ONO comments on proposed regulations: Financial Provisions for Offshore Oil and Gas pollution liabilities

Comment and Input on Proposed Regulations pertaining to Financial Provisioning for the Rehabilitation and Remediation of Environmental Damage caused by Reconnaissance, Prospecting, Exploration, Mining or Productions Operations

We welcome the imposition of liability on license holders for fully remedying any environmental harm caused directly or indirectly by all phases of mining and that adequate, irrevocable and ring-fenced financial guarantees for the potential costs of doing so are in place before all forms of mining operations are undertaken and or regulated. Below you’ll find our main areas of concern, which include, but are not limited to seismic testing, exploration, extraction and decommissioning during marine / offshore oil and gas development.  

Herewith our suggested effective measures for inclusion in the regulatory framework: 

Provisions cannot be established for rehabilitation and remediation of an environment if that environment is poorly understood and baseline data does not exist. No independent Strategic Environmental Assessment (SEA) has been conducted for offshore oil and gas development. It is imperative that an independent SEA is conducted for this entire sector (from reconnaissance, exploration, production (including distribution) and decommissioning), using indigenous in-situ baseline data, in order to inform the formulation and implementation of all government policies and programmes (especially Operation Phakisa).

CH1.3. b.

The term ‘incident’ is very poorly defined as an ‘unplanned and unusual event, which could include an act of God that may cause environmental damage’. 

1. There is nothing to indicate what qualifies as an incident offshore.  (We wish to state parenthetically that a leak that was ignored on the Taylor Energy oil platform has probably released a higher volume of oil into the Gulf of Mexico than the BP Deepwater Horizon^[i]event.)  Whilst the effects of an oil leak may be gradual, it is nevertheless damaging to the surrounding environment and needs remediation. 
2. We understand that in terms of section 3 of the proposed regulations, incidents are specifically excluded from the regulations and reference is made to section 28 of NEMA.  It seems that the proposed regulations propose that section 28 of NEMA would apply in such cases. The courts have found, in cases where section 28 is of application, that the duty or obligation created by section 28 is a strict one and, arguably in some cases, even an absolute one. However the courts have not readily granted relief in terms of section 28, particularly where the pollution was not found to be drastic (See HICHANGE INVESTMENTS (PTY) LTD v CAPE PRODUCE CO (PTY) LTD t/a PELTS PRODUCTS, AND OTHERS 2004 (2) SA 393 (E)).
3. It cannot be disputed that the possibility of spillage, equipment damage, attrition, human error etc. in the offshore oil and gas sector has enormous potential cost implications to our coastal and marine environments and their biodiversity, commercial fisheries, tourism and related industries and that substantial funding from permit holders is required to return shorelines and offshore productions sites and surrounds to their original condition subject to environmental standards in effect at the time.  This accordingly means that an independent third-party cost benefit analysis must be undertaken for each offshore prospecting, production, and decommissioning application. Provision must be made for this cost benefit analysis. The cost benefit analysis must address ‘the worst case scenario’ incident and sit within the peremptory requirements in the proposed regulations, alternatively legislation, for financial provisioning to allow for total overview of provisions needed and to address any shortfalls.
4. A pre-incident/pre-spill status of various sectors (fishing, tourism, recreation etc.) and related businesses must be measured, and calculations of their economic losses by disruptions, loss of earnings plus the effects of negative publicity, persisting public perceptions and potential fishing and harvest bans etc. must be noted.
5. In addition to costs incurred by clean-up activities, serious economic losses can be experienced by tourism-dependent businesses, industries and individuals dependent on coastal resources. Considering that the South African coastal area has a high amenity value dependent on safe recreation at beaches, healthy habitats for wildlife, and industries, such as tourism and fishing; reference needs to be made as to how affected private individuals, the commercial sector and the ecosystem itself will be compensated in the event of an incident/oil spill.
6. The offshore oil and gas sector have business models which pose a threat to the Intergovernmental Panel on Climate Change(IPPC) climate goals of limiting global warming to well below 1.5°C, to prevent irreversible climate change. The effect of operations on climate change acceleration must be addressed by applying generally accepted accounting principles to produce reliable estimates of fair value, and liability allocation. 

CH2.4. 
Obligation of offshore oil and gas permit holder to remediate and rehabilitate.

