I hereby give notice that an ordinary meeting of the Governing Body will
be held on:
|
Date:
Time:
Meeting Room:
Venue:
|
Thursday, 30
January 2014
9.30am
Reception
Lounge
Auckland Town Hall
301-305 Queen Street
Auckland
|
|
Governing Body
OPEN AGENDA
|
MEMBERSHIP
|
Mayor
|
Len Brown, JP
|
|
|
Deputy Mayor
|
Penny Hulse
|
|
|
Councillors
|
Cr Anae Arthur Anae
|
Cr Dick Quax
|
|
|
Cr Cameron Brewer
|
Cr Sharon Stewart, QSM
|
|
|
Cr Dr Cathy Casey
|
Cr Sir John Walker, KNZM, CBE
|
|
|
Cr Bill Cashmore
|
Cr Wayne Walker
|
|
|
Cr Ross Clow
|
Cr John Watson
|
|
|
Cr Linda Cooper, JP
|
Cr Penny Webster
|
|
|
Cr Chris Darby
|
Cr George Wood, CNZM
|
|
|
Cr Alf Filipaina
|
|
|
|
Cr Hon Chris Fletcher, QSO
|
|
|
|
Cr Denise Krum
|
|
|
|
Cr Mike Lee
|
|
|
|
Cr Calum Penrose
|
|
(Quorum 11 members)
|
|
|
Elaine Stephenson
Democracy Advisor
23 January 2014
Contact Telephone: (09) 373 6328
Email: elaine.stephenson@aucklandcouncil.govt.nz
Website: www.aucklandcouncil.govt.nz
|
TERMS OF REFERENCE
Those powers which cannot legally be delegated:
(a) the power to make a
rate; or
(b) the power to make a
bylaw; or
(c) the power to borrow money,
or purchase or dispose of assets, other than in accordance with the long term
council community plan; or
(d) the power to adopt a
long term plan, annual plan, or annual report; or
(e) the power to appoint a
Chief Executive; or
(f) the power to adopt policies
required to be adopted and consulted on under the Local Government Act 2002 in
association with the long term plan or developed for the purpose of the local
governance statement; or
(g) the power to adopt a remuneration and employment
policy.
Additional responsibilities retained by the Governing Body:
(a) Approval of a draft long term
plan or draft annual plan prior to community consultation
(b) Approval of a draft bylaw prior
to community consultation
(c) Resolutions required to be made
by a local authority under the Local Electoral Act 2001, including the
appointment of electoral officer
(d) Adoption of, and amendment to,
the Committee Terms of Reference, Standing Orders and Code of Conduct
(e) Relationships with the
Independent Maori Statutory Board, including the funding agreement and
appointments to committees.
(f) Approval of the Unitary Plan
(g) Overview
of the implementation of the Auckland Plan through setting direction on key
strategic projects (e.g. the City Rail Link and the alternative funding
mechanisms for transport) and receiving regular reporting on the overall
achievement of Auckland Plan priorities and performance measures.
|
Governing Body
30 January
2014
|
|
ITEM TABLE OF CONTENTS PAGE
1 Affirmation 5
2 Apologies 5
3 Declaration of Interest 5
4 Confirmation of Minutes 5
5 Acknowledgements 5
6 Petitions 5
7 Public Input 5
8 Local Board Input 5
9 Extraordinary Business 5
10 Notices of Motion 6
11 Submission on draft regulations for exploratory oil and gas
drilling under the EEZ Act 7
12 Auckland Airport Capital Return 21
13 Consideration of Extraordinary
Items
PUBLIC EXCLUDED
14 Procedural Motion to Exclude the Public 29
C1 Further Appointments to Outside Organisations 29
His Worship the Mayor will read the affirmation.
2 Apologies
An apology from Cr GS Wood has been received.
3 Declaration of Interest
Members are reminded of the need to be vigilant to stand aside from
decision making when a conflict arises between their role as a member and any
private or other external interest they might have.
4 Confirmation of Minutes
|
That the Governing Body:
a)
confirm the ordinary minutes of its meeting,
held on Thursday December 2013, including the confidential
section, as a true and correct record.
|
5 Acknowledgements
At the close of the agenda no requests for acknowledgements had been
received.
6 Petitions
At the close of the agenda no requests to present petitions had been
received.
7 Public Input
Standing Order 3.21 provides for Public Input. Applications to
speak must be made to the Committee Secretary, in writing, no later than two
(2) working days prior to the meeting and must include the subject matter.
The meeting Chairperson has the discretion to decline any application that does
not meet the requirements of Standing Orders. A maximum of thirty (30)
minutes is allocated to the period for public input with five (5)
minutes speaking time for each speaker.
8 Local Board Input
Standing Order 3.22 provides for Local Board Input. The Chairperson
(or nominee of that Chairperson) is entitled to speak for up to five (5)
minutes during this time. The Chairperson of the Local Board (or nominee of
that Chairperson) shall wherever practical, give two (2) days notice of
their wish to speak. The meeting Chairperson has the discretion to decline any
application that does not meet the requirements of Standing Orders.
