Audit of Coal and Petroleum Exploration Licences in NSW PHASE 2 REPORT

Transcription

1 Audit of Coal and Petroleum Exploration Licences in NSW PHASE 2 REPORT April 2012

2 CONTENTS 1. EXECUTIVE SUMMARY TASK PHASE BACKGROUND METHODOLOGY SUMMARY OF RESULTS DETAILED ANALYSIS CONSULTATION LEGAL RECOMMENDATIONS APPENDIX.. 37 a) Summary of Typical Conditions s and s b) List of s and s Audited in Phase 2 c) Summary of significant risk non-compliances identified by auditors d) Project Plan and Timetable e) Audit of Exploration Licences in NSW August 2011 Guideline f) Key Results of Audit g) Breakdown of Results into Resources & Energy Units h) Mining Act 1992, Part 11, Division 6 i) Petroleum (Onshore) Regulation 2007, Clause 27A

3 1. EXECUTIVE SUMMARY This report provides the results of Phase 2 of the Audit of Coal and Petroleum (coal seam gas) Exploration Licences in NSW. The audit forms part of the staged implementation of the Government s Strategic Regional Land Use Policy. Phase 1 involved a desktop audit of all Exploration Licences (s) for coal and Petroleum Exploration Licences (s) to identify areas or specific licences warranting more detailed audits against all conditions. For a summary of typical and conditions please refer to Appendix A. Out of a total 187 coal s and 49 s, 20 coal s and 22 s were identified and then targeted for the Phase 2 audit (see Appendix B). Phase 2 involved a detailed independent audit to identify licence holder compliance with all conditions of s and s. The aim was to measure compliance with conditions and from that recommend changes to process or conditions where considered appropriate. The audits were undertaken against all licence conditions pertaining to each licence respectively, with the exception of 7223 which was not audited against environmental conditions as it was subject to a full compliance audit against these conditions earlier this year. Conditions were divided into groupings for analysis by the Department of Trade and Investment, Regional Infrastructure and Services Division of Resources & Energy (Resources & Energy). They included Titles, Coal Advice, Petroleum Geoscience, Environment and Safety. Consultation with the Office of the Environment & Heritage (OEH) and the Department of Planning & Infrastructure (DP&I) was undertaken during the audit program and review process. The audits were undertaken at the licence holder s expense by independent auditors, approved by Resources & Energy. Requests to conduct audits were sent on 30 August Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 3

4 2011. All 42 audits were completed and submitted to Resources & Energy by 31 October A Government official attended approximately 55% of the audits to observe and verify evidence of compliance. This included officers from Resources & Energy, as well as officers from OEH and DP&I. The results indicate an overall high level of compliance with licence conditions. In total 87% of the conditions audited were either fully compliant, with no observations, or not applicable (as they had not been triggered yet). Observations, which referred to conditions that were technically compliant but where improvements to performance could be made, were reported against 8% of conditions. Of the total 1355 individual conditions audited, 5% were found to be non-compliant. There were 11 level NC1 (significant risk) non-compliances and 55 level NC2 (low risk) non-compliances. For a summary of the significant risk non-compliances, identified by auditors, please refer to Appendix C. Of the 11 NC1 level non-compliances identified, on review by Resources and Energy four were considered by to be low risk or NC2 level non-compliances, (for example the conditions for storage of drill core). Resources & Energy officers have acted upon, or are continuing to act upon, the significant risk non-compliances identified. Corrective actions are also to be followed up with licence holders for those NC1s that had no previous enforcement action. Some reasons for non-compliance were: Not meeting reporting requirements for geological and environmental conditions; Environmental actions not completed satisfactorily; Approvals not sought from Resources & Energy; and Lack of documentation or updating of documentation required. A total of nine recommendations have resulted from this audit. Four pertain to changes to conditions and five pertain to changes to process. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 4

5 2. TASK PHASE TWO Phase two required undertaking a detailed audit of licence holder compliance with all conditions of Exploration Licences (s) for coal and Petroleum Exploration Licences (s). Responses to the audit were then compiled, analysed and this report provides detailed results identifying areas of non-compliance and recommends changes to process or conditions where considered necessary. 3. BACKGROUND On 12 May 2011, Cabinet approved a state-wide audit of coal and coal seam gas exploration licences to review their current status and ensure holders are adhering to conditions of their licences. In order to complete the audit within a timeframe of six months and reduce the level of resources required, it was undertaken in two phases. Phase 1 Phase 1 involved a desktop analysis of all existing licences to identify areas of noncompliance including a review of: Grant date, number of renewals, last renewal date, pending title dealings, current expenditure commitment and security held; Status of geological reporting; and Surface Disturbance Notifications, list of approved activities, number of site inspections carried out, incident reports received, enforcement actions, rehabilitation reporting status, pending dealings, Rehabilitation and Relinquishment Reports (only if security release is requested) and individual approval requirements regarding reporting. Following compilation of data and analysis, a report was prepared to outline the areas of non-compliance and identify areas or specific licences warranting more detailed audits against all conditions. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 5

