Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Act 2022

Levy year means the financial year beginning 1 July 2021 and each subsequent financial year up to and including the year beginning 1 July 2029 (s 7(1)). The Minister may by legislative instrument terminate the levy before that final year if the conditions in s 7(4) are met. A determination under s 7(2) has effect subject to the disallowance regime in s 12.

Leviable entity is any person who is the registered holder of a petroleum production licence at any time during a levy year (s 6). The definition is not limited to the holders of AC/L5 or WA‑18‑L; it covers any licence under the OPGGS Act. This means the levy can potentially be imposed on every offshore petroleum producer in Australia, regardless of whether they operated in the Laminaria or Corallina fields. The petroleum amount used in the levy calculation is the total quantity of all petroleum recovered by that entity during the levy year under any petroleum production licences it holds, measured in barrels of oil equivalent at the wellhead (s 11(1)). There is no apportionment to the specific licences that generated the decommissioning liability.

Petroleum amount is the total quantity of petroleum recovered by the entity under all its petroleum production licences during the levy year. It is measured at the wellhead. The formula uses this amount as the multiplier.

Levy rate is the lesser of $0.48 or, if a determination of the Commonwealth’s unrecovered costs for the levy year is in effect under s 8, the distributed levy rate for that year (s 11(1)(a)-(b)). The distributed levy rate equals the Commonwealth’s unrecovered costs for the levy year divided by the total petroleum amounts for all leviable entities for that levy year (s 11(2)). Only information reported in returns to the Commissioner of Taxation under s 125‑5 of Schedule 1 to the Taxation Administration Act 1953 on or before 31 December following the levy year, plus any other reasonably available information, is used to calculate the total petroleum amount for the levy year. This means the distributed rate may be based on incomplete or provisional data.

Commonwealth’s unrecovered costs for a levy year is an amount specified in a legislative instrument made by the Resources Minister under s 8(2). The instrument must specify the dollar amount by which the total levy assessed for previous levy years falls short of the total decommissioning cost as calculated at the end of the levy year for which the determination is made. The Minister can only make such a determination if they consider that the $0.48 rate would cause total levy to exceed the shortfall amount (s 8(3)). The determination must be made within six months after the end of the levy year (s 8(3)(b)).

Total decommissioning cost means the total net costs reasonably incurred by the Commonwealth in relation to decommissioning‑related activities (s 6). That term covers operating and maintaining the Northern Endeavour, wells and infrastructure; decommissioning and preparation activities; and obtaining insurance. Decommissioning itself includes disconnection, removal and disposal of the facility; suspension, plugging and abandonment of wells; flushing of pipelines; removal or treatment of subsea infrastructure; and associated environmental remediation. The cost definition is broad and includes direct and indirect costs.

Levy is the levy imposed by this Act (s 6). It is imposed on a leviable entity for a levy year (s 10). The amount is calculated under s 11 and must be rounded to the nearest whole dollar.

The primary group directly affected comprises the registered holders of petroleum production licences under the OPGGS Act during the period 1 July 2021 to 30 June 2030 (or earlier if the levy is terminated). Because the definition of leviable entity is not confined to the two licences covering the Laminaria and Corallina oil fields, the levy applies to all companies that hold any offshore petroleum production licence in Commonwealth waters. This includes major oil and gas producers such as those involved in the North West Shelf, Gippsland Basin, Browse Basin, Bonaparte Basin, and other producing areas. Even a company that holds only a non‑producing licence could become liable if production commences within a levy year while it is the registered holder. The levy is assessed per entity, not per licence, so an entity that holds multiple production licences will have its production aggregated across all of them for the petroleum amount.

The levy also directly affects the Commonwealth, which bears the upfront decommissioning costs and then recovers them through the levy. If the levy raises less than the actual costs (e.g., because the $0.48 cap binds, or because production falls short of projections), the Commonwealth bears the residual cost. Conversely, if total petroleum production is large, the distributed rate will be tiny to ensure no over‑recovery. The levy regime is designed to be cost‑neutral over time, but timing mismatches are possible.