This right is in addition to the right under Standing Order 3.9.14
to speak to matters on the agenda.
At the close of the agenda no requests for local board input had
been received.
9 Extraordinary Business
Section 46A(7) of the Local Government Official Information and
Meetings Act 1987 (as amended) states:
“An item that is not on the agenda for a meeting may be dealt with
at that meeting if-
(a) The local authority by resolution so
decides; and
(b) The presiding member explains at the
meeting, at a time when it is open to the public,-
(i) The reason why the item is not on the agenda; and
(ii) The reason why the discussion of the item
cannot be delayed until a subsequent meeting.”
Section 46A(7A) of the Local Government Official Information and
Meetings Act 1987 (as amended) states:
“Where an item is not on the agenda for a meeting,-
(a) That item may be discussed at that meeting
if-
(i) That item is a minor matter relating to
the general business of the local authority; and
(ii) the presiding member explains at the
beginning of the meeting, at a time when it is open to the public, that the
item will be discussed at the meeting; but
(b) no resolution, decision or recommendation
may be made in respect of that item except to refer that item to a subsequent
meeting of the local authority for further discussion.”
10 Notices of Motion
At the close of the agenda no requests for notices of motion had
been received.
|
Governing Body
30 January
2014
|
|
Submission
on draft regulations for exploratory oil and gas drilling under the EEZ Act
File No.:
CP2013/29429
Purpose
1. To present a
draft submission on the draft regulations for exploration drilling for
petroleum in the exclusive economic zone (EEZ). The draft regulations state
that drilling will not be notified provided the application is within a
geographical area where the applicant holds an exploration permit under the
Crown Minerals Act.
Executive
Summary
2. The Ministry
for the Environment (MfE) released draft regulations for exploratory oil and
gas drilling in the EEZ (12 to 200 nautical miles from shore) on 12 December
2013. Submissions on the draft regulations close on 31 January 2014.
3. Auckland
Council made a submission to MfE in September 2013 on a discussion document
which proposed that exploratory drilling in the EEZ be a non-notified
discretionary activity. The council’s submission did not support this proposal
and stated that such applications should be notified.
4. The draft
regulations take the same approach as that proposed in the discussion
document. The draft council submission (Attachment A) reiterates that the
council does not support a non-notified classification for this activity.
5. Deep water oil
and gas exploration has a low probability of blow outs and oil spills.
However, the significant consequences of such an event justify the additional
costs and delays for applicants that notification would cause. Public input would
enhance environmental protection through increased independent assessment of
proposals and the conditions on their operation.
|
Recommendation/s
That the Governing Body:
a) approve the
submission on draft regulations for exploratory oil and gas drilling in the
exclusive economic zone (Attachment A to the agenda report).
|
Discussion
6. There has been
recent government and industry interest in expanding offshore petroleum
drilling around New Zealand. The Taranaki Basin is currently New Zealand’s
only producing petroleum basin. A deep-sea drilling operation is currently
underway 100 nautical miles offshore from Raglan in the Taranaki Basin. An
exploration well was drilled off the East Cape last year but was abandoned due
to poor survey results. Shell has announced that they will undertake
exploration in the Great South Basin in the next two years. There has been
considerable concern in the community regarding these developments.
7. Basins to the
west of Auckland have similar geology to offshore Taranaki and it is possible
that exploration may expand into this area in future. In December 2013,
Norwegian firm Statoil were granted an exploration permit for an area to the
west of Northland. This is in the northern part of the Reinga Northland basin
which extends past Auckland. Also in December last year, MultiClient
Geophysical Pte Ltd applied to New Zealand Petroleum and Minerals (NZPM) for a
Crown Minerals Act permit to prospect for petroleum offshore of Auckland in the
EEZ. The permit is currently being processed by NZPM. Prospecting does not
include drilling and there is no consultation process for prospecting
permits.
8. The government
has been promoting such expansion around New Zealand and has developed several
work programmes to support exploration or to manage its environmental effects.
9. Auckland
Council has been following these proposals and has provided feedback on several
areas, either through formal submissions or through officer-level comments. A
report with a summary of feedback provided in the last few months was presented
to the Auckland Development Committee in November 2013.
10. There is significant potential
for economic benefits for Auckland if oil or gas production wells were
developed off our coast. This benefit would be from increased jobs and
spending on infrastructure. Exploration activity may require new support bases
that could be developed around the Manukau or Kaipara harbours.
11. In 2012 oil was New Zealand’s
fourth largest merchandise export (after dairy, meat and wood) at a value of
over $2 billion. The government receives around 42% of the profits of the
petroleum industry in the form of company tax and royalties. At the current
rate of exploration and production this equates to around $400 million in royalties
and $300 million in company tax annually.