6 Phase 2 Phase 2 involved a detailed assessment of the licences identified through the desktop audit process (Phase 1). Licence holders were required to provide additional information, including evidence of compliance, to enable an effective audit of compliance against all of the licence conditions. Audits were carried out by independent auditors engaged at the licence holder s expense, including targeted field compliance inspections. Following compilation and analysis of the results, this report has been prepared to provide a summary of the results and recommendations for changes to process and conditions where considered necessary. The audit process has been the responsibility of the Department of Trade and Investment, Regional Infrastructure and Services Division of Resources & Energy (Resources & Energy). It has been undertaken in consultation with the Office of Environment & Heritage (OEH) and the Department of Planning & Infrastructure (DP&I). Resources & Energy is also responsible for reporting the status of the audit process to the Strategic Land Use Working Group (SLUWG). Resources & Energy is responsible for enforcing compliance with and requirements. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 6

7 4. METHODOLOGY A project plan for the audit was developed, setting out responsibilities, actions to be taken and a timetable for the audit to be completed by 30 November A copy of the Project Plan is attached as Appendix D. The audit covers the responsibility of a number of separate units within Resources & Energy. The responsibilities of these units are: Titles Administers the grant and renewal of exploration and mining titles, including special conditions, under the Mining Act 1992 and the Petroleum (Onshore) Act Coal Advice Assesses exploration reports. Checks that reports follow the guideline (Exploration Reporting: A Guide for Reporting on Exploration and Prospecting in NSW) and contain the relevant technical information and geological data. Prepares the report for archiving in DIGS. Compiles a list of titles which are not complying with exploration reporting Condition 44/Section E and follows up non-compliance. Provides recommendations to the Titles section with respect to the granting and renewal of titles based on proposed and completed exploration work programs and reporting compliance. Provides advice on title conditions to licence holders, such as Condition 20 Core and Samples. Engages with other Government Departments that require notifications, as per conditions, from licence holders. Petroleum Geoscience Titles Management - Reviews applications, renewals, variations and suspensions of s by providing technical comments as to their merit, sufficiency and compliance. - Receives, evaluates and accepts all reports by matching them with title conditions, compliance and archiving. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 7

8 - Monitors and gives advice on exploration work program commitment. - Receives technical presentations on work programs, visits field operations and monitors exploration activities of licence holders. - Facilitates the performance of work programs and submission of reports by giving advice and administering guidelines and policy. - Evaluates end of title or surrender/cancellation of permit reports and recommends release of security. Database Management - Receives, catalogues, analyses and accepts all reports, field data, processed data and interpretation reports for archiving and database management. - Provides data to clients. Environment (Environment Sustainability Unit) Assesses environmental impacts of exploration activities in accordance with Part 5 of the Environmental Planning and Assessment Act Regulates environmental sustainability performance of exploration activity. Provides recommendations to the Titles section with respect to the granting and renewal of titles based on environmental performance of the explorer. Mine Safety Operations Regulates Occupational Health & Safety (OHS) of exploration activity. Audit Process A letter requesting an audit be undertaken against all of the licence conditions was sent to 42 licence holders on 30 August A number of requirements were included stating that the: Audit (including preparation of the audit report) be carried out by an independent auditor directly engaged by the licence holder, at the holder s expense. Auditor be accredited to undertake site audits and be approved by the Executive Director Mineral Resources. Prior to the audit commencing, approval of the Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 8

9 auditor was sought in writing and had to include details establishing independence and the absence of conflict of interest. Where possible, the auditor was accompanied by an officer of the NSW Government to verify the audit process. Licence holder was to notify Resources & Energy of the date of commencement of the audit, giving seven days prior notice and include a timetable for the audit. Audit report was to be returned to Resources & Energy no later than 14 October Audit was undertaken in accordance with the template and guideline provided titled Audit of Exploration Licences in NSW August 2011 (refer to Appendix E). Audit report comprise details of the audit carried out including purpose, scope, audit team details, pre-audit planning, audit timetable, opening meeting between auditor and licensee, audit procedure, audit outcome, discussion, closing meeting between auditor and licensee, conclusions, recommendations and corrective action reports. A number of licence holders requested an extension of time to complete the audit and these were granted. All audits were completed as requested by 31 October To assist licence holders and their auditors review the current status of the exploration licences and to facilitate responses for the audit, a guideline document was prepared by Resources & Energy. The purpose of the guideline was to provide a basis to understand the intent of the audit process, with suggested questions and methodologies to assist in obtaining the evidence required to verify compliance or otherwise. The auditor conducting the audit was advised that they may amend, or add to, the questions as necessary to verify compliance with all of the exploration licence conditions. To ensure that all conditions of the licence were audited, the auditor was to obtain, and use, the conditions of authority specified in the exploration licence current at the time of audit. The audit provides an examination of compliance with conditions at the time of the audit. The audit included a review of relevant documents referred to in the exploration Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 9