Indirectly, the levy affects joint venture partners and operators who must manage reporting and payment obligations. It may also affect the economics of marginal fields because the levy adds a per‑barrel cost on all production, not just from the specific fields that gave rise to the decommissioning liability. This creates a cross‑subsidy from producers in other basins to the costs of decommissioning the Northern Endeavour. The levy base is broad, so the per‑barrel amount should be low if the denominator is large (total Australian offshore petroleum production). However, the $0.48 cap is an absolute upper bound. If total production is small relative to the decommissioning cost, the $0.48 rate would apply and could raise significant revenue from a narrow base.

The levy does not apply to persons who hold only exploration permits, retention leases, or infrastructure licences, because those are not petroleum production licences. It also does not apply to the Crown in right of the Commonwealth (s 3), but it does bind the States and Territories (s 3). Section 9 provides that the Act does not impose a tax on property of a State, consistent with s 114 of the Constitution.

The principal duty imposed by this Act is the obligation to pay the levy for each levy year for which the person is a leviable entity. The levy is imposed by s 10 and the amount is calculated under s 11. The assessment and collection machinery is provided by the companion collection Act (not reproduced here). The leviable entity must ensure that its petroleum production for each levy year is accurately reported to the Commissioner of Taxation under s 125‑5 of Schedule 1 to the Taxation Administration Act 1953. The reported amounts form the basis for calculating the petroleum amount and, ultimately, the distributed levy rate. The Commissioner will use those returns, together with any other reasonably available information, to first make an assessment of levy for the levy year (s 11(2)(b)). The leviable entity has the right to that assessment being based on the correct formula and to challenge errors or erroneous determinations.

The Resources Minister has the right (but not the duty) to make two types of legislative instruments: a termination determination under s 7(2) ending the levy regime early, and an unrecovered costs determination under s 8(2) substituting a distributed levy rate for the default $0.48. The Minister can only exercise these powers when the statutory preconditions are satisfied. For the unrecovered costs determination, the Minister must first calculate the total decommissioning cost at the end of the levy year and compare it to levy assessed to date. The determination must be made within six months after the end of that levy year and cannot be made unless the Minister considers that the $0.48 rate would cause over‑recovery (s 8(3)). The Minister’s determinations are subject to disallowance by either House of Parliament (s 12). If neither House disallows, the instrument takes effect the day after the last day for disallowance, or a later day if specified. If disallowed, it never takes effect.

The leviable entity does not have a statutory right to seek a refund or variation of levy if its production is later revised, because the distributed rate depends on total production information that may be only provisionally available. The Act does not provide for reassessment, but the collection Act may contain such provisions (not provided). There is no duty on the Minister to reassess the total decommissioning cost or to reduce the levy rate below $0.48 unless the preconditions are met; the duty is to the Parliament through the legislative instrument and disallowance process.

This Act does not itself create penalties for non‑payment or under‑reporting. Enforcement is left to the related collection legislation and the general tax law framework. The definition of “petroleum amount” relies on information reported to the Commissioner of Taxation under s 125‑5 of Schedule 1 to the Taxation Administration Act 1953. That provision is part of the tax information‑gathering regime and carries its own penalties for failure to lodge returns or providing false or misleading information. Those penalties would apply to any leviable entity that fails to report its petroleum production accurately or on time.

If a leviable entity fails to pay the assessed levy, the collection Act likely provides for interest on late payments and for recovery through the normal processes of the Commissioner of Taxation, including garnishee notices and legal proceedings. The levy is imposed by Commonwealth legislation and is enforceable as a debt due to the Commonwealth. The fact that the levy is collected by the Commissioner suggests that the Taxation Administration Act 1953 mechanisms for assessment, objection, review, and collection will apply, subject to any modifications in the collection Act.

There is no criminal penalty specified in this Act. The only criminal sanctions that might arise would be if a person knowingly makes a false statement in a return or obstructs the assessment process, which would fall under the general criminal provisions of Commonwealth tax law.