1. Liability must be imposed for clean-up and rehabilitation for disposal at sea of drill cuttings (often contaminated with drilling lubricants, synthetic-based drilling fluids (SBFs) and other non-aqueous drilling fluids (NAFs) which do not biodegrade and can accumulate in high concentrations affecting reproduction of marine life, and bio magnify toxic substances in the food chain). These sediments can often be tens of meters deep and kilometres wide. All operational waste must be considered in line with a sustainable end state of the seabed, water column and associated bio webs.
2. Not only must provisions be in place for environmental liabilities in the upstream oil and gas industry related to decommissioning, plugging and abandonment, requirements must be in place for monitoring and testing older, inactive wells. Provisions must be in place for identifying those wells that are potential pollution hazards. Mechanical integrity testing every five years of all wells more than 25 years old and inactive for more than 10 years must be undertaken with a protocol and these testing procedures need fiscal assurance.
3. The possibility that existing criteria governing and measuring carbon budgets may become more stringent (with a significant impact on the responsible parties’ compliance costs) needs to be considered during financial provisioning.
4. Recently, allocation of respective shares of liability has been contested between offshore petroleum industry operators (permit holders) and contractors (party responsible for the provision of services to the operator in relation to say field operation and production)^[ii]. See the Macondo oil spill (2010). Considering the increase in multiparty seismic surveys and operations, government regulation needs to provide a viable allocation of liabilities between operators and contractors. The participation of the insurance industry would be essential to ensure that any proposed solutions were practical and acceptable to it.

CH 2.14.1.c

Responsibility of Holder to disclose information

Financial assurance programs may not always prove adequate^[iii].The South African public and its purse needs proof of environmental impairment liability insurance safeguards, in place, not just evidence of financial assurance, against pollution management and a reasonable level of fiscal readiness for long-term rehabilitation and remediation of pollution events affecting offshore oil and gas development. This information should not involve a PAIA process but rather should be readily available in all local languages for any concerned stakeholder on the PASA website.

CH3.6 .1. – 2.c

Determining the financial provision

1. Provision must be supplied for an independent third-party cost benefit analysis to be undertaken for each offshore prospecting, production, and decommissioning application. Point 1.3.b.1. Above refers. 
2. Provision must be supplied for significant loss in catch and catch rate by the fishing sector, rated on a scale of severity of chemical or noise pollution or incident / accident.
3.  Predicting the costs of remediation and rehabilitation of environmental impacts of pioneer deep-sea oil and gas operations relies heavily on insufficient data along the South African coast. To ensure that operations can be brought to the approved sustainable end state at closure, financial provisioning is necessary for ROV
   ( Remotely operated vehicle/submersible) use in studies to:
   a.     Accrue sufficient baseline data
   b.     Long-term monitoring of the production site
   c.     Cleaning and inspection of subsea infrastructure
   d.     Recovery of debris 
   e.     Site remediation
   f.      Ensuring well integrity after abandonment.

CH3.6 .4.

With regard to required specialists, accounting specialists need experience and knowledge related to decommissioning, plugging and abandonment liabilities of offshore exploration and production. Asset retirement obligations account for the majority of cash outflows occurring at the end of the life of an offshore producing property and represents a significant part of the financial risk of exploration and production companies.

Any enlisted marine specialist should be registered with the South African Council For Natural Scientific Professions (SACNASP). 

APPENDIX 2 .1.

Minimum Content of a Final Rehabilitation, Decommissioning and Mine closure plan for Reconnaissance, Prospecting, Exploration, Mining and Production Operations.

General

It is of great concern for environmental justness that the assessment requirement for reconnaissance for offshore oil and gas cannot be established as current regulations stand. This stands in contravention to the proposed regulations intention to return the land or sea to its condition prior to mining operations:

Oil “reconnaissance“ and other activities relating to mineral exploration are no longer included in the list of activities in the schedules to the Environmental Impact Assessment regulations promulgated in terms of the National Environmental Management Act 107 of 1998 (NEMA). Furthermore, since the repeal of Section 39 of the Minerals and Petroleum Resources Development Act (MPRDA), there is no legislative oversight for such proposed activities. There is accordingly a gap in South African environmental legislation regulating oil and gas reconnaissance. Currently reconnaissance, which includes seismic activities, is not covered under the EIA regulations. Without an EIA process in place there can be no point of reference to assess sustainability, nor extent of current disturbances.

