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Focus: Queensland's coal and CSG overlapping tenure regime getting a makeover

1 May 2014

In brief: The Queensland Government has released proposed changes to the legislative framework for regulating overlapping coal and coal seam gas tenure, which has been a vexed issue since the emergence of the coal seam gas industry in Queensland. The changes principally reflect the industry proposal in the Queensland Resources Council's 2012 White Paper, including permitting grants of overlapping production tenements and providing a statutory right of way for coal development (albeit conditional on certain requirements). It also includes transitional arrangements, such that the existing regime will continue to apply to numerous existing coal and coal seam gas projects. Partner Ben Zillmann (view CV) and Senior Associate John Hedge comment on the proposed changes.

How does it affect you?

For holders of Queensland coal and coal seam gas (CSG) tenure:

  • Where there is an overlap with a currently existing coal mining lease or petroleum lease, the existing overlapping tenement regime will be preserved, continuing existing production tenure holder's effective veto rights over the grant of later overlapping production tenure applications and preserving the effect of coordination arrangements overlapping production tenure holders have entered into under the existing regime.
  • Where there is an existing (but undecided) application for coal or CSG production tenure overlapping existing exploration tenure for the other resource, the new framework is generally proposed to apply (with some limited exceptions).
  • Where there are concurrent applications for overlapping coal and CSG production tenure, while not fully reflected in the draft legislation, the new framework is generally proposed to apply (with some limited exceptions), with applications being processed concurrently (without priority being given to the earlier application).
  • For all other circumstances involving the application for overlapping tenements post-commencement, the new framework is proposed to apply.
  • Where the new framework applies, both the coal and CSG tenure holders or applicants will be able to be granted production tenure, subject to the coal mining lease holder having a statutory 'right of way'.

Foundation principles for the new framework

The proposed legislative framework1 principally reflects the industry compromise proposed by the Queensland Resources Council's May 2012 paper, Maximising Utilisation of Queensland's Coal and Coal Seam Gas Resources – A New Approach to Overlapping Tenure in Queensland (the White Paper), which was the output of a joint working group consisting of representatives of the coal and CSG industries.

In particular, it seeks to reflect the following four foundation principles derived from the White Paper:

  • A 'direct path' to grant of overlapping coal and CSG production tenure, without the existing requirements for consent of the existing production tenure holder or Ministerial preference decisions to determine priorities for competing coal and CSG production tenure applications (noting that in the nine years the existing regime has been in place, there has never, in fact, been a preference decision made by the Minister).
  • An overriding 'right of way' for the development of coal resources, giving the coal mining lease holder sole rights of occupancy to a rolling mining envelope area subject to minimum notice periods to the petroleum tenure holder, confirmation requirements, compensation for lost CSG production and impacts on certain existing gas infrastructure and first rights of refusal for petroleum tenure holders in respect of incidental CSG in the overlap area.
  • Obligations for overlapping tenure holders to exchange information reasonably necessary to allow them to optimise the development, and use, of the resources in the overlap area (at both the exploration and production stages).
  • Flexibility for the holders of overlapping tenures to enter into different 'bespoke' arrangements outside the legislative framework, although this principle has arguably not been clearly incorporated into the current draft of the proposed legislation.

When does the new framework apply?

As a general position, the new framework is proposed to apply to existing and future exploration tenures (that is, exploration permits for coal, mineral development licences for coal, or authorities to prospect for petroleum).

However, transitional arrangements have been included to reflect the position proposed in the White Paper. In respect of production tenure applications that have been made but not decided at the time of commencement, (and where no industry consensus was reached in the White Paper) the State Government is consulting on a proposal that the new framework apply except in two specified circumstances (outlined below).

The circumstances in which it is proposed the existing arrangements are retained, or in which the new framework will apply, are summarised below.

Tenure status Result proposed

Existing production tenure (ie a mining lease or petroleum lease)

Existing position under legislation retained. That is, an overlapping tenure can only be granted over the existing production tenure with the consent of the existing production tenure holder.

Existing (but undecided) production tenure application overlapping existing exploration tenure

New framework, except for retaining the existing arrangements in the following circumstances:

  • where applicant for production tenure has received EIS approval; or
  • where production tenure project has been declared a coordinated project.

Concurrent overlapping production tenure applications

New framework, except for retaining the existing arrangements in the following circumstances:

  • where applicant for production tenure has received EIS approval; or
  • where production tenure project has been declared a coordinated project.

Both applications to be progressed concurrently.

Existing overlapping exploration tenure (with any application for production tenure occurring post-commencement)

New framework.


