NT, the Montara oil spill and the regulatory ‘dog that didn’t bark’

Yesterday Federal Minister for Resources and Energy Martin Ferguson tabled the Report of the Montara Commission of Inquiry (the Borthwick report) into the oil spill at the Montara Wellhead Platform in the Timor Sea in August 2009 — and his statement to federal parliament delivered the Northern Territory government the kind of kick in the teeth you’d normally reserve for your enemies — not your (notional) political brethren.

NT Chief Minister Paul Henderson has made much about the NT’s bright and shining future as a resource exploitation hub — most of it based around the once pristine Darwin Harbour. But Borthwick’s report has now raised some very real questions about the competence of Henderson’s minority Labor government and bureaucracy to properly administer even relatively small scale resource projects such as the off-shore drilling program in the Timor Sea — let alone massive projects such as the planned $20 billion Inpex development planned for Darwin Harbour.

Borthwick’s report sheets the primary responsibility for the spill to the company that operated the rig:

“PTTEP Australasia (Ashmore Cartier) Pty Ltd (PTTEPAA) did not observe sensible oilfield practices at the Montara Oilfield. Major shortcomings in the company’s procedures were widespread and systemic, directly leading to the Blowout.”

That is serious enough but Borthwick’s report also damns the regulator of PTTEPAA’s operations — the Northern Territory Department of Resources (the NT DoR):

“Well control practices approved by … the Northern Territory Department of Resources most likely would have been sufficient to prevent the Blowout if PTTEPAA had adhered to them … However, the NT DoR was not a sufficiently diligent regulator: it should not have approved the Phase 1B Drilling Program for the Montara Oilfield in July 2009 as it did not reflect sensible oilfield practice; it also adopted a minimalist approach to its regulatory responsibilities. The way the regulator (the NT DoR) conducted its responsibilities gave it little chance of discovering PTTEPAA’s poor practices. In this case, the regulatory dog did not bark.”

Borthwick’s goes on to examine the circumstances of the blowout and subsequent spill and the reaction of the various players to it. Much of that can wait for another day. For present purposes the report’s comprehensive examination of the litany of failures of the NT DoR to properly administer its responsibilities — Borthwick devotes 73 of the 342 pages of the substantive report to the regulatory regime — is wholly remarkable.

In its submissions to the inquiry the NT government contended that “at all material times prior to the [Blowout], the Territory appropriately administered the licence area within which the Montara Wellhead Platform is located” (emphasis added). Borthwick gives this proposition very short shrift, dismissing it with “no hesitation” and noting that the NT DoR “made a major error when it approved the Phase 1B Drilling Program” two months prior to the blowout of August 2009:

“…the NT DoR did not do its job by ensuring that the company’s WOMP or the Phase 1B Drilling Program complied with good oilfield practice. In short, the NT DoR did not take adequate steps to ensure that PTTEPAA actually complied with the requirement of good oilfield practice.”

Borthwick is scathing of the NT DoR’s administration of its regulatory responsibilities and the NT government’s submissions in open hearings that the NT DoR adopted followed “contemporary regulatory practice” — finding instead that the NT DoR’s regulatory regime was totally inadequate, being little more than a “tick and flick” exercise. Borthwick found that the NT DoR did not have the appropriate expertise or sufficient understanding of its regulatory responsibility to have ever uncovered PTTEPAA’s poor practices:

“…none of this was apparent to the NT DoR. It also appears unlikely that the NT DoR would have become aware of most of these deficiencies if this Inquiry had not uncovered them. The NT DoR regarded PTTEPAA as a good operator, although it is impossible to support that conclusion on any objective basis judging by the multiple oversights and failings in the development of the Montara Oilfield. The fact of the matter is that the NT DoR never placed itself in a position so that it could properly inform itself. The relationship between the NT DoR and PTTEPAA had become far too comfortable.”

Perhaps the most damning evidence of the NT DoR’s approach to its role is that it was content to take the operators money for licence and similar fees — but that rather than putting that money into human and technical resources it returned it to general revenue. The NT DoR became a cash cow for the NT government.

The NT government gave evidence that it had great difficulty in attracting suitable staff to monitor operators’ activities because of the significant disparity between the high salaries paid to those working in the private sector and the more modest salaries paid to NT government public servants responsible for the industry’s regulation. NT DoR staff gave evidence that the NT government received significantly more funds from offshore operators that it spent on regulating their activities.

As this table reveals, even in the “normal” years the NT government’s income received from offshore operators far exceeded the amount the NT DoR spent on regulation.

Notwithstanding the evidence that the NT government had received — contrary to its submissions — sufficient income to adequately staff and resource the NT DoR as a competent regulatory body, Borthwick has a profound: “…sense of pessimism in relation to whether the Northern Territory will provide the NT DoR with sufficient resources to enable it to ‘punch above its weight’ and effectively regulate operators in its offshore area.”

Borthwick recommends that the federal government remove regulatory powers from the NT government and place them with a single national regulatory body — something that NT minister Vatskalis says that the NT government supports — but will result in yet another stripping away of regulatory and administrative control and powers over activities in and around the NT from the NT administration.

Predictably the NT opposition has called for Vatskalis’ head. Vatskalis has ignored the call.

The NT Environment Centre has long held serious concerns about the NT government’s competence as an environmental and resource regulator. The centre’s Dr Stuart Blanch told Crikey earlier today that: “Paul Henderson and his government tout the NT as the centre of Australia’s coming resources boom but they have consistently failed to prosecute polluters or to set — and follow — strong legal standards for environmental protection — particularly from the cowboys in the resources sector.”

Crikey asked Vatskalis for comment on the Borthwick report. He did not respond before deadline but yesterday he issued a statement in which he said in part that:

“The Department [NT DoR] should have acted more diligently in its regulatory approach, and following the incident the agency has reviewed all procedures and processes in order to achieve best practice. The Northern Territory government supports moving to a single national regulator of offshore petroleum operations to improve consistency of regulation and improve practice standards. A plan of action agreed to by both the NT Department of Resources and the Federal Department of Energy and Resources has been put in place to improve regulatory monitoring.”