TRACY BOWDEN, PRESENTER: Today was judgement day for one of Australia's worst environmental disasters: last year's explosion at the Montara exploration well off the Western Australian coast, which left oil leaking into the sea for more than two months.

The Federal Government released the long-awaited findings of the Montara commission of inquiry, completed back in June.

The report was damning of both the Northern Territory Department of Resources, which was responsible for regulating the rig, and the Thai-based operator PTTEP, which has other extensive oil production interests in Australia but now faces the possibility of losing its licence.

Business editor Greg Hoy reports.

MARTIN FERGUSON, RESOURCES MINISTER: Clearly the accident could have been avoided.

GREG HOY, REPORTER: Oil pressure has been building on the Federal Government since a blowout at the Montara rig on August 21st last year, which triggered an oil leak into the Timor Sea that would last two months, spewing a minimum 5,000 tonnes of oil into waters off the Kimberley Coast of north-western Australia. Then to compound that pressure, as investigations continued, in April the Deepwater Horizon tragedy erupted in the Gulf of Mexico, claiming 11 lives and opening a putrid oil leak 1,500 metres below sea level, calling into question the modus operandi of the world's increasingly adventurous oil industry and the commensurate hazards posed for the marine environment.

JESSICA MEEUWIG, CENTRE FOR MARINE FUTURES, UWA: I think it was a very timely reminder that no matter how well we think the oil and gas industry is functioning in our marine environment, that accidents do happen, and that we need to be in a very strong position to minimise the risk that they happen and to understand the impacts of them when they do happen.

GREG HOY: The Montara rig, under regulatory authority of the Northern Territory Department of Resources, was operated by the Thai oil giant PTTEP, which at the time expressed bewilderment as to how such an incident could have happened.

JOSE MARTINS, PTTEP AUSTRALASIA (Nov. 2009): The incident is regrettable. It's a very, very unfortunate and very unusual incident. One we not expected to recur again. The company continues to apply best practice to whatever it does.

GREG HOY: Investigators, however, reached a very different conclusion. In releasing the findings of the Montara commission of inquiry today together with its own draft response, the Federal Government was harsh in its comments on the Thai oil company's standards and scathing of how the responsible regulator in the region, the Northern Territory's Department of Resources, had carried out its supervisory responsibilities. As a combination, it was a failure, said the minister, at the heart of this matter.

MARTIN FERGUSON: Well-controlled practices approved by the regulator would have been sufficient to prevent the loss of well control. However, PTTEP Australasia did not adhere to these practices or its own well construction standards. That the Northern Territory Department of Resources was not a diligent regulator and its minimalist approach to its regulatory responsibilities gave it little chance of discovering these poor practices.

GREG HOY: PTTEP has other extensive interests in the Australian oil industry, including 21 exploration, production and retention licences. The minister says the company will now be asked to show cause as to why it should retain such licences.

A short time ago, PTTEP Australasia issued a written statement:"The company believes the issues highlighted in the report are being addressed through the comprehensive action currently being implemented - to ensure the incident which occurred at Montara is never repeated."

PTTEP itself is a number of the Oil Industry Association, the Australian petroleum production and exploration association which issued a statement suggesting, "The industry has not been sitting on its hands pending the release of the report and the Government's response ... Thorough reviews of industry practices and operations have been conducted by companies and APPEA has initiated and is facilitating a number of cross-industry initiatives."

GILLY LLEWELLYN, WORLD WILDLIFE FUND: There's lots of good things in this report. There's acknowledgement that the regulations need to be tightened, that we need to have more stringent oil spill preparedness plans, that the scientific monitoring needs to be done by the science and environment agencies and not involve the operator. And I think there's a clear acknowledgement that the operator was at fault and that the regulator was at fault and steps are being taken to address that.

GREG HOY: The Montara commission of inquiry headed by senior public servant David Borthwick reached no less than 100 findings and made 105 recommendations, of which the Government says it will only reject three, accepting there's a need to replace state regulators with a new national regulator.

MARTIN FERGUSON: On the question of a single national regulator, I have at this point support from industry to a large extent and all state and territory governments with the exception of Western Australia. This industry, I might say, is exceptionally important to Australia's economic future. At the moment, for example, in 2008-'09 the upstream oil and gas sector generated revenue of about $35.6 billion in Australia.

GREG HOY: It's a balancing act of environmental and economic values, but can environmentalists now breathe easy that adequate checks and balances will soon be in place?

JESSICA MEEUWIG: The key lesson is not whether it's a national or state-based regulator, but it's the quality of the compliance, it's the quality of work being done within those agencies that's important.

MARTIN FERGUSON: Look, I've got no intention of closing down the industry. We've got an ever-worsening trade situation in terms of our dependence on oil. We hope and pray that the regulatory environment we end up with prevents these accidents in the future. Well, we can only learn from the lessons and do everything possible. We also gotta understand in some instances it's not the regulatory framework, as is the case on this occasion; it's human failure.

GILLY LLEWELLYN: Whilst this report and its recommendations will go a long way to reduce the risk of another Montara incident happening again, the only way we can actually remove the risk is by setting aside areas that are free from industrial activity and that means going as far as recommending that we need marine sanctuaries for our marine environment.

TRACY BOWDEN: Business editor Greg Hoy.