The draft
regulations
12. Exploratory
drilling in the EEZ requires a marine consent under the Exclusive Economic Zone
and Continental Shelf (Environmental Effects) Act 2012 (EEZ Act) as well as an
exploration permit under the Crown Minerals Act. The purpose of the EEZ Act is
to promote the sustainable management of the natural resources of the EEZ and
continental shelf. It is the equivalent of the Resource Management Act 1991
which applies to land and the territorial sea.
13. Under the EEZ
Act, activities can be classified as either permitted, non-notified
discretionary (inserted by the EEZ Amendment Act 2013), discretionary (must be
notified) or prohibited. At present, exploratory drilling is classified as a
discretionary activity as this is the default for activities not otherwise
classified through regulations. The petroleum industry has argued that the
notification process creates uncertainty, costs and delays and has no
environmental benefit. The government has responded to these concerns and
proposed that the activity be classified as non-notified.
14. Prior to the
development of the EEZ Act, there was no specific environmental legislation
applying to exploratory drilling in the EEZ. Environmental effects were
managed through approvals under legislation such as the Crown Minerals Act
1991, Health and Safety in Employment Act 1992 and Maritime Transport Act
1994. The EEZ Act covers the gaps in existing legislation for the EEZ and
provides an extra layer of environmental oversight that ensures a full
assessment of impacts and conditions to mitigate impacts if required.
15. The non-notified
classification was proposed in a discussion document on classifications under
the EEZ Act in September 2013. That document included very little
justification for the proposal and the Auckland Council submitted that it did
not support the non-notified classification due to the lack of clarity on how
risks associated with the activity would be assessed and managed.
16. The Ministry for
the Environment received a total of 21,221 submissions in the September 2013
consultation process. The majority of submissions (21,102) were made using
online template forms and were opposed to exploratory drilling as an activity
generally. An additional 97 submissions that were unique opposed the proposed
classification. Four submitters supported the classification and three
supported it with amendments. Key issues raised in the consultation included:
the ability for the public to participate in decision making; the risk
associated with exploratory drilling and the probability of significant adverse
environmental effects or effects to existing interests; and a lack of clarity
about what activities were included in exploratory drilling.
17. The draft
regulations classify exploratory drilling as a non-notified activity, include a
definition of exploratory drilling, and list related activities that will also
be non-notified (eg placing a rig, taking samples, seismic surveying down a
well and capping a well). The only condition on the activity is that the
application is within a geographical area where the applicant holds an
exploration permit under the Crown Minerals Act or authorized by an existing
privilege held under the Crown Minerals Act.
The draft
submission
18. The attached draft submission
reiterates the council’s position from the September 2013 process and does not
support the proposed non-notified classification for exploratory drilling.
Some additional points are also made about aspects of the regulations that
should be amended to improve their clarity.
19. The probability of an oil spill
from exploration activities is low but could have significant consequences.
Exploration in deep water is complex and relatively rare for New Zealand. It
is appropriate that notification be required to ensure a robust assessment
process is applied.
20. The supporting information for
the draft regulations (MfE, 2013) includes a short summary of drilling in New
Zealand and an assessment of the risk of spills. Since offshore drilling for
oil and gas began in 1968, 177 wells have been drilled. There have been eight
petroleum exploration wells drilled in deep water. The majority of offshore
drilling has occurred in the territorial sea adjacent to Taranaki. The largest
recorded spill from oil and gas drilling was a spill of 23 tonnes of oil from
the Umuroa processing vessel on the offshore Tui field. By comparison, the
spill from the cargo ship Rena grounding in Bay of Plenty in 2011 was 350
tonnes. A Maritime NZ review of international experience has suggested that a
loss of well control event occurs in approximately 2.54 out of every 1000 deep
offshore exploration wells drilled. The majority of events result in
discharges that are contained and recovered without significant environmental
effects. Of the over 2000 wells drilled in the Gulf of Mexico, five reported
spills have been attributed to loss of well control. A spill such as the
Deepwater Horizon blowout in the Gulf of Mexico in 2010 is unlikely in New
Zealand because the geophysical situations are quite different and it would
require multiple failures in multi-stage systems and planning. Based on this
assessment, the Minister for the Environment concluded that the probability of
significant adverse effects caused by exploratory drilling is low.
21. Although a drilling well blowout
is unlikely, it must be managed cautiously due to the possible consequences.
Oil spills could affect fishing and tourism activities, marine ecology and
beach amenity.
22. A Greenpeace commissioned report
(released on 23 October 2013) gauged the effects if a deepwater exploratory oil
well blowout took place off Taranaki or Otago. The modelling used a lower rate
of oil loss than the Mexico event. It found that about 80 percent of spills
impacted the coastline between the Kaipara Harbour mouth and Raglan, while the
entire coastline between Opononi and Cape Egmont would be affected in 50
percent of spills. It could take less than a week for an oil spill to reach the
coastline at Muriwai, Piha or Manukau Harbour in a worst-case scenario.
23. Representatives of the oil
industry and the government have refuted the study and noted that the Gulf of
Mexico oil spill scenario is highly unlikely in New Zealand due to differences
in the geology, type and pressure of oil likely to be found, and improvements
in drilling processes. They stated that contingency plans are in place to
respond to any spills should one occur.
