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28 Jan 11
Changes proposed to the overlapping coal and coal seam gas tenure framework

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The Department of Employment, Economic Development and Innovation (DEEDI) has proposed changes to the framework for overlapping coal and coal seam gas (CSG) tenements in the draft Mines and Petroleum Legislation Amendment Bill 2011 (Qld) (Bill) and consultation paper released last week.

Queensland’s framework for overlapping coal and CSG tenements was introduced in 2004, at a time when there were no proposals for projects to develop CSG into liquefied natural gas (LNG). Now that there are several major CSG-LNG projects proposed in Queensland, the framework has been put to the test and both the LNG and coal industries have expressed concerns with its operation.

Long term supply for CSG-LNG projects

The Bill recognises that CSG-LNG projects are long term projects, where supply of CSG may be delayed for some time. A number of changes are proposed to address this unique situation.

Retention declaration areas for ATPs

The Bill proposes to introduce the concept of a ‘retention declaration area’ for authorities to prospect (ATP). 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 ATP holder to satisfy its relinquishment requirements without losing its acreage. It is proposed that current petroleum lease (PL) applicants will have three months to advise DEEDI that they wish to convert their PL application to a retention declaration application.

The introduction of retention declarations is intended to give ATP holders an option (other than, for example, submitting PL 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 PLs 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 PL, but does not intend to commence production, new requirements will apply.

Where there is an overlapping coal or oil shale exploration or production tenement, a PL 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 PLs for the long-term supply of CSG for processing into LNG for export.

PL application requirements

As PL applications impose obligations on overlapping tenement holders, the Bill seeks to rectify the current disconnect between the requirements for making a PL application and the requirements for grant, to ensure that DEEDI processes only those PL applications with the requisite level of detail. The Bill would require that a PL 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 PL application. These amendments would not apply to existing PL 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), and
  • 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 seeks submissions on the Bill and consultation paper by 5pm, 25 February 2011. A number of specific questions are posed by the consultation paper, but comments are sought on all aspects of the proposed amendments.

DEEDI’s target date for implementation of the amendments is 1 July 2011.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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