in bulk as cargo, other ships of 400 gross tons or more and regulated offshore installations within New Zealand continental waters.

The amendments made to Part 102 aim to give greater protection to the government and the public by ensuring that operators have the financial means to cover their liabilities should an adverse event occur. The amendments included:

  1. introducing a financial assurance requirement sufficient to cover the costs of well control;
  2. introducing a scaled framework for the level of financial assurance required for clean-up and compensation, which will result in an increase to the level required for most installations; and
  3. refining the scope of liabilities under Part 26A of the Maritime Transport Act 1994 that the financial assurance must cover, to address the mismatch of current requirements with conventional insurance policies.

vi Changes proposed to the Crown Minerals Act 1991

The Crown Minerals Amendment Bill passed its first reading on 3 May 2018 and is currently before the Select Committee. The Bill proposes to make a number of changes to the Crown Minerals Act 1991, including:

  1. extending the grounds for revocation of permits issued to include situations where a change of control of a tier 1 permit holder has occurred without the prior consent of the relevant minister;
  2. introducing offences for failure to obtain prior consent for a change of control of a tier 1 permit holder from the relevant minister and failure to notify the relevant minister upon a change of control occurring in the case of permit holders who are not tier 1 permit holders; and
  3. clarifying the access provisions for land set out in Schedule 4. Under the Bill, a permit holder may prospect, explore or mine on or in land to which the permit relates only in respect of land that is not subject to a customary marine title order or agreement, or in accordance with an access arrangement agreed in writing between the permit holder and the relevant minister or ministers.

A report on the Bill from a Parliamentary Select Committee (which is a required step before the Bill returns to Parliament as a whole to be voted on) is expected in November 2018.


Footnotes

1 Paul Foley is a partner at MinterEllisonRuddWatts.

2 Ministry of Business, Innovation & Employment, New Zealand Energy Quarterly: March 2018 (Ministry of Business, Innovation & Employment) at 2.

3 Ministry of Business, Innovation & Employment, New Zealand Energy Quarterly: March 2018 (Ministry of Business, Innovation & Employment) at 2 and 4.

4 Ministry of Business, Innovation & Employment, New Zealand Energy Quarterly: March 2018 (Ministry of Business, Innovation & Employment) at 4.

5 Ministry of Business, Innovation & Employment, New Zealand Energy Quarterly: March 2018 (Ministry of Business, Innovation & Employment) at 5.

6 Ministry of Business, Innovation & Employment, Energy in New Zealand 2016 (Ministry of Business, Innovation & Employment) at 42.

7 Ministry of Business, Innovation & Employment, Energy in New Zealand 2016 (Ministry of Business, Innovation & Employment) at 44.

8 The government now comprises a coalition between the Labour, Greens and New Zealand First political parties.

9 In 2018, the Block Offers will be limited to areas within onshore Taranaki region.

10 Crown Minerals Act 1991, Section 10; Continental Shelf Act 1964, Section 4.

11 Crown Minerals Act 1991, Section 8(1).

12 Crown Minerals Act 1991, Section 30.

13 Crown Minerals (Royalties for Petroleum) Regulations 2013, Regulation 14.

14 Crown Minerals Act 1991, Section 8.

15 Crown Minerals Act 1991, Section 28.

16 Minerals Programme for Petroleum 2013, at 4.2.3 and 6.2.5.

17 Minerals Programme for Petroleum 2013 at 7.2.

18 Minerals Programme for Petroleum 2013, at 7.2.3.

19 Crown Minerals Act 1991, Sections 35(3) and 35(4); Minerals Programme for Petroleum 2013 at 7.8.

20 Minerals Programme for Petroleum 2013, at 7.3.

21 Crown Minerals Act 1991, Section 32.

22 Minerals Programme for Petroleum 2013, at 7.11.1.

23 Crown Minerals Act 1991, Section 23.

24 Crown Minerals Act 1991, Section 32(3).

25 Crown Minerals Act 1991, Section 35(7).

26 Crown Minerals Act 1991, Section 33C.

27 Crown Minerals Act 1991, Section 90.

28 Crown Minerals Act 1991, Section 39.

29 Crown Minerals Amendment Bill 47-1 (2018), Clause 8.

30 Crown Minerals Act 1991, Section 47.

31 Crown Minerals Act 1991, Section 54.

32 Crown Minerals Act 1991, Section 49.

33 Crown Minerals Act 1991, Section 61.

34 Crown Minerals Act 1991, Section 45(1).

35 Crown Minerals Act 1991, Section 45(2).

36 Crown Minerals Amendment Bill 47-1 (2018), Clause 8.

37 Overseas Investment Act 2005, Section 13.

38 Overseas Investment Act 2005, Section 12 and Schedule 1.

39 Commerce Act 1986, Sections 27–29.

40 Secret Commissions Act 1910.

41 Crimes Act 1961.