Proposed Audit and Inspection Fee Review Summary

The review of the petroleum and gas audit and inspection fee has determined that a revised
fee structure and liable persons base is required. The revised proposal extends the
application of the fees to cover all current petroleum and gas activities and ensures a
measured response to significant changes in industry activity. This revised fee is proposed
to be called the petroleum and gas safety and health fee.

The current fees start from a low base. The fees currently do not include all industries
regulated and do not cover the Inspectorate costs on a full cost recovery basis. This fact
coupled with an urgent need to provide additional resources to increase the numbers of
staff in the Inspectorate to an effective level, means that the fees must be raised almost
threefold.

Attached (Table 1) is a table of the proposed petroleum and gas safety and health fees for
each industry sector type. The table outlines the “liable person” for each sector, the amount
and percentage of fee paid last year, the total amount and percentage each industry sector
is proposed to pay for 2009/10 and the sector parameter proposed to be used for 2009/10.

Note: For some industry sectors (eg small LPG delivery networks) information on proposed
parameters is still being sought from industry so the final unit costs may vary from that
shown.

Outlined below are some key points on the derivation of the proposed fee and how it is
calculated. New industry sectors are identified and a discussion of some of the significant
impacts or changes is made.

Methodology
• Methodology for calculating the proposed petroleum and gas safety and health fee is
based around:
o the total budget required to operate the Petroleum and Gas Inspectorate on a full
cost recovery basis.
o the percentage each industry sector should pay based on Inspectorate activities in
relation to that sector.
o the size of the industry sector itself and the risks associated with that sector.
• The industry sectors liable for fees have essentially been targeted at the “operating
plant” level (i.e. where safety and health management plans are required) because it is
this level of industry that underpins the safety and health strategy for the petroleum and
gas industry as a whole.
• The current static set cost fees for a whole industry type will be removed and replaced
by industry activity (cost/unit) parameters wherever possible. Some set facility/site fees
remain where necessary.
• Current Inspectorate numbers are 21 (15 Inspectors and 6 licensing/administration/
project officer). Additional Inspectorate resources are to be phased in over a 6-18
month period.
o 2010/11 total additional 11 staff (primarily Inspectors, majority based in Southern
Region).
o 2011/12 total additional staff 15 (i.e. further 4 more).
• For the fees to be billed in the 2nd half 2010 (based on 09/10 data) there will be a
significant rise in fees:
o 2010/11 planned Petroleum and Gas Inspectorate budget is $5.82m (this is based
on initial additional resources only being in place for ¾ of 2010/11 year).
o 2011/12 planned Petroleum and Gas Inspectorate budget is $7.48m (all additional
resources in place).
o Both budget figures include MHF levy to be collected on behalf of DJAG
• Towards the end of each fiscal year industry will be advised of:
o proposed total Inspectorate budget for next year
o % of the total fee that each industry will pay
o proposed sector parameter rates for the year
• Where there is an over or under collection in fees for any sector in any year the fees for
the next year are adjusted to take into account the over or under amount. For example
if industry activity in a particular sector goes up more than expected in one year then the
parameter fee would be reduced accordingly the next year.
• Each year a report will be provided on the main items of the Inspectorate budget (similar
to that provided for the mining safety and health levy) and also on key performance
figures (eg inspections, noncompliance rates etc).

Impacts
There are a number of new sector types that will now be required to pay fees. These are:
o Drilling companies that drill geothermal, GHG or UCG wells
o Work over rigs
o Exploration companies (petroleum, UCG, GHG and geothermal)
o Some processing facilities (UCG, CNG, Syngas)
o GHG injection facilities
o Small LPG cylinder distribution networks
o Biogas/sewage gas facilities
o Entertainment events
o MHFs (petroleum and gas related)

Particular impacts –

The attached Table 1 spreadsheet provides the new proposed fees for each industry type
and with that information some examples of impacts on some key industry types have been
provided. It is acknowledged that for some industry groups the rises are significant. This
largely reflects the low rates (or no fees) that those sectors have paid over the last few
years.

Examples of impacts on selected industry types

Drilling
Fees in regard to drilling are proposed to increase significantly (from 6% to 20% of the total
fee). However the total amount payable is now spread across a wider sector group as
geothermal, GHG and UCG drilling are now included. As Table 1 outlines, a medium sized
drilling organisation (70km p/a) will see a rise from around $12,500 to $81,000. The
significant increase largely reflects:
• the extremely low base this sector was paying (only $146,000/pa for the whole
industry),
• an extremely poor compliance record over the 08/09 period and the resulting eight
significant investigations being investigated (still ongoing). This was and continues
to be an extensive drain on Inspectorate resources.

The rapid growth in drilling activity is also significant. Total kilometres drilled have risen
from 457km in 2005/06 to 816km in 2008/09. The number of wells has also increased
substantially from approximately 290 in 2005/06 to 780 in 2008/09. The number of drilling
companies has also increased from 14 in 2005/06 to 21 in 2008/09.

Petroleum explorers and producers

Explorers were not previously captured and need to be. Exploration companies are
required to have safety and health management plans covering operating plant within their
tenure.

2
Fees payable by producers will increase from 9% to 18%. This relates to the required
activity levels which are much more intensive for coal seam gas production compared with
conventional gas. The number of producing wells has risen significantly, combined with
large amounts of gathering lines, processing plants and field compression stations. With
the expected boom in production to facilitate an LNG export business, production will
increase rapidly having a significant impost on the Inspectorate.

Other
The percentages to be paid by the pipelines, distribution and LPG sectors have reduced (on
a percentage basis) as a consequence of rises in other areas and the new sectors that are
now liable.

The set fees for large gas consumers have been modified into a three tier approach to
reflect size and complexity. For small users this is a relatively small rise (an extra $1740).
The increase for medium and larger users is more significant.

Comments
Any comments/submissions on the proposed petroleum and gas safety and health fee
should be provided to:

Lidia Vidovic
Executive Assistant to the Chief Inspector, Petroleum and Gas
( lidia.vidovic@deedi.qld.gov.au )

Comments should be provided by 20 April 2010.

30 March 2010