Emerging risks in the resources sector

Jun 2011 |

As the food versus mining debate continues, the Queensland Government has released more details of its controversial strategic cropping land policy, which will see prime farming land locked up from future mining development.  While the policy is yet to be written into law, mining proponents would be well placed to consider the impact strategic cropping land status will have on current and future projects. 

At the same time, it may also be necessary to examine international supply chains in light of greater power being conferred on the state and federal governments to impose supply conditions on new petroleum tenures and prosecute corporations for contravening trade sanctions on rogue regimes. 

Independent certification required for Petroleum Lease applications

The Gas Security Amendment Bill 2011 was introduced into parliament and was assented to on 19 May 2011, resulting in the Gas Security Amendment Act 2011 (Qld) (GSA Act).

One of the amendments implemented by the GSA Act is an amendment to s 118 of the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (P&G Act) to require that a petroleum lease application include:

  • information demonstrating that a commercial reserve exists, including the level of knowledge of reserves and resources at the time of application (s 118(1)(e)); and
  • evidence of certification by an independent and appropriately qualified certification body that the reserves and resources in the proposed area meet the prescribed requirements (ss 118(1)(f), 118(2) and 118(3)).

The amendments to s 118 of the P&G Act by the GSA Act were unexpected and somewhat hurriedly introduced by the government.  Earlier this year, DEEDI released the draft Mines and Petroleum Legislation Amendment Bill 2011 and sought comments on that Bill.  The amendments to s 118 of the P&G Act that have been introduced by the GSA Act are contained in the draft Mines and Petroleum Legislation Amendment Bill 2011.  Therefore, despite calling for comments on the draft Mines and Petroleum Legislation Amendment Bill 2011 only months before, the government chose to quietly introduce the amendments.

Effect of amendments

The requirement for independent certification may result in unnecessary costs on the petroleum lease applicant and may result in delays if the chief executive of DEEDI determines that an entity which has provided certification is not "independent and appropriately qualified" or if the availability of independent and appropriately qualified entities is limited. As yet, there is no indication as to what the chief executive requires for an expert to be "independent and appropriately qualified".

Notably, no equivalent obligation exists under the Mineral Resources Act 1989 (Qld) in relation to mining lease applications.

The amendments to s 118 commenced on assent (19 May 2011) and do not apply to petroleum lease applications already lodged with DEEDI.

Restrictions on sale of gas - Australian market supply condition

The Gas Security Amendment Act 2011 (Qld) (GSA Act) introduces provisions that allow the Queensland Minister to impose conditions on new petroleum tenure (authorities to prospect and petroleum leases) to restrict the ability of the tenure holder to sell gas produced from the tenure outside Australia (an "Australian market supply condition").

Land subject to an Australian market supply condition is called Prospective Gas Production Land Reserve (PGPLR) land.

The holder of a petroleum tenure for PGPLR land must include in any contract or other arrangement for the supply of gas a condition that the gas not be further supplied other than to the Australian market.  The Australian market is defined as an entity or entities that will consume the gas within Australia, or supply to an entity or entities that will consume the gas within Australia.
An Australian market condition cannot be imposed upon petroleum tenures that have already been granted.

Effect of provisions

It is considered that the Queensland coal seam gas to LNG sector has "little to fear" from the introduction of the PGPLR policy.  While the Minister will have the ability to impose an Australian market condition upon any application for a new petroleum tenure, the explanatory memorandum and second reading speech associated with the new provisions indicate that the Queensland government intends to:

  • impose such conditions only if the Queensland government's annual Gas Market Review identifies domestic gas supply constraints; and
  • only impose such conditions upon calls for tender for new exploration acreage.

While a legal possibility, it seems unlikely that the Minister will seek to impose an Australian market condition on an application for a new petroleum tenure that underpins an export project.

A petroleum tenure holder may make an application for the Australian market condition to be lifted (temporarily or permanently) in circumstances where:

  • analysis shows that sufficient gas may be produced from existing and proposed petroleum tenures in Queensland to supply both the Australian market and export demand; or
  • where it is not commercially viable to sell the gas domestically.

A commencement date for the PGPLR provisions is yet to be proclaimed.

Considerations for petroleum tenures subject to an Australian market supply condition

Gas sold from PGPLR land must be subject to a condition that the gas not be further supplied other than to the Australian market.  Accordingly, for gas that is sold in the future from new petroleum tenures that have such a restriction, an express provision will need to be incorporated in the sale contract.

From a buyer's perspective, it might be appropriate to seek a warranty from the seller that gas will not be supplied from an area subject to an Australian market condition.  This might only be appropriate where the production area is not defined, or where the agreement permits supply from the entire seller's portfolio.

Moratorium on CSG activities in NSW

The Greens have proposed a 12 month moratorium on all CSG activities in NSW.

The proposal follows the introduction, on 21 May 2011, of a 60 day moratorium on the grant of new coal seam gas tenure in NSW following months of debate between stakeholders.

The short-term moratorium was intended to allow the implementation of the new Strategic Regional Land Use Policy (the Policy), which focuses on "striking the right balance between our important agricultural, mining and energy sectors, while ensuring the protection of high value conservation lands."1

The Policy will introduce the following short-term initiatives:

  • following the initial moratorium, all new applications for mining and petroleum tenure will be publicly exhibited for review and assessed against publicly available guidelines;
  • new tenure applications will require an agricultural impact statement;
  • an aquifer interference policy will be published for comment proposing new measures for heightened regulation of the impact of projects on aquifers.