The Act includes a standard provision that it does not impose levy on property of a State (s 9). That is a constitutional safeguard, not a penalty. If a State were to become a registered holder of a petroleum production licence (unlikely but possible), the levy might be constitutionally invalid as to that property, but the Act disclaims any intention to tax state property.

The Regulations power (s 13) allows the Governor‑General to prescribe matters necessary or convenient for carrying out the Act. This could extend to creating offences for non‑compliance with any regulatory requirements, but the Act currently does not contain specific penalty provisions.

The Act operates within a broader legal framework governing offshore petroleum, taxation and environmental decommissioning. Its primary legislative partner is the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act), which governs the grant, transfer and conditions of petroleum production licences. The levy Act incorporates by reference the OPGGS Act definitions of “petroleum”, “petroleum production licence” and “registered holder” (s 6). The areas covered by petroleum production licences AC/L5 and WA‑18‑L define the Laminaria and Corallina oil fields, which are the subject of the decommissioning. Any amendment to the OPGGS Act that redefines these terms could indirectly change the scope of the levy.

The Taxation Administration Act 1953 (TAA) is the other key legislative companion. Section 125‑5 of Schedule 1 requires holders of petroleum production licences to give returns to the Commissioner of Taxation. The levy Act uses those returns to calculate the total petroleum amount for distributed levy rate purposes. The Commissioner’s role in first making an assessment of levy for the levy year (s 11(2)(b)) suggests that the TAA’s assessment, objection and review provisions apply. The levy is a tax for constitutional purposes (it is imposed as a tax, not a fee for service), so it must comply with Commonwealth taxing power under s 51(ii) of the Constitution. Section 9 of the Act expressly accommodates s 114 of the Constitution by stating the Act does not impose a tax on property of a State.

The levy interacts with other fiscal impositions on petroleum production, such as the petroleum resource rent tax (PRRT) and state‑based royalties. The levy is an additional cost per barrel, not deductible under PRRT unless the collection Act so provides (not stated here). It could affect the effective tax rate on production and may influence investment decisions, particularly for marginal fields that are now subject to an extra $0.48/barrel levy.

The levy is also connected to the Commonwealth’s environmental powers under the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) and the Offshore Petroleum and Greenhouse Gas Storage (Environment) Regulations 2009. The decommissioning activities that give rise to the costs are themselves subject to environmental approvals and regulator oversight. The levy does not alter those obligations; it merely provides a funding mechanism.

Finally, the Act interacts with the Legislation Act 2003 for the making, tabling and disallowance of legislative instruments (s 12). The Minister’s determinations under ss 7(2) and 8(2) are legislative instruments and subject to parliamentary scrutiny.

The Offshore Petroleum (Laminaria and Corallina Decommissioning Cost Recovery Levy) Act 2022 is Act No. 18 of 2022. It received Royal Assent on 1 April 2022 and commenced the following day, 2 April 2022, as provided in the table to s 2. The Act was passed as a single piece of legislation with no subsequent amendments noted in the text supplied. It was accompanied by a second reading speech made in the House of Representatives on 20 October 2021 and in the Senate on 30 March 2022. The Act is relatively new, and any amendments made after the original enactment would be found by searching the Federal Register of Legislation. The text provided does not indicate any amending Acts. The levy year definition includes the financial year beginning 1 July 2021, which is before the Act’s commencement, so the Act operates retrospectively for that first levy year. This retrospective operation is common for tax laws that are passed after the start of the income year but are intended to apply from that start date. No transitional provisions are included in the text.

In terms of structural changes, the Act itself has not been amended since enactment. The Ministerial power to terminate the levy (s 7) or to determine unrecovered costs (s 8) could be exercised at any time, but those are executive actions, not amendments. The Act’s sunset is built in: no levy year after 2029‑30, unless earlier termination occurs. The Act could be amended to extend the levy period, alter the levy rate, or change the scope of leviable entities, but no such amendments have been presented in the source.

