There is significant overlap in Queensland between permits for coal and petroleum exploration and production. The Queensland Department of Employment, Economic Development and Innovation (DEEDI) estimates the extent of the overlap in the three major Queensland coal basins to be:
Galilee Basin – approximately 30 per cent of the basin; Bowen Basin – approximately 50 per cent of the basin; Surat/Clarence Moreton Basin – approximately 25 per cent of the basin.
Current legislation
In 2004, the Queensland Government, via the introduction of the Petroleum and Gas (Production and Safety) Act 2004 and amendments to the Mineral Resources Act 1989, sought to enact a new policy for addressing overlapping tenure issues. This overlapping tenure regime – or the coal seam gas regime – still applies today.
The CSG regime created a “˜first-in, first-served’ policy in respect of overlapping tenure. The policy stated that coal and CSG proponents can explore the same area. However where activities come into conflict, priority is given to the party whose activities commenced first.
When an application for production tenure is made over an area subject to competing exploration tenure, the overlapping parties are encouraged to negotiate a co-ordination arrangement to facilitate the simultaneous development of both resources. If the parties cannot agree, the matter may be referred to the Minister for a preference decision.
When an application for production tenure is made over an area that falls within the boundaries of a competing production lease, the existing producer can veto the application.
Historically, the Queensland Government has relied upon industry participants to reach negotiated solutions to overlapping tenure issues.
The burgeoning CSG-to-LNG industry in Queensland has seen a large number of new applications for petroleum leases as a means to secure long-term tenure. Many of the petroleum lease applications have been made over coal exploration ground, and a number require lengthy delays to commencement of production (as a means to stage production over the life of the liquefaction plants).
While the degasification of coal seams would ordinarily represent a benefit to the future mining of coal, delays to production often mean that competing commercial imperatives lead to the breakdown of negotiations between the CSG and coal companies with respect to these applications for production tenure. A majority of competing applications are, as a result, referred to the Minister for determination of preference.
To date, the Minister has declined to make any preference decisions, leading to delays and uncertainty in tenure planning processes. Crucially, the current CSG regime does not impose timeframes for the making of a preference decision.
The proposed changes
DEEDI released the draft Mines and Petroleum Legislation Amendment Bill 2011 for comment in January, proposing a number of changes:
- The introduction of timeframes for ministerial preference decisions;
- Creation of a second type of declaration area (a “retention declaration”?) to preserve petroleum rights where production is delayed for commercial reasons;
- The removal of the ability of petroleum producers to obtain delayed production under a petroleum lease, unless the overlapping tenement holder has consented;
- The tightening of the application process for obtaining a petroleum lease (including the requirement to obtain independent certification of reserves) and increasing the powers of DEEDI to reject deficient applications; and,
- Imposing obligations on production tenement holders to provide reasons for refusing consent to coordination arrangements to encourage genuine negotiation.
The draft bill also seeks to mandate a series of negotiation principles designed to facilitate negotiations between overlapping coal and CSG tenure holders.
The target date for the commencement of the new CSG regime is 1 July 2011, although the consultation period in respect of the draft bill was extended until 18 April, making a 1 July 2011 start date unlikely.
The downside
Although proposed mandatory timeframes for preference decisions are welcomed across the affected industries, the Minister will still have the power to encourage tenure holders to reach private agreement by imposing lengthy negotiation periods.
Petroleum producers will also be required to obtain independent certification when making application for a petroleum lease, which will impose additional costs on petroleum companies.
Moving forward
The proposed new regime will have a significant strategic and administrative effect on CSG proponents which intend to move from exploration to production in the near future.
Petroleum producers would be well-placed to commence negotiations with overlapping tenement holders at a very early stage, as well as investing additional time and resources in preparing tenement applications.
CSG proponents and industry groups should also maintain an open dialogue with the Queensland Government and with DEEDI, as further reforms will likely be needed to respond to the many challenges of a growing industry.