‘There is no oil shale’ - Queensland Court of Appeal upholds rejection of application for exploration permit
Feb 2017 |
In December 2015, the Queensland Supreme Court dismissed an application for judicial review by Queensland Cooper Shale Pty Ltd and other related entities, in respect of the rejection by the Minister of Natural Resources and Mines (respondent) of a number of mineral exploration permit applications.
We considered the Supreme Court’s decision in our January 2016 article ‘Is it oil shale or an unconventional petroleum resource?’.
The Queensland Court of Appeal has now dismissed an appeal against that decision brought by Queensland Cooper Shale Pty Ltd and its relevant related entities (appellants).1
Background
In 2014, the appellants lodged a number of applications for mineral exploration permits under the Mineral Resources Act 1989 (Qld) (MRA). Each application specifically identified ‘oil shale’ as the high priority target mineral.
The respondent rejected the work programs accompanying the applications, as it was considered that the appellants were not properly targeting a ‘mineral’ under the MRA. In rejecting the applications, the respondent suggested that the work programs demonstrated the appellants’ intention to target hydrocarbons (which would be properly governed by the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (P&G Act)), rather than the oil shale ‘mineral’ that was the geological source of those hydrocarbons.
The legislative position
The objects of the MRA include the encouragement and facilitation of the exploration and mining of ‘minerals’. The exploration and production of ‘petroleum’, on the other hand, is separately administered in Queensland by the P&G Act.
Oil shale
The term ‘mineral’ is defined in section 6 of the MRA to include ‘oil shale’, which is defined by reference to section 318AD as follows:
‘Oil shale is shale or other rock (other than coal) from which a gasification or retorting product, as defined in the P&G Act may be extracted or produced.’
Section 10(c) of the P&G Act defines a ‘gasification or retorting product’ as:
‘(c) a fluid that -
- is extracted or produced from coal or oil shale by a chemical or thermal process or that is a by-product of that process; and
- consists of, or includes, hydrocarbons…’
Mineral (f)
The definition of ‘mineral’ under the MRA also includes a reference to ‘mineral (f)’, which is defined as:
‘(f) a product that may be extracted or produced by an underground gasification process for coal or oil shale (mineral (f)) and another product that may result from the carrying out of the process (also mineral (f));
Examples of underground gasification processes -
combustion, consumption, heating, leaching and reaction.’
The inclusion of ‘mineral (f)’ in the definition of ‘mineral’ is, however, subject to s 6(3)(c) of the MRA, which provides as follows:
‘(c) mineral (f) is only a mineral if -
- the coal or oil shale, from which it is extracted or produced, is held under a mineral development licence and it has been added to the licence under section 208; or
- the coal or oil shale, from which it is extracted or produced, is held under a mining lease and it is specified in the lease...’
‘Mineral (f)’ is expressly mentioned by the P&G Act as an example of a fluid that is ‘petroleum’ under sub-s 10(1)(c).
Decision at first instance
At first instance, the appellants contended that the fluid consisting of hydrocarbons that could be extracted from oil shale by a chemical or thermal process would constitute a mineral under the MRA, and could, therefore, be the subject of a mineral exploration permit.
In this regard, the appellants argued that the targeted ‘mineral’ could be extracted by hydraulic fracturing, on the basis of its assertion that fracking constitutes a ‘chemical process’.
At first instance, the Supreme Court found that there is a degree of ambiguity in the relationship between the MRA and the P&G Act. Justice North denied the appellants’ claims on the basis that the definition of oil shale in s 318AD should be confined to ch 8 of the MRA, which includes provisions addressing the overlap and interrelationship between tenures granted over coal (under the MRA) and coal seam gas (under the P&G Act) within the same surface area.
Chapter 8 of the MRA contains provisions regulating, for example, the incidental production of coal seam gas during mining operations and the potential interaction of mineral and petroleum tenement holders within overlapping authority areas.