24. Oil and gas exploration and
production can also result in pollution and ecological effects from their
general operations, including disposing of waste materials and discharges to
the coastal marine area. Structures and sampling can disturb the seabed and
affect the natural character of the coastal environment. Discharges could be
from leaks in the well casing or from disposal of chemical substances used in
drilling operations.
25. Many of the potential
environmental effects of oil exploration, including drilling, can be adequately
managed through processes that ensure well integrity and use appropriate
disposal of hazardous substances. Public notification is an important aspect
of ensuring that such activities are managed robustly. Notification,
submissions and a hearing allow independent experts to assess drilling
proposals and whether they have adequate operational procedures, risk reduction
plans and spill response capacity. It would also enhance integration of EEZ
Act processes and RMA processes for the coastal marine area where proposed
activities are close to the 12 nautical mile boundary. The cost reduction
benefits for applicants do not appear to justify the exclusion of public
participation in the approval process.
Consideration
Local
Board Views
26. Local boards
were notified of the draft regulations in late December 2013 and a draft of the
submission was circulated mid-January. An update on any responses from the
local boards will be provided at the Governing Body meeting.
27. The Waitakere
Ranges Local Board wrote to the Minister of Energy and Resources in response to
the Crown Minerals Act Block Offer 2014 consultation process in October
2013. This direct letter to the Minister occurred because the submission
period coincided with the local government elections. There was not sufficient
time to obtain and incorporate local board views in the council’s submission.
The board’s letter opposed any offshore oil exploration off the
west coast of Auckland and highlighted the values of the Waitakere Ranges
coastline that would be affected by an oil spill. These points have been
reflected in the attached draft submission on the draft EEZ
regulations.
Māori
Impact Statement
28. Feedback has
been sought from local iwi on the classification of exploratory drilling in the
EEZ in response to both the September 2013 discussion document and the draft
regulations.
29. In September,
responses were received from Te Rūnanga o Ngāti Whātua and Te
Kawerau Iwi Tribal Authority. They both supported the council position that
exploratory drilling should be a notified activity given the level of public
interest and concern in this activity. Ngatiwai Trust Board advised the
council that they were making a submission on the Government’s proposals.
Ngatiwai did not support the use of non-notified discretionary classification
and sought greater iwi and public input into the process.
30. In response to
the current process, Te Rūnanga o Ngāti Whātua repeated their
agreement that exploratory drilling in the EEZ should be a notified
activity. Support for the council’s draft position was also received from
Waikato Tainui. If any other responses are received from iwi, they will
be reported at the Governing Body meeting.
General
31. There has been
significant public and media interest in the proposals for oil and gas
exploration around New Zealand.
Implementation
Issues
32. The submission period
for the draft regulations closes on 31 January 2014.
Attachments
|
No.
|
Title
|
Page
|
|
aView
|
Draft Auckland Council submission on
the consultation draft of proposed regulations for exploratory oil and gas
drilling under the EEZ Act.
|
13
|
Signatories
|
Author
|
Kath Coombes - Principal Specialist Coastal
|
|
Authorisers
|
Ludo Campbell-Reid - Environmental Strategy &
Policy Manager
Roger Blakeley - Chief Planning Officer
Stephen Town - Chief Executive
|
|
Governing Body
30 January
2014
|
|
DRAFT
Submission to the
Ministry for the Environment
on the
Consultation draft of
proposed
regulations for exploratory oil and gas drilling under the EEZ Act
31 January
2014
Introduction
1. This
is the Auckland Council’s submission on the consultation draft of the Exclusive
Economic Zone and Continental Shelf (Environmental Effects – Non-notified
Activities) Regulations 2013.
2. This
submission has been approved by the governing body of Auckland Council.
3. Please
direct any enquiries to Dr Roger Blakeley, Chief Planning Officer – phone 09
307 6063 or email roger.blakeley@aucklandcouncil.govt.nz
4. Auckland
Council thanks the Ministry for the opportunity to make a submission on the
draft regulations. We have a strong interest in developments in this area due
to our local communities’ concerns and the linkages with our regulatory
functions under the RMA for the coastal marine area.
5. Auckland
Council is the unitary authority for Auckland, a region containing a third of
New Zealand’s population. Auckland has a significant amount of coastal marine
area (11,000 km2) which is highly valued by the region’s people.
6. The
council would like to express concern regarding the timing of this
consultation. The draft regulations were received on 12 December 2013 with
submissions closing on 31 January 2014. Scheduling the submission period over
the Christmas holiday period meant it was not possible to report to the usual
council committee and local board meetings. Consultation with iwi, councillors
and local board members has been constrained by this time frame.
General comments
7. Auckland
Council understands that there are potential oil and gas reservoirs within and
adjacent to Auckland’s west coast coastal marine area. The Block Offer 2014
offshore areas in the Reinga Northland Basin, New Caledonia Basin and Offshore
Taranaki Basin cover much of the EEZ and coastal marine area to the west of our
region.