10 licence and conditions, interviews with licensee personnel and/or inspection of the operational areas of the site to confirm the results of the audit interviews. Each of the licence holders submitted details of their proposed auditor to Resources & Energy for approval prior to commencement. A review panel consisting of three Resources & Energy staff was established to review the auditor proposals and to make recommendations as to their suitability to the Executive Director Mineral Resources (EDMR). This panel was established to provide some rigour to the "acceptability" test, and included representatives from Environmental Sustainability Unit, Coal Advice Unit and Minerals & Land Use Assessment Unit. The licence holder was requested to provide information about the auditor including: Qualifications Affiliations Experience A statement regarding conflict of interest. As part of the review process several of the licence holders were requested to provide additional information prior to the approval of auditors, to enable the panel to adequately evaluate the appropriateness of the auditor. All of the detailed audits, conducted as Phase 2, took place between 30 August and 31 October A number of the audits were also attended by officers from either Resources & Energy, OEH or DP&I to validate and review the audit process. Government officers attended 55% of the audits undertaken. The audits were generally conducted over a number of days and included both documentation review and field inspections. The officers ensured that the auditors understood the scope of the audit, as well as checked that enough information was being sourced to complete the audit and the auditors had the full co-operation of the licence holders. Feedback from these officers, indicated that the auditors were thorough and sought the relevant information. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 10

11 Analysis A consultant experienced in the undertaking and analysis of audits, Umwelt (Australia) Pty Ltd (Umwelt), was engaged to undertake the initial assessment of the audit reports. The methodology used by Umwelt to review the audit reports submitted is summarised below: The review team reviewed each audit report and used the audit analysis spreadsheets to record each auditor s assessment scores for each licence condition. Each reviewer then undertook a brief adequacy assessment of the audit findings by reviewing the list of audit evidence provided by the auditor and any comments made by the auditor. Collation and analysis of the audit findings were undertaken for both coal and petroleum exploration licences. Audit review findings have been documented in the analysis spreadsheets with graphical summaries of key issues. Key results of the audit outlining levels of compliance and observations are included in Appendix F. The results of the initial review, as well as the final audit reports, were then further reviewed by each of the specialist units within Resources & Energy to determine the degree of compliance with licence conditions and the number of non-compliances and observations. The non-compliances and observations were then reviewed in further detail by the units to examine the reasons for any non-compliance and to identify if they were significant or otherwise. Recommendations on improvements to process or changes to licence conditions were also made (refer to Chapter 9 Recommendations). Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 11

12 The test of compliance and/or breaches of conditions The following table outlines the definitions used in the Compliance Audit Checklist that was circulated to auditors as part of the audit guideline document and subsequently used in their reports. Table 1: Compliance Definitions C Compliance Adequate and appropriate implementation against current Departmental approval or conditions, or compliance with commitments made. O Observation A finding which is not likely to significantly affect the operation, which does not strictly relate to the scope of the audit of compliance and which could lead to performance improvement. NC Non-Compliance An inadequacy in the design and/or implementation against current Departmental approvals, licence conditions or management commitments. There are two subcategories of non-compliance: Category 1 (NC1) - a total absence of planning or implementation of a required operations element which presents an immediate risk or an isolated lapse in control in the implementation of an operations element which will lead to a significant risk, or Category 2 (NC2) - an isolated lapse or absence of control in the implementation of an operations element which may not be of significant risk. NA Not Applicable Used where a condition may not have been triggered or was not applicable for that particular licence. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 12