The text of the Act contains no references to any court cases, whether as decided cases, pending litigation, or interpretative notes. Because the Act commenced only on 2 April 2022 and deals with a narrow set of entities and a specific decommissioning project, it is unlikely to have generated significant litigation in the short period since enactment. However, potential legal challenges can be anticipated.

The most likely basis for challenge would be constitutional validity. The levy is imposed on holders of petroleum production licences broadly, not just on those who operated in the Laminaria and Corallina fields. A challenger might argue that the levy is not a tax for the purpose of s 51(ii) of the Constitution but rather a discriminatory or arbitrary exaction, or that it contravenes s 99 (Commonwealth not to give preference) if it disadvantages producers in certain states. The broad base may also be challenged as a taking of property without just compensation, though s 9 expressly disclaims taxation of state property. The Act’s extraterritorial application (s 5) could be tested if a leviable entity is located outside Australia.

Another potential ground is the extent of the Minister’s discretion under ss 7 and 8. The Minister’s satisfaction that the $0.48 rate would result in over‑recovery is subjective, and a decision to make or not make a determination could be subject to judicial review under the Administrative Decisions (Judicial Review) Act 1977 or the common law. An affected entity might argue that the Minister misapplied the statutory criteria or failed to take into account relevant information.

Litigation over the calculation of total decommissioning cost is also possible. The definition includes “net costs reasonably incurred” which is inherently contestable. An entity facing a higher distributed levy rate (because total production is smaller than expected) might argue that certain costs were not reasonably incurred or are unrelated to decommissioning‑related activities.

However, because the levy is capped at a low per‑barrel rate and is spread across many producers, the financial incentive for any single entity to challenge may be small relative to litigation costs, unless the entity operates a very large number of licences. No published case law exists as of the date of this analysis.

Several features of the Act pose traps or unexpected consequences for affected entities. First, the levy base is not limited to holders of the two licences covering the Laminaria and Corallina fields. The definition of leviable entity includes every registered holder of any petroleum production licence during a levy year, and the petroleum amount is all petroleum recovered under all such licences held by that entity. This means companies operating in wholly unrelated basins - for example, the Browse Basin or the offshore Otway Basin - must pay levy calculated on their total production, even though they had no involvement with the Northern Endeavour. The justification (cost spreading across the industry) is not stated in the Act, but it is a material cross‑subsidy.

Second, the levy year begins on 1 July 2021, before the Act was even passed (assented 1 April 2022). For the 2021‑22 levy year, the levy applies retrospectively. Entities that held licences during that year will need to calculate, report and pay levy for a period before the legislation existed. Retrospective tax legislation is permissible but creates uncertainty for budgeting and compliance.

Third, the distributed levy rate calculation uses only information reported by 31 December following the levy year and any other information “reasonably available” to the Commissioner before the first assessment. If production data is later revised upward or downward, the levy for that year will not be adjusted because the distributed rate is fixed based on that initial information. An entity that under‑reported production could face penalties, while over‑reported production might still be used for the aggregate calculation. There is no mechanism for prospective correction of the year’s distributed rate.

Fourth, the Minister may make an unrecovered costs determination only if the $0.48 rate would cause over‑recovery. There is no provision for increasing the rate above $0.48 even if costs are much higher than anticipated. If total decommissioning costs exceed estimates, the levy will raise at most $0.48 per barrel across all production, and the Commonwealth bears the shortfall. Conversely, if the $0.48 rate causes over‑recovery, the Minister must reduce the rate, preventing windfall gains for the Commonwealth.

Fifth, termination of the levy under s 7 is at the Minister’s discretion. The Minister must be satisfied that total decommissioning costs will not exceed the cumulative levy assessed plus estimated current year levy. However, actual costs may later prove higher, and the Minister cannot reinstate the levy for subsequent years. The termination is permanent for that field. Entities should monitor the Minister’s public statements and any legislative instruments.