Decision of the Court of Appeal
Ability to rely upon expert evidence
One issue considered on appeal was whether or not the respondent erred in seeking further specific information in relation to the exploration permit applications made by the appellants.
When originally considering the appellants’ applications, the respondent sought independent expert geological evidence as to the nature of the formations within the areas the subject of the applications. The advice received was to the effect that the source rocks (the ‘oil shale’) in the subject areas no longer contained kerogen (being the natural material in sedimentary rocks from which hydrocarbons are produced from gasification or retorting).
In essence, the expert advice indicated that the subject areas were thermally mature, with hydrocarbons already having been generated and with little or no kerogen remaining in the rock.
The appellants argued that the information sought by the respondent tended towards requiring proof of the existence of a deposit, which can only be properly determined after the grant of an exploration permit.
The Court of Appeal rejected the appellants’ arguments on the basis that the nature of the information sought by the respondent was properly focussed upon determining whether or not the appellants were, in fact, targeting a ‘mineral’ under the MRA, rather than ‘petroleum’ under the P&G Act.
Mineral (f) or oil shale?
The Court of Appeal found that no ambiguity exists between the MRA and the P&G Act, and that there is no reason to prevent the definition of ‘oil shale’ in s 318AD of the MRA from applying more generally throughout the MRA.
In essence, the Court of Appeal found that the appellants were seeking to explore ‘only for the fluid which had already been naturally released from the oil shale rock’.2 Accordingly, the Court of Appeal found that while the hydrocarbons for which the appellants hoped to explore would fall within the meaning of ‘mineral (f)’ under the MRA, the appellants were prevented from applying for an exploration permit only for mineral (f) by the operation of s 6(3)(c) of the MRA.
As noted above, s 6(3)(c) provides that mineral (f) is only a ‘mineral’ for the purposes of the MRA if the oil shale (from which the hydrocarbons are to be produced) is specifically the subject of an existing mineral development licence (MDL) or mining lease (ML).
On this basis, the Court of Appeal confirmed that the appellants’ proposed activities were more appropriately governed by the P&G Act, and did not constitute mineral exploration under the MRA.
Is fracking a ‘chemical process’?
The Court of Appeal did not determine whether or not fracking would constitute a ‘chemical process’ as the issue was not necessary to determine. However, McMurdo P observed that it may well do so.3
Acceptance of hydraulic fracturing as a ‘chemical process’ for the purpose of interpreting the means by which a ‘gasification or retorting product’ may be extracted or produced would ultimately expand the definition of ‘oil shale’ under the MRA to include any shale and tight rock formations (such as tight oil sandstone) which are prospective for oil or other fluid hydrocarbons.
It will be interesting to see whether this broad approach is extended to consideration of the definition of ‘mineral (f)’, such that the hydraulic fracturing of such shale and tight rock formations to produce a flow of natural gas can be considered to be an ‘underground gasification process’. If so, the holder of an exploration permit for ‘oil shale’ could apply for the grant of a ‘mineral (f)’ ML, facilitating the development of an unconventional petroleum project via MRA tenure.
Conclusion
The Court of Appeal’s decision confirms that the MRA will only apply to the exploitation of hydrocarbons falling within the ambit of ‘mineral (f)’ in circumstances where a MDL or ML is held for the oil shale from which the ‘mineral (f)’ hydrocarbons may be produced. Where hydrocarbons have already been naturally released from the source rocks, the development of those hydrocarbons is to be governed by the P&G Act, and not the MRA.
The decision also offers support to the regulator’s approach in delving below the surface of a tenure application in an effort to ascertain the true target of any proposal. Particularly in overlapping tenure situations, proponents must carefully establish and define their target in any application for exploration tenure, and have regard to potential development pathways in managing the application process.
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1 Qld Cooper Shale Pty Ltd & Ors v Minister for Natural Resources and Mines [2016] QCA 352.
2 Ibid 13.
3 Ibid 13.
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