13 5. SUMMARY OF RESULTS Level of compliance The audit results indicate an overall high level of compliance with licence conditions. In total 87% of the conditions audited were either fully compliant with no observations or not applicable (as they had not been triggered yet). Observations, which referred to conditions that were technically compliant but where improvements to performance could be made, were reported against 8% of conditions. Of the total 1355 individual audit conditions audited, 5% were found to be noncompliant. There were 11 level NC1 (significant risk) non-compliances and 55 level NC2 (low risk) non-compliances. Compliance Results Coal Exploration Licences The level of compliance recorded by the auditors was very high with only four of the 20 coal s audited having a reported NC1 (significant risk) non-compliance. Out of these four s, there were a total of 8 NC1 non-compliances reported. There were 30 NC2 (low risk) non-compliances reported across 12 s. Seven of the s audited reported no non-compliances. All audits, however, had some level of observation recorded. It is noted that there are a number of instances where multiple non-compliances recorded against a licence relate to a single incident. A number of these incidents had already been investigated by Resources & Energy and enforcement action taken. A number of licence conditions were noted as not assessed. This may have been because no activity, such as drilling, was occurring at the time of the audit was not assessed against environmental conditions as a full environmental audit was completed by Resources & Energy earlier this year. The only NC1 non-compliances reported in the category of Environment was in relation to 6288, which had four reported. Three of these reported non-compliances all related to the same incident, where an exploration activity was carried out without appropriate secondary approvals from Resources & Energy. Enforcement action had already been undertaken in relation to this incident. The fourth NC1 related to the use of non-native pasture grass in the revegetation of a drill site in a woodland area. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 13

14 Most non-compliances (NC1 and NC2) reported under the Coal Advice category related to reporting requirements or the incorrect storage of drill core samples. Following further inquiry, Resources & Energy have concluded that storage is adequate. These noncompliances are all matters that should be readily observable by the Resources & Energy through its administration of exploration licences. A number of observations by auditors noted discrepancies between the reporting requirements under the terms of the licence and the obligations required by the Mining Regulation There were two reports of NC1 level non-compliance and four NC2 level noncompliances regarding safety related conditions. The NC1 recorded against 6433 related to risk assessment process and inadequate documentation. The NC1 recorded against 7223 related to non-conformance with safety management plan (SMP) requirements and poor maintenance of records. Following further inquiry, Resources & Energy have concluded that these two NC1 level non-compliances regarding safety related conditions were in fact lower level NC2 level non-compliances. There were no non-compliances reported for any s under the category of Titles. Out of the 42 licences, five were audited regarding their compliance with special conditions. Auditing of these conditions was variable due to the nature of the requirements under the conditions. The following charts show a breakdown of the audit results for each and the status against individual Resources & Energy categories of responsibility. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 14

15 ComplianceStatusbyLicenceCoals NotAssessed NA C O NC2 NC Auth Auth 438 Auth 315 Auth 311 Auth 342 Auth SummaryofComplianceStatusbyDRECategoryCoals NotAssessed NA C O NC2 NC Environment CoalAdvice CoalSafety Titles SpecialConditions NC NC O C NA NotAssessed Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 15

16 Compliance Results Petroleum Exploration Licences The level of compliance recorded by the auditors was very high with only two of the 22 s audited having a reported NC1 (significant risk) non-compliance. Out of these two s, there were a total of three NC1 non-compliances reported. There were 25 NC2 (low risk) non-compliances recorded across 13 s and nine of the s audited were fully compliant. All audits, however, had some level of observation recorded. Two licences reported NC1 level non-compliances. The non-compliance reported for 445 related to the suspected dumping of drilling muds. Two NC1 level noncompliances were reported for 458. One related to the failure to properly rehabilitate a site, while the other non-compliance related to possible acid sulphate soil issues and the lack of appropriate surface water and groundwater monitoring. The NC2 level non-compliances reported under the Petroleum Geology category generally related to deficient, absent or late exploration reports. There is only one safety condition specifically prescribed in the, however licence holders are also required to comply with the Schedule of Onshore Petroleum Exploration and Production Safety Requirements as outlined in Clause 27 of the Petroleum (Onshore) Regulation A number of the requirements of the Schedule of Onshore Petroleum Exploration and Production Safety Requirements were audited as these were included as typical questions in the safety and environment categories in the audit guideline. No NC1 level compliances were reported for any s under the safety category. No NC1 level non-compliances were reported under the Titles category for s. The following charts show a breakdown of the audit results for each and the status against the Resources & Energy categories of responsibility. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 16

17 ComplianceStatusbyLicencePetroleums NotAssessed NA C O NC2 NC SummaryofComplianceStatusbyDRECategoryPetroleums NotAssessed NA C O NC2 NC Environment Petroleum Geology PetroleumSafety NC NC O C NA NotAssessed Titles Please refer to Appendix G for a full summary of compliance by Resources & Energy category. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 17