8. Exploration
and production of these resources could bring significant economic benefits to
Auckland, as it has done in Taranaki. The Manukau and Kaipara harbours could
become support bases for exploration activities off the west coast.
9. There
are, however, significant risks from offshore oil and gas exploration,
particularly during well drilling operations. While the probability is low,
the consequences of any incident or oil spill from exploratory drilling
activities could have significant adverse impacts on extensive areas of the EEZ
and the coastal marine area. Any well blowout or other major oil spill would
have large and ongoing clean-up costs. Routine exploration activities also
have lower level risks such as disturbance of seabed sediments and benthic
communities, effects on marine mammals, and water quality impacts from
discharges. Cumulative low level effects from multiple wells could have
significant effects.
10. It
is important that the exploration drilling is regulated and managed so that the
environmental risks are minimised. This includes allowing for public input to
appropriate permitting processes.
Council position
11. Auckland
Council does not support the classification of exploratory drilling as a
non-notified discretionary activity. We seek that the draft regulations be
amended to classify exploratory drilling as a notified discretionary activity.
12. In
September 2013 Auckland Council made a submission to MfE on the discussion
document regarding activity classifications under the EEZ Act. That submission
stated that the council did not support the proposed classification of exploratory
drilling as a non-notified activity. That proposal has been carried through to
the draft regulations.
13. The
supporting information for the draft regulations provides a greater level of
analysis on the regulation of exploratory drilling and provides responses to
the key points raised in the earlier submissions[1].
Following assessment of this additional information, the council’s position
remains the same.
Iwi and local board views
14. Auckland
Council sought feedback from local iwi on the classification of exploratory
drilling in the EEZ.
15. In
the September 2013 process, responses were received from Te Rūnanga o
Ngāti Whātua and Te Kawerau Iwi Tribal Authority. They both supported the council position
that exploratory drilling should be a notified activity given the level of
public interest and concern over this activity. Ngatiwai Trust Board advised
the council that they were making a submission on the Government’s proposals.
Ngatiwai did not support the use of non-notified discretionary classification
and sought greater iwi and public input into the process.
16. Feedback
from iwi was again sought in response to the draft regulations. Support for
the council’s position was received from Waikato Tainui. [insert any other iwi responses here]
17. Input was also sought from Auckland’s 21 local boards. [insert responses here]
Notification is justified by the
environmental risks of drilling
18. Exploratory
drilling has environmental risks that should be managed with the input of
public submissions.
19. Relying
on an EPA assessment has insufficient certainty regarding how risks associated
with deep sea drilling would be assessed and managed. The consent process
needs to include a robust assessment of the information provided and ensure
that there is adequate monitoring and auditing of compliance with consent
conditions, and of an operator’s ability to respond to an oil spill.
20. Notification
would allow councils and the public to review the operators’ impact assessments
and to make submissions on what appropriate conditions for consent are
necessary for the activity to go ahead safely. Notification allows independent
experts to cross-check an applicant’s track record and to bring expert evidence
on the adequacy of proposed oil spill mitigation measures. It would also
provide transparency on the extent of exploratory drilling taking place in the
EEZ.
21. The
supporting information for the draft regulations recognises that there is a
risk of oil spills from exploration drilling and states that the probability of
a significant oil spill incident resulting from a loss of well control in deep
water is low[2].
Such an event would require the alignment of geophysical and operational
circumstances that are unlikely but not impossible. Public input to the
permitting process would help to ensure that there is an ongoing improvement
process that ensures these circumstances continue to be unlikely.
22. The
council agrees that the probability of a significant event is low but considers
that the potentially significant consequences of such an event justify a
notification requirement. Deep water drilling is a relatively rare operation
in New Zealand and there is limited New Zealand based expertise in managing
such activities. The geology and ecology of the EEZ has a relatively low level
of assessment and significant sites may not be known to the EPA. A blowout or
large oil spill could impact on large areas of the EEZ, coastal marine area and
coastlines. The cost of any restrictions on fishing and tourism dependent on
our coastal waters, and of clean-up operations, would outweigh the economic
benefits of an exploration operation. Any major spill is likely to have delays
before it can be fully contained. Marine wildlife, including marine mammals
and seabirds, would be affected.
23. If
such a spill reached Auckland’s west coast, it would affect a highly sensitive
ecological area that has high landscape, recreational and cultural values.
This coast has breeding areas for several seabird species and is home to the
endangered Maui’s dolphin and New Zealand fairy tern. The importance of the
area has been recognised in the Waitakere Ranges Heritage Area Act 2008. It
would also be very difficult for response services to access this coastline due
to the limited roading network and the high energy, rugged cliff nature of the
coast. Dealing with an oil spill and bird rescue operation in this area would
be highly problematic if not impossible.