Sixth, the definition of “total decommissioning cost” includes “net costs reasonably incurred”. The word “reasonably” introduces subjectivity. The Commonwealth’s view of reasonableness may differ from that of industry. There is no independent audit or appeal mechanism in this Act to challenge the cost calculation.

Seventh, the Act binds the Crown in right of the States and Territories (s 3), meaning state‑owned entities (if any hold petroleum production licences) are liable. But s 9 exempts property of a State. There is potential tension if a state licence is held for the purpose of producing petroleum and the state is the registered holder.

Eighth, the rounding rules in s 11(3) and (4) round the levy amount to the nearest whole dollar and the petroleum amount and distributed levy rate to two decimal places. This can produce minor discrepancies when summing across entities.

Finally, the Act does not provide for indexation of the $0.48 rate, so its real value declines with inflation. This may be intended to taper the levy over time, but it is a mechanical feature.

An entity that is or was a registered holder of a petroleum production licence during any levy year (2021‑22 through 2029‑30) must take the following steps. First, confirm whether it is a leviable entity for each year in which it held a licence. The licence must be a petroleum production licence under the OPGGS Act. Mere exploration permits or retention leases do not qualify. The entity must have been the registered holder at any time during the levy year. If it disposed of the licence during the year, it is still liable for that entire year, because the definition is “at any time”.

Second, determine the petroleum amount for each levy year. This is the total quantity of all petroleum, in barrels of oil equivalent, recovered under any petroleum production licences held by the entity during that levy year, measured at the wellhead (s 11(1)). The entity must aggregate production from all its licences. If it produced from multiple wells or fields, it must convert all volumes to barrels of oil equivalent using relevant calorific or energy content factors. The Act does not specify the conversion methodology; industry standard practices (e.g., using BOE conversion factors accepted by the regulator) should be used and documented.

Third, report the petroleum amount to the Commissioner of Taxation under s 125‑5 of Schedule 1 to the Taxation Administration Act 1953. This return must be given on or before 31 December following the end of the levy year (s 11(2)(a)). The return must be accurate and complete, because it forms the basis for the Commissioner’s first assessment of levy for that year. False or misleading statements carry penalties under the TAA. The reporting obligation exists regardless of whether the entity expects to owe any levy (e.g., if production is zero, a nil return may be required).

Fourth, pay the levy assessed. The amount will be calculated by the Commissioner using the formula in s 11(1). The entity will receive an assessment notice from the Commissioner. The levy is due and payable by the date specified in the collection Act. Failure to pay may result in general interest charges and recovery action.

Fifth, monitor the Resources Minister’s actions. The Minister may make a termination determination under s 7(2) or an unrecovered costs determination under s 8(2). Both are legislative instruments registered on the Federal Register of Legislation. The entity should check for such instruments each year after the end of the levy year. A termination determination means no further levy years after the current year. An unrecovered costs determination will set a distributed levy rate lower than $0.48, reducing the levy for that year. The entity can object to the Commissioner’s assessment based on an error in the application of the formula, but cannot challenge the Minister’s determination except by judicial review if it is vitiated by legal error.

Sixth, keep records. Entities should maintain detailed production records, conversion calculations, and copies of all returns and assessments. The total decommissioning cost is not something the entity calculates, but if it wishes to challenge a Ministerial determination as unreasonable, it would need evidence of the Commonwealth’s actual or likely costs. The burden of proof on such a challenge would be heavy.

Seventh, if the entity holds licences jointly (e.g., in an incorporated joint venture), the registered holder is the legal entity on the licence register. Each joint venturer that is a registered holder must report its own production share. The entity should ensure its internal systems capture production by licence and by entity.

Finally, consider seeking professional advice, particularly on the retrospective application for the 2021‑22 levy year and on the interaction with other tax returns (e.g., PRRT returns). The levy is not deductible for PRRT unless the collection Act provides, and this should be confirmed. Non‑compliance risk is relatively low given the per‑barrel amount, but penalties for incorrect reporting can be significant.