18 6. DETAILED ANALYSIS Each of the specialised units within Resources & Energy analysed the audit results, in particular the non-compliances and observations. Overall, the level of compliance across conditions for both coal and petroleum exploration licences was high, with 87% of the conditions having no non-compliances or observations recorded against them. The following comments were provided: Titles (Coal) Only one coal exploration licence (Authorisation 444) was reported as being non- compliant (NC2) against two conditions: In regard to these two non-compliances, the licence holder had provided the required information, however it was outside the timeframe given. The reason being that this particular title is jointly held and both parties have been operating independently. Observations were made against four coal exploration licences, three of which were against condition 32. The other was made against condition 21: Condition 32 is an overarching condition that indicates that for the purpose of condition 29 (the security held against the title), the licence holder shall be deemed to have failed to fulfil the obligations of the licence if they fail to comply with any condition, provision, condition of consent or approval, any provisions of the Mining Act 1992 or Mining Regulation 2010 or any direction or instruction given by the Resources & Energy. For the purpose of the audits, as per advice from Coal Advice, Mine Safety and Environment Sustainability Unit, no noncompliance or observation from the audit would result in the security being taken and used for the fulfilment of the licence holder s obligations. As such, it is considered that condition 32 would not come into effect for any of the observations made. Condition 21 relates to the notification of utility holders in relation to transmission lines, communication lines, pipelines and other public utilities where exploration Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 18

19 activities may impact on the infrastructure. The auditor indicated that no drilling had occurred during the current licence period, therefore there is no noncompliance with this condition, however previous notifications were considered to be inadequate. Titles (Petroleum) Only two petroleum exploration licences ( 2 & 443) were reported as being non- compliant (NC2) against one condition each: 2 was reported as non-compliant for condition 17 (the work program specified in the third Schedule is to be completed by the licence holder to the satisfaction of the Minister). Whilst the auditor gave a status as NA for Condition 17, the assessment of the work program against the requirements of Schedule 3, which was included in the auditor's compliance tables, indicated non-compliance in relation to a variation to the work program which was not notified and approved by the Resources & Energy. Work programs are often varied due to delays caused by approvals, weather, land access and equipment availability. These reasons are acceptable and licence holders do not have influence over these factors. The licence holder is in contact (via or phone) with the Manager Petroleum Geoscience when such circumstances occur, which is considered satisfactory. 443 was also reported as non-compliant for condition 17. The auditor assessed this condition with two items, NC2 and O. It was noted that Item 1 of the program of work was completed and a report submitted to Resources & Energy, however Item 2 had not been completed. The auditor commented that the current management team were understaffed which led to delays in report submission. The technical manager consults with Manager Petroleum Geoscience (via or phone) about the works undertaken and the planned work, which is considered sufficient. From the comments provided by Petroleum Geoscience in relation to these reported non-compliances, Resources & Energy does not consider that non-compliances have occurred. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 19

20 Observations were made against 12 petroleum exploration licences, most of which were against conditions 16 (nomination of an exploration manager) and 17 (completion of a work program): For condition 16, many licence holders provided details to Resources & Energy of the technical advice that they have access to without actually nominating a technical manager and providing that persons details. This is considered to be acceptable to Resources & Energy. In regards to the observations for condition 17, some titles have variation dealings recorded in the Titles Administration System so variations to work programs have been applied for by the licence holders (specifically s 4, 267 and 427). Additionally, if the licence holders have not complied with the proposed program of work when the licence is due for renewal, they will have to justify why the program hasn t been met and substantiate why a licence should be renewed. In relation to the observation regarding condition 27(security) against 445, additional security for the drilling program approved in February 2011 has been provided. The observation made against 6 regarding plug and abandonment of one CSG core hole, in accordance with engineering specifications but without detailed assessment of implementation or Resources & Energy approval is noted. It was also noted that other nearby core holes were suitably assessed and approved by Resources & Energy. Coal Advice Eight coal exploration licences were noted as being non-compliant against either condition 38 (core samples), 42 (technical management) or 44 (geological reports). Two of these licences recorded NC1 non-compliances: The audit for 7223 reported inadequate storage of drill core. Resources & Energy does not consider the storage of core to be an NC1 non-compliance. While the auditor believed that plastic shrink wrapping of core was necessary, it is not typically done. Ease of access to stored core is also typically not an issue as reviewing logged and sampled core occurs infrequently. Drill core is Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 20