24. A
high reliance appears to be placed on oil spill prevention, contingency
planning and response being managed under other legislation (the Maritime
Transport Act, the Marine Protection Rules and the Health and Safety in
Employment (Petroleum Exploration and Extraction) Regulations) rather than the
EEZ Act. This diminishes the EEZ Act’s role in ensuring the environmental
effects of activities are considered and managed. If a regulator is focused on
protecting human health and safety, it may allow oil spill responses that have
unforeseen environmental effects.
25. The
proposed approach makes a major distinction between exploration and production
drilling. Any application for a production well will be a notified
discretionary activity. The supporting information for the draft regulations
states that this distinction is justified as exploratory drilling rigs are in
place for only a single season whereas production wells may operate for decades
and may have additional support structures and pipelines back to shore with
routine discharges over many years[3].
26. We
consider that exploratory and production wells should both be notified
activities. Both have a level of environmental risk that should be open to
public assessment. Exploration wells may later be converted to production
wells and any site-specific issues will need to be assessed at the exploration
stage.
27. The
supporting information notes that some other countries have moved away from
highly prescriptive regulatory regimes and put the onus on operators to manage
the risks associated with an oil spill[4].
This is generally because those countries have a well developed set of standard
conditions that must be met by applicants wishing to ‘streamline’ their
applications. New Zealand should allow for non-notified exploration only when
standard controls are developed, publicly reviewed and implemented first.
Following recent events such as the Deepwater Horizon well blowout in the Gulf
of Mexico and the Rena grounding near Tauranga, it is appropriate that a more
precautionary approach is taken.
28. The
draft regulations do not specify the number or size of exploratory wells or the
length of time allowed for exploratory drilling to be undertaken as a
non-notified activity. The only condition is that the geographical area
covered by the application is the same as that covered by an exploration permit
held by the applicant under the Crown Minerals Act. Such permits can cover
areas of 10,000 km2 in some areas[5].
Operators could be granted a permit for an undefined number of wells in an area
unless the EPA decides to impose a limit on the number of wells in the consent
conditions. Even if a maximum number of wells is specified, this approach
could allow large scale activities with cumulative effects as a non-notified
activity if multiple appraisal wells are drilled in the permit area.
Notification ensures integration with
council processes under the RMA
29. The
new non-notified classification could result in a lack of integration between
the RMA and EEZ Act processes. The proposed non-notified discretionary
classification would exclude involvement of regional councils and unitary
authorities in the consent process. This means Auckland Council could be
unaware of the full scope of activities in the EEZ, even if the proposal was
adjacent to the territorial sea boundary or could impact on Auckland’s coastal
marine area. Councils could approve activities in the coastal marine area
under the RMA without knowing that exploration had been approved in the
adjacent EEZ. Management should be integrated across the 12nm border.
30. The
recently notified Proposed Auckland Unitary Plan continues the approach of the
operative Auckland Regional Plan: Coastal with regard to mineral exploration
and extraction activities in the coastal marine area. In terms of disturbance
of the seabed under RMA section 12(1)(c), exploration is a permitted activity
provided various size and area controls are met[6].
Well drilling activities would generally exceed these controls; meaning they
are a restricted discretionary activity. Oil and gas wells would be classified
as a discretionary activity in terms of their construction and occupation by a
structure and related discharges. Such consents are generally ‘bundled’
together in RMA processes and so would be treated as a discretionary activity
as a whole.
Benefits of non-notification not sufficiently
demonstrated
31. The
supporting information notes that petroleum operators have requested a
non-notified classification to give them greater certainty of timeframes for
arranging drilling operations, and that they consider that it imposes high costs
on the industry without achieving any environmental benefit[7]. Under the non-notified
application process, the EPA would have 60 working days to assess the
application and make a decision on whether to grant the consent, to impose
conditions on the consent, or to decline the consent. A notified application
process could take an additional 80 working days and has the potential to be
appealed to the High Court by a submitter.
32. We
acknowledge that petroleum exploration is an expensive activity and that
development of a new field could have significant economic benefits for New
Zealand. However, it is expected that such operations will take years to go
through the relevant research, planning and development of measures necessary
to meet all the regulatory requirements[8].
The difference in processing time does not appear to justify the exclusion of
public participation in the permitting process.
Clarity regarding suspended wells,
abandoned wells and appraisal wells
33. Temporarily
suspended wells[9]
have not been included in the definition of exploration drilling in the draft
regulations. The supporting information states that this will be reviewed in
2014 after further information is compiled on the probability of significant
environmental effects relating to such wells[10].
34. We
consider that the regulations need to be clear on the status of suspended
wells.
35. Once
an exploration well is drilled and tested it has three options: either plugged
and abandoned, suspended for later use as a production well, or converted
straight to a production well.
36. The
statement in the definition of exploration drilling that it ‘does not include
the drilling of wells that may be used for production’ appears to exclude both
suspending a well and drilling an exploration well that may become a production
well. It appears that a non-notified consent can only be applied for if a
company commits to plug and abandon the well from the outset. This approach
does not enable efficient exploration or economic benefits. It also seems
inefficient to require an applicant who finds a viable resource but wants to
suspend the well, to apply for a second non-notified consent to suspend the
well while they obtain financing and apply for production permits.