In addition, there is a specific 'Surat Basin Transition Area' (to be defined by regulations) which increases the advance notice period for coal mining lease holders' rights of way in certain circumstances (as outlined further below).

Where the new framework applies, how does the statutory right of way for coal development work?

The proposed statutory right of way will give coal mining lease holders a right to sole occupancy of areas within an 'initial mining area' (IMA) and subsequent 'rolling mining area' (RMA) based on the provision of a period of advance notice of mining commencement within the relevant area.
The standard advance notice period is proposed to be:

  • For an IMA, 11 years where the overlap is with a petroleum lease and 18 months where there is overlap with an authority to prospect;
  • For the first RMA, 10 years after the mining commencement date under an IMA; and
  • For each subsequent RMA, at least one year after the mining commencement date under the immediately preceding RMA.

However, those standard advance notice periods are subject to the potential for requests by the coal mining lease holder for acceleration (shortening the period in return for compensation being paid to the petroleum lease holder) or requests by the petroleum tenure holder for an extension of the notice period (by up to five years) for exceptional circumstances.

This is varied in the 'Surat Basin Transition Area', in which advance notice of the mining commencement date for an IMA and any subsequent RMA must not be less than 16 years where a coal mining lease application is made after the commencement of the new framework over any petroleum lease granted after commencement but not later than 31 December 2016 (with no right to seek acceleration or an extension of that period for special circumstances).

The joint development plan to be agreed (or resolved by arbitration failing agreement) between the overlapping coal and CSG tenure holders will specify the IMA and each RMA (as well as the 'simultaneous operations zone').

The underlying rationale for this regime is to promote CSG producers extracting the CSG in advance of the coal mining envelope, so as to maximise the recovery of both the CSG and coal resource.

Other key principles of the new framework

The other key principles forming part of the new framework include obligations to:

  • Mandatory conditions on overlapping tenure holders, including:
    • notifying grants of exploration tenure to overlapping applicants for, or existing holders of, tenure;
    • notifying the start of particular authorised activities;
    • complying with the agreed joint development plan; and
    • complying with the agreed joint safety and health management plan.
  • Ministerial powers to:
    • impose conditions on tenure for overlap areas (at any time during their term, not just on renewal) that the Minister considers appropriate to optimise the development and use of the State's coal and petroleum resources or to ensure safe and efficient mining in the overlapping area;
    • require amendment of the joint development plan to the extent the Minister is reasonably satisfied is necessary to optimise the development and use of the State's coal and petroleum resources; and
    • impose, as a consequence of non-compliances with the relevant Act or conditions of tenure, amendments reducing the term or area of the tenure or amending a condition or imposing a new condition of the tenure, relinquishment, cancellation, lodging or amending a development plan or payment of a monetary penalty.
  • The introduction of a dispute resolution process, involving arbitration to settle a variety of disputes (including failure to agree joint development plans, subsequent disputes about the content of joint development plans, rehabilitation duties of the tenure holders in an IMA or an RMA and compensation entitlements). The arbitrator is to be nominated by a prescribed institution (and the State Government is currently seeking views on industry's preferences in regard to what may be the prescribed institution(s)). The proposal is that such disputes will not be determined by the Land Court, which currently has jurisdiction in regard to overlapping tenure under the existing regime (and specifically, in respect of preference decisions).

The draft also indicates the health and safety provisions and expedited land access provisions reflecting the approaches to those issues described in the White Paper will ultimately be included, but remain in the process of being drafted.

Conclusion

The proposed amendments present a major step forward in providing certainty to Queensland's coal and CSG industries in relation to how future overlaps will be regulated, while seeking not to overturn arrangements for existing production projects where substantial investments have already been made on the basis of the existing regime.

It also represents a major change from the current regime where there was a significant advantage for the 'first mover' in applying for production tenure. There will be an increased emphasis, particularly for new projects and production tenements, on carefully planning the co-development of resources, and it will be important that attention is paid to the new obligations regarding advance notice of operations. There will also be an increased focus on agreement making between overlapping tenement holders, with set timeframes (six months is proposed) for good faith negotiations of joint development plans before a requirement to refer the matter to arbitration.

The draft legislation is in most respects consistent with the main principles of the industry developed White Paper proposal. However, there are some differences and it would seem several finer details of the legislation still need to be worked through.

The proposed legislation remains a draft for consultation purposes and, if any industry participant has concerns about aspects of the regime, submissions are open until 5pm on 9 May 2014.

Footnotes
  1. Maximising Utilisation of Coal and CSG Resources in Queensland – A new approach to overlapping tenure in Queensland, The Draft Legislative Framework, Queensland Department of Natural Resources and Mines, April 2014.

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