The Petroleum and Gas (Production and Safety) Act 2004 and the Petroleum and Other Legislation Ammendment Act 2004 for Queensland was announced last week to quell any conflict and confusion that may arise when coal and coal seam gas (CSG) exploration and production activities occur in the same area.
The Acts, which will be enforceable from January next year, recognise the emerging role of the CSG sector in Queensland.
Acting as the voice of coal seam gas industry participants – including the coal and petroleum industries – has been the Australian Coal Seam Gas Council formed in February last year. The council has in excess of 30 members, including AGL, Anglo Coal Australia, Arrow Energy, BHP Billiton, CH4 and Queensland Gas Company.
Council secretary Martin Klapper said the Acts went a long way towards clarifying the rights of coal and CSG explorers and producers, especially compared to its predecessor, the Petroleum Act 1923, which was regarded by industry as inadequate to deal with the complex issues of when coal and CSG tenements overlap.
“It is now clear that, where different companies seek to explore for CSG and coal in the same area, the exploration activities can proceed but the second activity to commence must not interfere with the first,” Klapper said.
“In general terms, production rights prevail over exploration rights. So, for example, if a coal explorer wishes to explore in an area covered by a CSG production lease, it may exercise its rights to explore only with the consent of the CSG producer, and vice-versa.
“Where the potential producer of one commodity (coal or CSG) wished to obtain a production lease in the area of a tenement for the other commodity (CSG or coal), that conflicting production lease can be granted only if the coal and CSG producers have first entered into a coordination arrangement.”
Klapper said it did not appear the legislation favoured one party over another, however feedback from both coal and CSG producers indicated in different ways, each party believed the legislation favoured the other.
He said of particular concern to CSG explorers and producers were the rights given to coal producers to commercialise incidental CSG and to obtain petroleum leases to do so. One petroleum lease cannot be granted over the top of another. If a coal mining lease holder gains a petroleum lease to commerialise incidental CSG, CSG explorers and producers believe it sterilises the ground because it is not possible for the CSG producer to later apply for a lease.
“The State’s policy response is that this is a matter for the coal and CSG producers to sort out amongst themselves, by agreement. For example, the Petroleum and Gas Act permits the subleasing of PL’s where a coordination arrangement is made,” Klapper said.
He said some CSG producers have raised concerns these arrangements place more power than is appropriate in the hands of the coal producer.
Coal explorers and producers are naturally concerned CSG petroleum leases might be granted for areas that are prospective for coal, before the coal explorer is ready to apply for a coal mining lease. This concern is alleviated to an extent by preference decisions.
“If a CSG producer applies for a CSG petroleum lease over an area that has commercial potential for coal production, the minister is required before granting the lease to make a preference decision about whether coal or CSG should be developed first.”
If the decision is for the CSG to be developed first, then the lease can be granted and a subsequent coal mining lease cannot be granted except under a coordination arrangement reached voluntarily by the coal and CSG producer.
“The reason why this outcome is of concern to some coal producers is that there is no deadlock breaking mechanism if the coal and CSG producers cannot reach agreement.”
If the preference decision goes to the coal producer then it is given the right to make a mining lease application within a given period, and if fails to do so then it loses the preference and the CSG petroleum lease can be granted.
“In my view it would not be fair to say that the legislation particularly favours either coal or CSG over the other. The Acts are, extremely complex and impose a significant administrative burden and compliance cost on coal and CSG explorers and producers.”
Klapper said a significant concern to both parties was the government’s ability to cope with its role in all of the new processes and procedures the Acts create.
“Ministerial or other approvals will be required in a large number of circumstances, many of which impact on existing operation and most of which are time sensitive.
“The fact the Acts do not in any of these circumstances impose a time limitation on the making of a decision exacerbates the industries’ concerns. So far the government has given no indication of its plans to properly resource the Queensland Department of Natural Resources and Mines to meet the requirements of these new Acts.”
CSG producers have also raised concern over proposed provision on development plans for petroleum leases. Production under a petroleum lease cannot occur except in accordance with a development plan approved by the minister.
Industry is concerned the minister may place restrictions on authorised activities under the lease, affecting CSG producers certainty to meet supply contracts, raise capital and develop assets. As development plans are made for limited periods (maximum five years), and must in any case be replaced when a petroleum lease in renewed, considerable uncertainty results from the exercise of ministerial discretion.