37. Confusion
is also created by the inclusion of ‘capping a well’ in regulation 5(2) for
related activities that will also be non-notified. This could be interpreted
to include both a temporary cap and permanent capping and abandonment of the
well.
38. We
request clarification on the status of ‘end of life’ activities covered by the
non-notified consent. This should include the specification of the status of
suspended wells and amendment to the use of ‘capping a well’ in the definition
of exploration drilling.
39. There
is a minor inconsistency between the draft regulations and the supporting
information regarding the status of appraisal wells. Regulation 5(2) includes
a list of activities that is the same as the activities listed on page 12 of
the supporting information but does not include the bullet point ‘drilling an
exploration well in a single permit area and any subsequent appraisal wells’.
The list in regulation 5(2) should include ‘drilling’. The definition of
‘exploration drilling for petroleum’ covers appraisal wells by including both
drilling for identifying petroleum deposits and for evaluating the feasibility
of mining particular deposits.
Summary of changes sought
40. Auckland
Council seeks that the following changes be made to the draft regulations for
exploratory oil and gas drilling under the EEZ Act:
a) Amend
draft regulation 5(1) so that exploratory drilling is classified as a notified
discretionary activity.
b) Clarify
whether suspended wells are included in the definition of exploration drilling
or require a notified consent.
c) Amend
the definition of exploration drilling as follows ‘(c) does not include the
drilling of production wells or the use of wells for production
subsequent to exploration that may be used for production.
d) Amend
draft regulation 5(2) to replace ‘capping a well’ with ‘plugging and abandoning
a well’.
e) Include
‘drilling’ in the list of activities in regulation 5(2).
|
Governing Body
30 January
2014
|
|
Auckland Airport Capital Return
File No.:
CP2014/00396
Purpose
1. To provide
information on the proposed return of capital by Auckland International Airport
Limited (AIAL) and direct Auckland Council Investments Limited (ACIL) to vote
Auckland Council’s shareholding in favour of the capital return.
Executive
Summary
2. Council is
AIAL’s largest shareholder with a 22.37 per cent shareholding valued at
approximately $1.05 billion. The shareholding is held by ACIL and governed by
the Auckland Airport Shareholding Policy.
3. AIAL has
proposed a capital return to shareholders that requires approval by 75 per cent
or more of shareholders in February 2014 and then High Court approval. The
proposed capital return is due to the very strong operating performance of AIAL
which has resulted in a less than optimal capital structure.
4. If the capital
return proceeds, Council will receive $101.5 million of cash in April 2014
which is $83.9 million higher than budget.
5. The capital
return will be on an equal basis to all shareholders so Council will retain its
same proportionate shareholding.
6. Officers
recommend ACIL be directed to vote in favour of the capital return. A separate
report outlining the most appropriate use of proceeds will be tabled at a
subsequent Governing Body or Finance and Performance Committee meeting.
|
Recommendation/s
That the Governing Body:
a) direct
Auckland Council Investments Limited to vote Auckland Council’s shareholding
in favour of the proposed capital return by Auckland International Airport
Limited.
b) note that if
the capital return proceeds, a separate report outlining options for the use of
the proceeds will be received by either the Governing Body or Finance and
Performance Committee by April 2014.
|
Discussion
7. Auckland
Council owns 295,921,014 shares or 22.37 per cent of AIAL, with a current
market value of $1.051 billion.
8. The shares are
held on behalf of Council by ACIL.
9. The Auckland Airport
Shareholding Policy (attached as Attachment A) outlines Councils strategy for
managing the investment in AIAL.
10. On 28 November
2013, AIAL announced a proposal to return $454 million of capital to
shareholders by way of a Court approved arrangement resulting in cancellation
of one in every 10 shares with shareholders receiving $3.43 for each cancelled
share, being the share price on 27 November 2013.
11. A shareholders
meeting is scheduled for mid February 2014 to vote on the proposal. If the
proposal is approved by 75 per cent of more of voting shareholders, then High
Court approval will be sought in March 2014. The capital return payment
will coincide with the expected timing of the 2014 interim dividend in April
2014. Therefore, there will be no interim dividend but a final dividend is
expected in October 2014.
12. If the capital
return proceeds, Auckland Council will receive a payment of approximately
$101.5 million in April 2014, with 40 per cent of the payment as a capital
return for tax purposes and the remaining 60 per cent treated as a taxable
dividend fully imputed at a 28 per cent tax rate. Council had forecast to
receive an interim dividend of $17.6 million so the additional proceeds will be
$83.9 million.