21 reasonably durable and there is low risk of core damage if it is temporarily exposed to weather before final storage. Malicious damage is a very low risk due to the remote location of the site. The audit for 5072 reported inadequate geological reporting. Inadequate geological reporting is not considered a NC1 non-compliance by Resources & Energy. The implementation of amendments to the Mining Act 1992 in November 2010 brought in new reporting formats and compliance requirements, with a 12 month transition period to ensure all companies became compliant with the new requirements. All reporting on 5072 is now up to date, adequate and in the correct format. The additional non-compliances were rated as NC2: There were a number of non-compliances reported against condition 38. The auditor noted that no drilling has occurred during the current licence period for 5297, however, previous management relating to the requirements of this condition were inadequate. For condition 42, Authorisation 311 and 315, as well as 5297, were noted as non-compliant as no formal advice to Resources & Energy of a change of technical manager was provided. It has been noted that advice was provided to the Coal Advice section via . For condition 44, a number of licences, 5297, 5892, 4968 and Authorisation 404 had non-compliances identified due to reports being late or not submitted at all. Coal Advice has noted that all of these reports have been provided and the non-compliance has been reported because they have been late or provided inadequate information. A possible reason is companies could not provide evidence they had submitted the reports so auditors noted a noncompliance. All current reporting is up to date for these licences. Of all the observations raised that are the responsibility of the Coal Advice section, conditions are being complied with and are not considered an issue, except for submission of annual reports from The audit report stated that two annual reports were sighted and that they were accepted by Resources & Energy. Resources & Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 21

22 Energy s evidence suggests that the report submitted was rejected and that a replacement has not yet been received. It has been noted that there are a number of conditions where the auditor has reported a not applicable response. This is considered to be appropriate as many conditions would not have been triggered in the activities of the licence. The Mining Act 1992 has provision for fines for non-compliance with reporting. A fine is a last resort and Resources & Energy now does a monthly check and notifies licence holders if they are late and requests reports be submitted promptly. There is a lack of awareness of what some of the licence conditions mean or an ignorance of conditions amongst employees of the licence holders, which will need to be addressed in an ongoing education process. Petroleum Geoscience Five petroleum exploration licences were noted as being non-compliant against condition 21 (reports and format for fixed agenda operations): 2, 4, 267, 285 and 285 had non-compliances reported due to reports being submitted outside the required timeframe or for reports lacking sufficient detail, as required by the licence condition. A reason for this may be inconsistency between the guidelines and condition, regarding the expected content of reports. All the observations raised in the audit reports that fall under Petroleum Geoscience s responsibility relate to conditions 21 and 22 (reports and format for fixed agenda operations). The following comments were made: Cuttings and core were not always submitted (not accepted) even though they were offered and made available to Resources & Energy. This raises a question of how long samples should be kept by licence holders and if they will be made available to Resources & Energy in the future. A review of storage capacity at Resources & Energy s Londonderry storage facility is also required. Some licence holders did not submit all of the required data. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 22

23 Observations relating to the late submission of reports were also raised. In some cases interim reports were submitted. Petroleum Geoscience does not penalise companies for delayed submission, as long as the report was submitted in a reasonable timeframe. It is also not considered a faulty submission to provide a non-dated report. EROL (Exploration & Environmental Reports Online Lodgement) has a tool indicating when the report was submitted. Observations also indicate that receipt of submission is not always provided by Resources & Energy. It should be noted that EROL sends an auto response that the report was submitted (even if the report is not satisfactory). There is no receipt for submission of statistics and reminders are only issued if statistical returns are not submitted. Restrictions on file size submission via EROL were communicated to Resources & Energy. The reasons for delay and non-compliance in report submission are as follows: The Petroleum Act guideline is not attuned to the coal seam gas exploration and production conditions. The Act must be reviewed and amended. Submission of well completion reports six months after completion of operations is not realistic. One (1) year might be considered. There are too many reports to submit (such as annual, operational, end of work program, relinquishment, interim, statistics etc). The audit reports suggest a trend that Resources & Energy does not provide feedback regarding the submission of reports. Resources & Energy s approach has been to provide negative feedback, such as report rejection when important information is missing. If the report is accepted there is no feedback given to the company as there is no tool in EROL to automatically send a message that the report is satisfactory. This feedback is provided to the company upon request. Safety (Coal) Five coal exploration licences were noted as being non-compliant against either condition 26 (maintenance of open drillholes) or 36 (safety of operations). Two of these licences recorded NC1 non-compliances: Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 23

