In brief – State government responds positively to White Paper transitional provisions
Changes proposed to Queensland's overlapping tenure framework have significant implications for mining and resources industries, including coal, petroleum, coal seam gas (CSG) and liquefied natural gas (LNG).
Holders of existing production tenures can currently thwart applications for competing overlapping tenures
To the relief of many in the mining and resources industry, the stage appears to be set for welcome reforms to the overlapping tenure framework in Queensland. With the booming CSG industry driven by the major Queensland CSG-LNG projects, once implemented, the proposed changes will mark the beginning of the challenging task of addressing the deficiencies inherent in the current overlapping tenure framework.
The existing framework has come under intense criticism and scrutiny over recent years, particularly in the CSG and coal industries, for its failure to provide a system where competing overlapping production tenures can co-exist and proceed to development in a manner that maximises resource production with minimal delay.
These criticisms are largely aimed at the ability of the holder of a production tenure (such as a mining lease)("the holder") to prevent the applicant for a competing overlapping production tenure (such as a petroleum lease)("the applicant") from having its application granted by failing to agree a coordination arrangement with the applicant.
Legislative safeguard never exercised and therefore ineffectual
Unfortunately, this power of the holder to hamstring or veto an applicant's project has not been curtailed by the legislative safeguard intended to protect applicants in this scenario, known as the Minister's preference decision, where the Minister exercises the right to make a determination as to whether the proposed production tenure of the applicant should proceed in preference to an existing overlapping granted production tenure.
Given the obvious political consequences for any government which makes a preference decision, it is of little surprise that no preference decisions have been made since the commencement of the 2004 amendments to the Mineral Resources Act (Qld) and Petroleum and Gas (Production and Safety) Act (Qld) which introduced this concept.
The flaws in the current framework (including those mentioned above) are stifling the growth and development of the mining and resources industry in Queensland and arguably act as a disincentive to foreign investment. Further, reduced royalties to government while projects remain caught up in the system means that there is less reinvestment back into the industry.
White Paper proposes direct path to grant of production tenure
In June 2012, the coal and CSG industries' concerns with the framework were voiced in the joint industry submission to government, entitled Maximising Utilisation of Queensland's Coal and Coal Seam Gas Resources – A New Approach to Overlapping Tenure in Queensland ("the White Paper").
The White Paper proposed a number of reforms to address the problems within the framework. The theme championed in the White Paper is the concept of direct path to grant of production tenure, which is achieved by removing both the Minister's preference decision and the requirement for an applicant to agree a coordination arrangement with the holder of a pre-existing overlapping production tenure.
Proposals to safeguard CSG interests while giving coal miners right of way
Central to the "direct path to grant" theme is the proposal that holders or applicants for coal mining leases would have a "right of way" to develop coal deposits.
To safeguard CSG interests, the White Paper proposed that the right of way for coal producers be underpinned by a requirement for a coal miner's sole occupancy rights contained within its mining lease to be limited to an initial mining area (IMA) representing 10 years of mining operations, with the petroleum lease holder having rights to extract CSG outside of that area.
The White Paper also proposed a series of advance notice requirements, including:
- requiring a coal mining lease applicant to provide 10 years' prior notice of commencement of mining in the IMA before CSG production lease holders must abandon producing wells within the proposed future mining area
- requiring the applicant of a coal mining lease to provide 18 months' prior notice of commencement of mining where a mining lease is granted over a petroleum exploration tenure
The White Paper also envisaged a comprehensive compensation regime, including for lost CSG production, where notice periods are truncated at the mining lease holder's election.
Hazards, environment, dispute resolution and incidental coal seam gas (ICSG)
Other reforms to the framework proposed in the White Paper include:
- synchronisation of pre-mine drainage
- reforms related to incidental coal seam gas, including the proposal that undiluted ICSG be a deemed offset in relation to any compensation liability of the holder of a mining lease, regardless of whether the ICSG is actually taken
- hazard minimisation
- environmental approval and rehabilitation
- expert determination and dispute resolution
Implementation of White Paper principles
In terms of the implementation of its principles, the White Paper contemplates the drafting of legislative amendments which would apply to all existing exploration tenure and future production tenure, excluding existing production tenements and future applications overlapping the area of existing production tenements, unless the relevant parties agree to opt in to the new framework.
The White Paper working group was unable to reach agreement on the application of the new principles to existing production tenements (mining leases or petroleum leases) and retention tenements (mineral development licences or potential commercial areas). The views taken by the respective industries were as follows:
Coal industry – the new regime should apply to existing production tenements and retention tenements from 31 December 2012.
Coal seam gas industry – petroleum leases should be granted from the "grandfathered production tenure" applications. These represent a specified number of production tenure applications in a defined geographical area delineated on a map attached to the White Paper. The CSG industry's view is that these should remain under the existing regime for a period of four years commencing on 31 December 2012, i.e. until 31 December 2016.
Government response to grandfathered production tenure and Transitional Provisions
In a letter from the Director-General of Natural Resources and Mines to the Queensland Resources Council sent in late 2013, the Queensland government confirmed that the following transitional arrangements will apply to the grandfathered production tenure:
- A 15 year notice period ("the Extended Notice Period") will apply if a coal mining lease application is lodged over an existing petroleum lease in the defined area.
- The Extended Notice Period may only be truncated by the mining lease holder with the consent of the petroleum lease holder.
- The mining lease applicant's right of way will remain subject to the Extended Notice Period.
The transitional provisions in the three points above will apply to all production leases granted after commencement of the legislation but prior to 31 December 2016 ("the Transition Period").
The Director-General's letter also confirmed the government's acceptance of the remaining transitional provisions contained in the White Paper, including that the new principles will apply to all existing exploration tenure and future production tenure.
The new principles will not apply to existing production tenements or to future applications overlapping the area of existing production tenements. These tenements will remain subject to the current regime, unless parties elect to opt in to the new framework by negotiated agreement.
Finally, co-development agreements in place before commencement of the legislation will remain in force unless otherwise agreed by the parties.
Implications of government response
It is likely there will be an influx of mining/CSG companies lodging applications for production tenure over competing exploration tenure prior to commencement of the amending legislation, to take advantage of the benefits of being "first in time" under the existing regime.
Relevantly, the government has not clearly articulated its position as to how (or if) the White Paper principles will apply to future competing applications for production tenure over existing granted production tenements during the Transition Period. It is hoped that this issue will be addressed in the draft amending legislation which is likely to be released for public consultation in the coming months. We will publish a further alert at this time.
Industry ready for change
In practice, most of the industry appears to be awaiting eagerly the release of the draft legislation and the commencement of the implementation of the general principles contained in the White Paper.
Interestingly, some competing tenure holders (usually involving one party holding exploration tenure) have decided to forgo the arduous task of negotiating a co-development agreement. Instead they have agreed (generally in a short form document) that they will negotiate a coordination arrangement at the time a party wishes to make application for production tenure over an existing competing production tenement, on the basis that if the parties fail to reach agreement within a specified time period, the White Paper principles will apply by default.