13. AIAL’s recent strong financial
performance has resulted in the company currently having a less than optimal
capital structure with a higher level of equity and a lower level of debt than
desired. The capital return will be funded by AIAL issuing long-term debt as
the AIAL Board believes that their balance sheet can accommodate the extra
debt. Council officers support this view, noting that while the additional debt
will increase financial risk, the company remains conservatively geared as
shown below.
|
|
June 2009
|
June 2010
|
June 2011
|
June 2012
|
June 2013
|
|
Market Capitalisation ($m)
|
$1,972
|
$2,450
|
$2,935
|
$3,240
|
$3,927
|
|
Debt ($m)
|
$1,077
|
$1,092
|
$1,085
|
$1,109
|
$1,142
|
|
Enterprise Value ($m)
|
$3,049
|
$3,542
|
$4,020
|
$4,349
|
$5,069
|
|
Debt to Enterprise Value ($m)
|
35.7%
|
31.1%
|
27.2%
|
25.8%
|
22.8%
|
14. Should the capital return proceed
then the impact on AIAL is as follows (based upon November 2013 data)
|
|
Pre capital return
|
Post capital return
|
|
Market Capitalisation ($m)
|
$4,537
|
$4,083
|
|
Debt ($m)
|
$1,142
|
$1,596
|
|
Enterprise Value ($m)
|
$5,679
|
$5,679
|
|
Debt to Enterprise Value ($m)
|
20.1%
|
28.1%
|
15. The current AIAL dividend policy
to pay 100 per cent of underlying net profit after tax will remain. The
additional long-term debt will lead to an increase in AIAL’s interest expense.
While this may modestly reduce future dividends paid by AIAL, a more efficient
capital structure may lead to an increase in the value of Council’s
shareholding.
16. Voting in favour of the proposal
(and assuming other shareholders vote accordingly) will result in a higher than
budgeted cash receipt to Council in 2014 which could be utilised for repayment
of debt and / or reinvestment into other assets or parts of the Council Group.
Note that if the capital return proceeds, a report to Governing Body or the
Finance and Performance Committee, outlining alternative uses of the proceeds
will be tabled by April 2014. Council’s shareholding in AIAL will remain at the
22.37 per cent level with no change in Council’s proportionate shareholding or
voting rights but the value of the investment decreases by approximately $84
million. However, long term returns from AIAL should improve as a result of the
company having a more efficient balance sheet.
17. Voting against the proposal would
result in Council receiving a dividend payment in April 2014 in line with
budget and the value of Councils investment would remain unchanged. However,
the long term return to Council from its AIAL shareholding comprising dividends
and capital gain may not be maximised as a result of a less than optimal
capital structure.
18. Officers recommend Council
directs ACIL to vote in favour of the capital return to ensure that AIAL
operates in the most efficient manner possible in order to maximise our total
return on our shareholding.
Consideration
Local
Board Views
19. Local Boards
have not been consulted on the proposed capital return.
Māori
Impact Statement
20. This report does
not raise any issues of significance or adverse impacts for Māori, nor does it
raise any issues that will be of benefit to Māori.
General
21. This report does
not involve decisions that will trigger the Council’s significance policy.
Implementation
Issues
22. Should the
capital return proposal be approved by 75 per cent of AIAL shareholders in
February 2014, then a report will be tabled to the Governing Body or Financial
and Performance Committee by April 2014, outlining alternative uses of the
proceeds.
Attachments
|
No.
|
Title
|
Page
|
|
aView
|
Auckland Airport Shareholding Policy
- Chapter 14 LTP 2012-22
|
25
|
Signatories
|
Authors
|
Mark Butcher - Treasurer
Catherine Syme - Principal Advisor, CCO Governance and
External Partnerships
|
|
Authorisers
|
Mark Butcher - Treasurer
Andrew McKenzie - Chief Finance Officer
Stephen Town - Chief Executive
|
|
Governing Body
30 January
2014
|
|
|
Governing Body
30 January
2014
|
|
Exclusion of the Public: Local Government Official
Information and Meetings Act 1987
That the Governing Body:
a) exclude the
public from the following part(s) of the proceedings of this meeting.
The general
subject of each matter to be considered while the public is excluded, the
reason for passing this resolution in relation to each matter, and the specific
grounds under section 48(1) of the Local Government Official Information and
Meetings Act 1987 for the passing of this resolution follows.
This
resolution is made in reliance on section 48(1)(a) of the Local Government Official
Information and Meetings Act 1987 and the particular interest or interests
protected by section 6 or section 7 of that Act which would be prejudiced by
the holding of the whole or relevant part of the proceedings of the meeting in
public, as follows:
C1 Further Appointments to Outside Organisations
|
Reason for passing this resolution in relation to each
matter
|
Particular interest(s) protected (where applicable)
|
Ground(s) under section 48(1) for the passing of this
resolution
|
|
The public conduct of the part of the meeting would be
likely to result in the disclosure of information for which good reason for
withholding exists under section 7.
|
s7(2)(a) - The withholding of the information is necessary
to protect the privacy of natural persons, including that of a deceased
person.
In particular, the report contains the names of potential
nominees.
|
s48(1)(a)
The public conduct of the part of the meeting would be
likely to result in the disclosure of information for which good reason for
withholding exists under section 7.
|