24 The audit of 7223 identified NC1 non-compliances relating to inadequacies with Safety Management Plans, specifically relating to: o Not all drill rig sites undertake or maintain risk management documentation in line with site Safety Management Plan (SMP) requirements. This relates to the "Take 5" hazard awareness tool, which was not being used as required in the SMP. Given that a SMP was in place for the site and there is no requirement to develop an SMP in the legislation referred to in the licence condition, Resources & Energy believe this non-compliance is more appropriately categorised as an NC2 (an isolated lapse or absence of control in the implementation of an operations element which may not be of significant risk). o Records not being maintained. This is related to administrative elements of the licence condition, and as such does not have an immediate risk and is more appropriately categorised as an NC2. The audit of 6433 identified that risk was not adequately documented or aligned with a recognised risk assessment process (International or Australian Standards). This is not considered an NC1 non-compliance in that there is no specific requirement to do the Risk Management Plan to the specifications that the auditor has indicated. This again is more appropriately categorised as an NC2. The additional non-compliances were rated as NC2: For condition 26, the audit report for Authorisation 404 noted that Resources & Energy was not notified that two holes were left open. The audit report for 6433 noted that a landowner had requested that a hole be left open, but no evidence was sighted to confirm this request. For condition 36, audit reports for 5410 identified non- compliances relating to inadequacies with Safety Management Plans identified that material safety data sheets (MSDS) were not available for all for materials held by the drilling contractors on site and some MSDS were more than five years old. Coal Safety believes these non-compliances are related to administrative elements and a failure of licence holder s safety management systems, rather than an immediate risk. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 24

25 As such no serious problems are anticipated. Completion of corrective actions and a review of systems by licence holders are expected to rectify these issues. The observations raised in the audit reports that fall under Coal Safety s responsibility relate to condition 36 (safety of operations): 5883 audit report indicates the licence holder is relying on the implementation of the Quarry Safety Management Plan to address safety audit report indicated that while no drilling has occurred during the licence period, previous management relating to the requirements of this condition were noted as inadequate. This was not seen as an immediate risk. Safety (Petroleum) Two petroleum exploration licences were noted as being non-compliant against condition 18 (safety): The audit report for 445 noted that two non-compliances were raised relating to no evidence of strata leak off tests being undertaken and a lack of safety signs at well sites. 458 noted that two non-compliances were detected relating to site F-3 where the cellar cover plate handles were considered a hazard to people and animals and the hazard was not properly fenced off. The reasons for non-compliance can be attributed to a failure of risk management in the case of 458 where a risk control measure has itself introduced a hazard. The noncompliances appear to be isolated incidents and no serious problems are anticipated in undertaking corrective actions. A review of systems by licence holders is expected to rectify these issues. The observations recorded in the audit reports regarding safety relate to condition 18 (Safety): 445 noted an observation in relation to the lack of a site specific safety management plans (SMPs) for Keerrong 1 or Tunglebung 1, although specific SMPs had been prepared for other sites. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 25

26 13 and 16 identified an opportunity to better integrate risk identification documentation and/or develop a 'roadmap' which describes how separate risk identification tools interact with each other. 238 noted that some job safety analysis (JSA) documents had become separated from the permit to work documents. 285 identified two observations in relation to a damaged para-webbing fence, with the licence holder unable to demonstrate follow-up and completion of corrective actions identified during a previous drill rig audit on one of its contractors. The audit report for 437 noted lack of awareness and understanding of emergency response procedures. It is anticipated that all these observations will be addressed with a review of the licence holder s safety management systems. Environment (Coal) Eleven coal exploration licences were noted as being non-compliant against at least one of the many environmental licence conditions: Four NC1 level non-compliances were reported in relation to Three of these reported non-compliances all related to the same incident, where an exploration activity was carried out without appropriate secondary approvals from Resources & Energy. Enforcement action by Resources & Energy has already been undertaken in relation to this incident and subsequent performance of the company has been reported as very good. The fourth NC1 related to the use of non-native pasture grass in the revegetation of a drill site in a woodland area. It is agreed that this is an NC1, or serious non-compliance, and Resources & Energy will resolve corrective action with the licence holder involving modification of their environmental management procedures for revegetation. All other non-compliances were classified as NC2 level and spread across a number of conditions relating to environment. Examples include not having Environmental Management Plans approved by Resources & Energy, minor rehabilitation issues, lack of detail in rehabilitation reports, minor diesel spill, rubbish on site, lack of formal landholder liaison programs and lack of risk Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 26

27 assessments for gas blowouts not being provided to Resources & Energy for approval. Where non-reporting has been identified, this may indicate new or inexperienced personnel whose main functions are that of geologist or engineer. For the smaller explorers the provision of experienced reporting staff may not be cost effective. The exploration sector appears to be dynamic in the level of vested corporate interests. This is reflected in changing joint venture partners and to some degree the management nexus between authorised licence holder and exploration program operator. This can result in inadequate systems of environmental management or poor communication of those systems at operator/contractor level. In particular, sector improvement in the areas of due diligence and internal auditing should apply to address these non-compliances. A number of observations have been reported against a range of the environmental conditions, again noting lack of formal submission of information to Resources & Energy or weaknesses in licence holders documentation systems and processes. All licence holders have been requested to confirm that corrective actions have been implemented or have a plan in place to implement them as soon as possible. Environment (Petroleum) Nine petroleum exploration licences were noted as being non-compliant against at least one of the many environmental licence conditions. Three NC1 level non-compliances were reported: The non-compliance reported for 445 related to the suspected dumping of drilling muds. Resources & Energy agree with the classification of the noncompliance to be of significant risk. Corrective action and improved procedures are to be sought from licence holder and confirmed by Resources & Energy. Two NC1 level non-compliances were reported for 458 and Resources & Energy agree with the classifications. One of these related to the failure to properly rehabilitate a site. Resources & Energy note the audit findings in relation to drill site rehabilitation and the status of these sites will be reviewed prior to Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 27

