Now that there are several major CSG-LNG projects proposed in Queensland, the Department of Employment, Economic Development and Innovation’s framework has been put to the test, with both the LNG and coal industries concerned with its operation.

Competing industries, competing concerns

To progress CSG-LNG projects, LNG proponents need guaranteed access to petroleum over the long term. Coal miners want to continue exploration and commence mining in the medium term, and are concerned that CSG extraction may sterilise coal reserves.

For example, if a petroleum company submits a petroleum lease application, the current regime gives it a “first mover advantage”. In this instance, coal miners with overlapping exploration tenements would need to take steps under the overlapping tenement regime and ultimately negotiate a coordination arrangement with the petroleum company if seeking to commence mining activities.

In an attempt to balance the concerns of the two industries, the Queensland government has published proposed changes to the framework for overlapping tenements in the draft Mines and Petroleum Legislation Amendment Bill 2011 and consultation paper, released in January.

The bill proposes a number of alternatives to the first-mover advantage strategy, presenting some new options for petroleum proponents to avoid relinquishment without entirely sterilising coal mining access to the area.

Retention declaration areas for ATPs

The bill proposes to introduce the concept of a “retention declaration area” for authorities to prospect. Under the current regime, ATP holders are generally required to periodically relinquish a portion of their tenement as an incentive to further define resources.

Where reserves and resources within an ATP are required to underpin long-term supply for a CSG-LNG project, the bill would allow an ATP holder to seek a retention declaration which would enable the holder to satisfy its relinquishment requirements without losing its acreage.

It is proposed that current petroleum lease applicants will have three months to advise DEEDI that they wish to convert their petroleum lease application to a retention declaration application.

The introduction of retention declarations is intended to give ATP holders an option (other than, for example, submitting petroleum lease applications) to retain their tenement area in circumstances where production is not intended to commence before relinquishment requirements would ordinarily apply. Retention declarations will remain subject to the overlapping tenement regime.

Grant of petroleum leases for CSG-LNG projects

Retention declarations are intended as the primary means for LNG proponents to retain tenure for long-term CSG-LNG projects. If, however, an LNG proponent still wishes to obtain a petroleum lease, but does not intend to commence production expeditiously, new requirements will apply.

Where there is an overlapping coal or oil shale exploration or production tenement, a petroleum lease for delayed production to support a CSG-LNG project will only be granted if it is made jointly with the overlapping holder, with their written consent, or if a coordination arrangement is in place.

Importantly, the consultation paper states that this is only intended to apply where production is to be delayed, but the bill’s definition of “CSG-LNG project” means that this requirement would apply to any petroleum leases for the long-term supply of CSG for processing into LNG for export.

Petroleum lease application requirements

As petroleum lease applications impose obligations on overlapping tenement holders, the bill seeks to rectify the current disconnect between the requirements for making a petroleum lease application and the requirements for grant, to ensure that DEEDI processes only those petroleum lease applications with the requisite level of detail.

The bill would require that a petroleum lease application includes information to satisfy the requirements for grant and independently certified evidence of the resources and reserves of petroleum in the area. The bill would also give DEEDI the express power to reject a deficient petroleum lease application. These amendments would not apply to existing petroleum lease applications.

Timelines for ministerial preference decisions

The legislation currently includes provision for a ministerial preference decision in favour of either coal or petroleum development where overlapping tenement holders and applicants cannot reach agreement. To date, no preference decisions have been made, and uncertainty about this process is common to both coal and petroleum players.

The bill proposes to include a timeframe and clearer process for preference decisions, which would include:

• Clarification that it is the overlapping explorer (not the production lease applicant) who initiates the process
• Two triggers for requesting a preference decision – at six months following the closure of the period for submissions on the application, or at 18 months if the parties agree to continue negotiating a coordination arrangement or testing arrangement (or if the minister directs these negotiations to continue)
• A timeframe for the preference decision to progress once these triggers and conditions are met – referral to the Land Court within three months and a decision by the minister within six months of receiving the Land Court’s recommendation.

Justification of refusal to allow exploration activities

Currently, the legislation allows a production lease holder (whether coal or petroleum) to refuse to give consent to exploration under an overlapping exploration tenement for the alternative resource. In an attempt to ensure that consent is only refused on genuine grounds, the bill would require the production lease holder to provide a statement justifying the refusal and to give a copy to DEEDI.

Submissions to DEEDI

DEEDI is seeking submissions on the bill and consultation paper by 5pm, February 25, 2011, with a target date for implementation of the amendments of July 1, 2011.

Balancing the needs of these two important industries is vital to Queensland’s economic growth, and industry participants are urged to express their views on this proposed legislative change.

Tim Hanmore may be contacted on (07) 3233 8955 or via email at thanmore@mccullough.com.au; Sarah McBratney may be contacted on (07) 3233 8907 or via email at smcbratney@mccullough.com.au.