Queensland to introduce cash bidding system for exploration rights
Jan 2012 |Highlights
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Resources companies will have to purchase the right to explore land in highly prospective areas.
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New exploration tenements in known resource areas will be put to tender subject to a cash bid condition.
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Coal explorers will now be subject to the same controlled land release and tender processes that apply to petroleum and coal seam gas explorers.
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Transfers of exploration tenements are no longer exempt from stamp duty.
Highly prospective coal and petroleum exploration permits in Queensland will be auctioned off as a result of new budgetary measures announced in the Queensland Government’s Mid Year Fiscal and Economic Review.
A cash bidding tender system for exploration tenure located in known resource areas will be established later this year as a means of achieving greater return from the state’s natural resources. The move reflects one of the recommendations of the Henry Tax Review in relation to land and resources taxes.
The changes will be significant for coal miners, who will no longer be able to lodge applications for exploration permits over the counter and rely on the first-come first-served principle that has governed grants up until now. Instead, coal miners seeking new exploration tenure will be subject to the tender processes and controlled land releases that currently apply to the petroleum and gas industry.
For petroleum proponents, the new system will potentially add another condition to the tender process, where explorers will have to put a price on how much they are willing to pay to secure the rights to explore.
The system is expected to raise $35 million in revenue next financial year, rising to $95 million when the system is fully operational in 2013-2014.
Will all exploration tenure be subject to cash bids?
The cash bid system will only apply to exploration tenements located in highly prospective resource areas.
The Government is yet to release details on what areas will be considered highly prospective for the purpose of competitive cash bidding. However, the Geological Survey of Queensland unit within the Department of Employment, Economic Development and Innovation (“DEEDI”) has been charged with identifying known resource areas in order to implement the system before the next land release.
Tenements that do not fall within highly prospective resource areas are unlikely to be subject to the cash bidding component of the tender process. However, resources companies will still be required to submit detailed work programs and demonstrate their capacity to optimise the value of the state’s resources as part of the competitive tender process.
Changes for coal explorers
On 13 January 2012 the State Government declared a restricted area (“Restricted Area 394”) over the whole of Queensland. The declaration is an interim measure designed to prevent new applications for exploration permits for coal being made while the controlled land release system is implemented.
Instead, the Government will periodically release land for exploration by publishing a call for tenders. Mining companies will be required to submit an Application to Tender to DEEDI outlining their proposed work program, financial and technical capabilities, and their approach to landholder negotiations. For highly prospective tenements, applicants will also be required to submit a cash bid — effectively their proposed purchase price for the rights to explore for resources on the land.
Tenders will be assessed against published criteria to determine the successful applicant.
The Government is yet to release details on the assessment criteria and their relative weighting, though it is reasonable to assume that where tenders are subject to a cash bidding condition, preference will be given to the highest bidder.
Legislation will soon be introduced to Parliament to amend the Mineral Resources Act 1989 to give effect to the new regime.
Changes for petroleum and coal seam gas explorers
Restricted Area 394 will not apply to petroleum tenements. Exploration land for petroleum will continue to be made available through calls for tenders.
Highly prospective tenements will become subject to a cash bidding condition, where explorers will be required to state on their application the price they propose to pay for the rights to explore the land. If the application is successful, that amount becomes payable in consideration for the grant of the Authority To Prospect.
Existing applications
Existing applications and granted permits will not be affected by the announcement. All applications for coal exploration permits made prior to 13 January 2012 will continue to be assessed under the current framework for deciding mining applications. Similarly, applications for petroleum and gas tenure in highly prospective areas submitted before 13 January 2012 will not be subject to cash bid conditions.
Implications for the resources industry
The Queensland Resources Council says the move to introduce a cash bidding system for exploration tenements will make it more difficult for junior explorers to compete with major exploration and production companies for exploration rights. Controlled land releases have also been criticised for being too prescriptive in respect of block size and configuration.
There is also some anecdotal evidence to suggest that cash bidding in highly prospective areas (such as the Cooper Basin) can dissuade resources companies from applying for permits in favour of negotiating farm-ins at a later date.