28 completion of the title and release of the security deposit. The other related to possible acid sulphate soil issues and the lack of appropriate surface water and groundwater monitoring. These matters have been addressed by the licence holder in subsequent activity applications to Resources & Energy. The additional non-compliances were rated as NC2: The NC2 level non-compliances were spread across a number of environment conditions including minor spills, poor documentation or landholder agreements, not gaining Resources & Energy approval for changes to work program, reports not being submitted to Resources & Energy and slow rehabilitation of sites. For s the non-compliances appear to demonstrate poor record keeping and lack of timeliness in project management, lack of progressive completion and rehabilitation of well sites. In most cases the non-compliances are not likely to have a significant impact on the environment. They would be addressed in corrective actions arising from the audit and in the final rehabilitation and relinquishment reporting process, which is prior to expiry of the exploration title and security deposit review. Where poor record keeping was noted, it is not suggested that the event did not occur, but rather that documentary evidence was not provided. A number of observations have been reported against a range of the environmental conditions again noting lack of formal submission of information to Resources & Energy, weaknesses in licence holder s documentation systems and processes and minor on site issues. All licence holders have been requested to confirm that corrective actions have been implemented or have a plan in place to implement them as soon as possible. Variations in audit reporting The following variations in audit reporting were raised when analysing the audit report information: The quality of the auditing undertaken varied considerably across the range of auditors. Some auditors undertook a comprehensive assessment against the Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 28

29 specific conditions of the licence, whilst others generally only addressed the Resources & Energy template questions. An initial review of the audits indicated that a large percentage of the auditors had simply followed the template document and had not considered whether the template contained all conditions present in the being audited. As a result, licence holders for 7 s and 5 s were asked to provide a revised audit report addressing all of the conditions of the title. Where a licence condition had several different components, some auditors assessed compliance against each specific component, whilst others only provided a compliance status for the condition as a whole. Where Category 2 or 3 activities had been undertaken within a licence area and additional approvals obtained from Resources & Energy, some auditors also undertook an assessment of compliance against the specific conditions of the approvals given. However, this was not common and was only undertaken by a select group of auditors. Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 29

30 7. CONSULTATION The Government decision stated that the Audit process will be undertaken in consultation with OEH and DP&I. On the 16 June 2011 copies of the project plan and the top level spreadsheets of data for coal and petroleum were forwarded to OEH and DP&I. The matter was placed on the agenda for the Coal Seam Gas Working Party (CSGWP) which includes representatives of OEH and DP&I plus others, for a status report. The status report on the audit was provided to the CSGWP at their meetings on 6 July, 2 August, 30 August, 29 September and 4 November 2011 respectively. A face to face meeting between Resources & Energy and OEH representatives was held on 1 August DP&I were unable to provide a representative for the meeting. A face to face meeting between Resources & Energy, OEH and DP&I was held on 15 August From this meeting, it emerged that OEH and DP&I were strongly of the opinion that more focus needed to be put on the environmental breaches, and as such it was agreed that all non-compliant s in the area of environment would go straight through to Phase 2 of the audit. It was agreed that the non-complying s for Petroleum Geoscience would be filtered to identify the licences that had multiple and/or significant non-compliances, as opposed to less significant non-compliances. Only the s with significant non-compliances would progress to Phase 2 of the audit. Following the meeting on 15 August it was also agreed that 2 (Camden) and 6505 (Caroona) would be included in Phase 2 of the audit due to the sensitivity and contentiousness of each of the licence areas respectively. A further meeting on 22 August concluded that officers from Resources & Energy, OEH, DP&I would attend some of the initial audits to see if the audit program is robust and to make any minor changes as required. It was agreed that Resources & Energy would establish the geographic areas and the licences to form part of the initial audits, and provide these to OEH and DP&I to then indicate who would contribute from their specific Departments. It was also agreed that DP&I would indicate if a number of s and s Report on Audit of Coal and Petroleum Exploration Licences in NSW Phase 2 30