APPENDIX 3.

Minimum Content of an Environmental Risk Assessment Report for Determination of Residual and Latent Liability for Reconnaissance, Exploration, Mining and Production Operations

1. The Department of Environment, Forestry and Fisheries (DEFF) has a duty of care to take climate action (National Environmental Management Act 107 of 1998 section 2(4)(e)) into consideration. Urgent protocols are needed for the risk assessment and reporting on greenhouse gas (GHG) emissions for each application. Not only direct emissions from owned or controlled sources and indirect emissions from the generation of purchased energy during the proposed application, but also extracted resource life cycle emissions associated with their production and consumption. In addition, their use must be identified and quantified by the rights holder. Specific assessment protocols need to be established for environmental risk assessment reporting on full projected, latent and possible ’cradle to grave’ emissions produced, including emissions from raw materials, manufacture, transport, storage, sale, use and disposal.  Liabilities cannot be assessed if GHG emissions are not properly measured, with timeframes for manifestation of risk and growing associated costs for manifested impacts. 
   
   A 2014 Princeton University study has found that methane leaks from abandoned oil and gas wellbores pose not only a risk to groundwater, but also a growing threat to the climate. The study found that methane flow rates from plugged wells were not necessarily lower than methane flow rates at unplugged wells.^[iv]The study recommends new policies to promote reporting and monitoring and new strategies beyond well plugging—e.g., use of vented methane as an alternative energy source—to mitigate climate impacts^[v].
   
   Modelling for climate change risk will also greatly affect stakeholder information.
2. Oil and Gas Fisheries Risk Assessment is required. They must include: 
   a. chemical risk assessment advice relating to the use and /or discharge of any chemicals used in offshore oil and gas operations in South African waters,
   b. risk assessment of catch and catch rate changes with additional sound in the water, including all phases of reconnaissance (seismic surveys), exploration, production, decommissioning.

APPENDIX 7.
Template for Financial Guarantee

1. Please see typo: Caused vs casued
   
2. Give a full description of property: this needs to include the full marine environment, inclusive of the subsea, seafloor surface, the water column above the sea floor and the sea surface. The current definition in Section 1 of the Minerals and Petroleum Resources Development Act, 2002 definition is exclusive of the water column. This is problematic given it will be included in the area effected by pollution. See below: 

“block” means any area of land or sea, including the sea bed, identified as a block by co-ordinates on a map prepared by the designated agency and situated wholly or partly in the Republic or its exclusive economic zone and includes any part of such block;

      No template wording is provided for guarantees relating to post-closure liabilities. This needs to be addressed.

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References

[i]Baurick, T. 2019. 14-year Taylor Energy oil leak could prove larger than BP spill, new research says. [Online]. Nola.com /The Times-Picayune. Available at: https://www.nola.com/environment/2019/02/14-year-taylor-energy-oil-leak-could-be-two-times-larger-than-bp-spill-new-research-says.html

[ii]Cameron, P. 2012. Liability for Catastrophic Risk in the Oil and Gas Industry. Available at: https://cil.nus.edu.sg/wp-content/uploads/2012/08/Liability-for-Catastrophic-Risk-in-the-Oil-and-Gas-Industry-by-Prof-Peter-Cameron-2012_IELR_Issue_6_Print-2-Cameron.pdf

[iii]Boyd, J.  2001. Financial responsibility for environmental obligations: Are bonding and assurance rules fulfilling their promise? Resources for the Future. Available at:  http://core.ac.uk/download/pdf/9307839.pdf.

[iv]Sullivan, J. 2014. Abandoned wells can be ‘super-emitters’ of greenhouse gas. [Online]. Princeton University. Available at: https://www.princeton.edu/news/2014/12/09/abandoned-wells-can-be-super-emitters-greenhouse-gas

[v]Kang, M. 2014. CO2, Methane, and Brine Leakage through Subsurface Pathways: Exploring Modeling, Measurement, and Policy Options. [Online]. Princeton University. Available at:http://ci.carson.ca.us/content/files/pdfs/planning/oilcodeupdate/staffreports_04142015/CO2_Methane_Brine_Leakage_Through_Subsurface_Pathways.pdf