Long-term, the NSW government will develop Regional Strategic Plans, to "ensure a balanced and sustainable management of competing land uses in each region."2

Following the implementation of the short-term moratorium, the Greens tabled the Coal Seam Gas Moratorium Bill 2011 (NSW), which proposes to extend the moratorium to 12 months. The Bill looks to extend the moratorium to existing operations, rather than just new tenure applications.

The Greens are calling for the extended moratorium to allow investigation into all potential environmental, economic and health risks of coal seam gas mining.3

Strategic cropping land policy

Intensification of the competition for land use between the resources and agricultural sectors led the Queensland Government to issue the 'Protecting Queensland's strategic cropping land: a policy framework' in August 2010 (the Policy).  The Policy attempts to strike a balance in the food versus mining battle. (For further information about the initial policy release, see our newsletter from September 2010)

On 31 May 2011, the Queensland Government released the next stage of its strategic cropping land (SCL) framework.  Notably, the release contains revised trigger maps, introduces new concepts of 'Strategic Cropping Protection Areas' and 'Strategic Cropping Management Areas', and outlines the proposed transitional arrangements.

The Policy

In order to execute the Policy framework, new legislative and planning instruments will be required to be implemented, including a new State Planning Policy, and legislative instruments to manage strategic cropping land and amend the current resources sector legislation.

1.  A new planning instrument.
It is proposed that the Queensland Government will establish a new state planning scheme to reflect the designations of SCL.  Accordingly, all development within a SCL area will be scrutinised against the planning scheme.

The new state planning scheme is expected to be released later this year. 

2.  Introduction of new legislation to amend the current resources sector legislation.
To date, development activities under the mining, petroleum and associated legislative regimes have largely been exempt from town planning regulation, either under the various resources legislative regimes or under the Sustainable Planning Act 2009 (Qld).

Under the Policy, the government plans to amend the relevant resource sector legislation so that mining development proposals that impact upon strategic cropping land will be subject to a development approval process.  Assessment will be undertaken as part of the grant of the tenure under each of the relevant resources acts.

3.  Releasing maps, criteria and guidelines for assessing and determining the existence of SCL.
In April this year, DERM released the eight criteria that land will be assessed against to determine whether it be categorised as SCL. The eight criteria include matters such as soil depth, wetness, drainage and slope of the land. A minimum land size requirement will also be enforced.

On 31 May 2011, the government released the revised trigger maps.  The trigger maps serve two purposes: firstly, to identify that land that will fall within a "Strategic Cropping Protection Area" or a "Strategic Cropping Land Management Area", and secondly to indentify, within each of these broader areas, areas of land that are likely to be categorised as 'strategic cropping land' by satisfying the eight criteria after on-ground assessment has taken place.

The introduction of the concepts of "Strategic Cropping Protection Area" and "Strategic Cropping Land Management Area" modifies the original intention of the Policy, which previously did not provide for two separate types of SCL.

Land that falls within a Strategic Cropping Protection Area and satisfies the eight criteria will be afforded the maximum level of protection under the Policy.  Where development will permanently alienate or diminish SCL, the development will not be permitted (except in exceptional circumstances).

Land that falls within a Strategic Cropping Management Area, has a history of cropping use, and satisfies the eight criteria will be also be afforded some protection. Development that will permanently impact upon SCL may proceed, providing impacts are minimised.

Transitional arrangements

The announcements on 31 May 2011 included proposed transitional provisions to be included into the SCL legislation that is intended to be released later this year. 

Transitional arrangements will apply to resources sector developments that have reached certain milestones in the approvals process by 31 May 2011.

Different milestones apply to different development, but by way of example, in respect of a mining lease or petroleum lease application, the project must, by 31 May 2011, have finalised Environmental Impact Statement Terms of Reference, and in respect of mining lease application, a certificate of application exists under s 252 of the Mineral Resources Act 1989.

Autonomous Sanctions Act 2011 (Cth)

The Autonomous Sanctions Act 2011 (Cth) (the Act) commenced on 27 May 2011.  The Act allows the Governor-General to make regulations that impose autonomous sanctions if the Minister is satisfied that such regulations will facilitate the conduct of Australia's relations with other countries or entities outside Australia.  The sanctions that can be applied under the Act are punitive measures that do not involve the use of armed force, including targeted financial sanctions, travel bans and restrictions on the supply, sale or transfer of goods or services. 

The ability to impose autonomous sanctions is not new and can be imposed under existing instruments such as the Banking (Foreign Exchange) Regulations 1959 (Cth) and the Customs (Prohibited Exports) Regulations 1958 (Cth).  The purpose of the Act is to strengthen Australia's autonomous sanctions regime and allow great flexibility in the range of measures the Government can implement. 

In the second reading speech Minister Rudd gave the example of Iran's persistent failure to abide by UN Security Council decisions and North Korea's defiance of the UN Security Council resolutions as situations that may warrant the use of autonomous sanctions under the Act.

Penalties for contravening the sanctions law include a maximum of 10 years imprisonment and a fine the greater of $275,000 or three times the transaction value for individuals.  For bodies corporate, a fine the greater of $1.1 million or three times the transaction value applies.  It is a defence if a body corporate proves that it took reasonable precautions and exercised due diligence to avoid contravening sanctions laws.

As yet, no regulations have been made under the Act.  However, once an autonomous sanction is imposed, individuals and companies alike will need to exercise care when trading with sanction-affected countries.  Businesses should consider reviewing their regulatory compliance policies and procedures to ensure that the Act is not contravened. 

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1 Brad Hazzard, Minister for Planning and Infrastructure, Media Release 21 May 2011.
2 Ibid.
3 Office of Cate Faehrmann MLC, Briefing paper: Re-thinking coal seam gas: protecting our environment, health and food security, undated.