Australia: Coal seam gas explorer convicted and fined: The first prosecution for breaches of conditions of an exploration licence

On 10 January 2014, the NSW Land and Environment Court convicted Santos NSW Pty Ltd (Santos) of four offences under section 136A(1) of the Petroleum (Onshore) Act 1991 (NSW) (PO Act) for failing, without reasonable excuse, to comply with conditions of its petroleum exploration licence. Santos was fined $52,500 in total and ordered to pay the prosecutor's costs in the amount of $110,000. The judgment is important because it is the first time the Court has convicted a licence holder under section 136A(1) of the PO Act and recent amendments to the PO Act have now increased maximum penalty for a breach of this provision.


On 22 December 2000, the Mining and Petroleum Amendment Act 2000 (NSW) (MP Amendment Act) came into force. Amongst other things, the Amendment Act inserted section 136A into the PO Act, creating a new offence for contravening or failing, without reasonable excuse, to comply with conditions of a petroleum title.

In circumstances where a condition was identified as a condition related to environmental management and the offence was to be dealt with on indictment, the maximum penalty was $110,000. In all other circumstances, the maximum penalty for breach of a condition was $22,000.

On 1 January 2013, the Petroleum (Onshore) Amendment (Royalties and Penalties) Act 2012 (NSW) (PO Amendment Act) came into force. The PO Amendment Act has increased the maximum penalty for breach of a condition related to environmental management under section 136A(1) of the PO Act to $1.1 million (in the case of a corporation) and $220,000 (in the case of an individual). The maximum penalty for a breach of a condition not related to environmental management was also increased from $22,000 to $220,000.

The PO Amendment Act also inserted section 136A(3) into the PO Act which sets out factors which the Court will take into account in imposing a penalty, including:

  1. the extent of harm caused or likely to be caused to the environment;
  2. the practical measures that may be taken to prevent, control, abate or mitigate that harm;
  3. the foreseeability of the harm caused or likely to be caused to the environment; and
  4. the offender's control over the causes of the breach.

Despite the fact that the offence for breach of a condition of a petroleum title was introduced in December 2000, the recent decision of the Land and Environment Court in Connell v Santos NSW Pty Limited [2014] NSWLEC 1 (Santos case) is the first time that the Court has convicted a licence holder under section 136A(1) of the PO Act.


Eastern Star Gas Ltd (ESG) was permitted to undertake drilling as part of its exploration for coal seam gas (CSG) in an area of land located south of Narrabri under Petroleum Exploration Licence 238 (Licence) and Petroleum Assessment Lease 2 (Lease).

The drilling activities undertaken by ESG produce water with elevated concentrations of salt (Formation Water) which was conveyed to a reverse osmosis water treatment plant (Plant) pursuant to the conditions of the Licence and Lease. Once the Formation Water was treated at the Plant and salinity levels were reduced, it was discharged into a nearby waterway.

On 25 June 2011, after multiple leaks and incidents had occurred at the Plant, approximately 7,000 litres of spilled Formation Water escaped from the Plant (Spill).

On 3 November 2011, ESG provided a report to the Department of Primary Industries (Department) in response to the complaints about tree die back within close proximity to the Plant. This report did not refer to the Spill.

On 17 November 2011, Santos purchased all shares in ESG (previously holding a non-controlling 19.9% shareholding) and, consequently, ESG became a wholly owned subsidiary. After this time, operations became subject to the management and control of Santos and its operating procedures and environmental health and safety systems. At the time of the Spill, Santos did not have any representation on the board or management of ESG and did not operate the Plant or undertake exploration activities under the Licence or Lease.

On 6 January 2012, Santos sent the Department a copy of ESG's environmental incident report in respect of the Spill.

On 22 February 2012, Santos issued a report setting out the findings of its review of ESG's operations and plans to address environmental management deficiencies. This report also made reference to the failure of ESG to accurately reference the total dissolved solids level of water discharged into a nearby waterway in Environmental Management Reports (EMRs) which, on at least 11 occasions, exceeded the total dissolved solids limit of 250ppm prescribed by ESG's Petroleum Operations Plan (POP).


Santos pleaded guilty to four charges of committing offences under section 136A(1) of the PO Act, namely:

  1. one charge for failing to report the Spill, being an incident causing or threatening material harm to the environment (Failure to Report Offence); and
  2. three separate charges for lodging EMRs with the Director-General of the Department that did not accurately report against compliance with the POP (Inaccurate Reporting Offences).


In sentencing for the offences, Preston CJ observed that the Court is required to consider the objective and subjective circumstances of the particular offences and offender, the factors set out in section 136A(3) of the PO Act, and other applicable provisions contained in the Crimes (Sentencing Procedure) Act 1999 (NSW) (CSP Act).

At the time of the offences, the maximum penalty for contraventions of conditions of title related to environmental management was $110,000. The parties agreed that the increased maximum penalty introduced by PO Amendment Act did not apply to the four offences in this instance by reason of section 30 of the Interpretation Act 1989 (NSW).

In relation to the Failure to Report Offence, the Court held that a fine of $30,000 was appropriate. In reaching this conclusion, Preston CJ observed that:

  1. Section 136A(3)(a) of the PO Act required the Court to consider the environmental harm caused by the Failure to Report Offence rather than the Spill itself. As a consequence, only the environmental harm that occurred after the Spill should have been reported is relevant and, having regard to expert evidence, the Court found that the Failure to Report Offence was at the lower end of the scale of seriousness.
  2. The circumstances were aggravated by the fact that in August and early November 2011, when officers of the Department investigated complaints of tree die back, ESG had the opportunity and failed to disclose the Spill. Consequently, Preston CJ regarded ESG's conduct in the commission of the offence as deliberate and intentionally carried out with knowledge that its actions were illegal, increasing the objective seriousness of the offence.

The Court discounted the fine to $21,000 after taking into account the utilitarian value of the plea of guilty (25%) and Santos' assistance to the authorities (5%).

Although the Court accepted that the Inaccurate Reporting Offences had an indirect causal relationship to the environmental harm caused by the Spill, these breaches were also considered to be at the lower end of the scale of seriousness. In the circumstances, Preston CJ held that a fine of $15,000 for each of the Inaccurate Reporting Offences was appropriate. The fine was discounted to $10,500 for each of the Inaccurate Offences in light of the guilty pleas and Santos' assistance to the authorities.

Santos was also ordered to pay the Department's costs of the proceedings in the sum of $110,000.


The Santos case sends a clear warning to the CSG industry that the Department is willing to prosecute operators for breaches of conditions of petroleum titles. Although the total fines imposed on Santos may appear insubstantial, in light of the tenfold increase in the maximum penalties which came into effect this month, it is likely that future prosecutions for similar offences will result in significantly higher penalties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.