Australia: Greater flexibility for petroleum industry in Queensland

Clayton Utz Insights

Key Points:

The Land and Other Legislation Amendment Act 2014 (Qld) makes a range of changes affecting petroleum explorers and producers.

Queensland petroleum explorers and producers are being afforded greater flexibility with respect to work programs, knowledge requirements for petroleum lease applications and production commencement thanks to changes to the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (P&G Act) introduced by the Land and Other Legislation Amendment Act 2014 (Qld) (LOLA), passed on 20 May 2014.

Work Programs for Authorities to Prospect (ATPs)

Holders of ATPs are required under the P&G Act to have, and comply with, an approved Work Program setting out the exploration activities to be performed under the ATP. To date, the maximum term of a Work Program has been four years, by which time the ATP holder must lodge a later Work Program for approval. It is also at this point that the ATP holder will generally be subject to a relinquishment condition, requiring it to relinquish one third of the ATP's area.

The LOLA introduces amendments to allow a two-year extension to the term of current Work Programs, and a consequential two-year deferment of the relinquishment condition, for the following ATPs:

  • ATPs granted for a term of 12 years in force before 1 July 2014;
  • ATPs granted after 1 July 2014 where the Minister regarded the holder as the preferred tenderer before 1 July 2014; and
  • ATPs granted after 1 July 2014 in response to a call for tender that closes on 29 September 2014 (in other words, capturing calls for tenders that were open before 1 July 2014).

Holders of ATPs granted for a period of less than 12 years may apply to the Minister to extend both the term of the ATP and the period of the work program by two years.

These amendments do not apply to all future ATPs and while this remains to be confirmed, these may be addressed in the new common resources legislation currently being phased in.

The aim of these amendments is to afford ATP holders with more time to undertake exploration and evaluate an ATP's potential before being required to surrender a part of it.

Amending Work Programs and relinquishment conditions of ATPs

LOLA also introduces amendments to allow ATP holders to apply to amend the ATP's work program and/or relinquishment conditions on the basis of "optimising the development and use of the State's petroleum resources".

To date, a work program involving an extension of time (and deferment of the relinquishment condition) has only been possible in limited circumstances where more than a 50% share of the ATP had been transferred to another person.

This change will, for example, permit the spreading of work program commitments across multiple ATPs part of a project group.

Level of knowledge for Petroleum Lease (PL) applications and grant

To date, applicants for a PL have been required to, among other things, include with the application evidence of certification from an independent and appropriately qualified entity that at least 20% of the discovered petroleum in the proposed PL area is a proved reserve, or probable reserve. This level of knowledge has also been a requirement for grant.

LOLA replaces these knowledge requirements with the following:

  • for a PL application, requiring a statement by a suitably qualified person that the proposed area of the PL contains "commercial quantities of petroleum"; and
  • for the PL grant, requirement that the proposed area for the PL contains "commercial quantities of petroleum".

A separate definition for "commercial quantities" is not given. The Explanatory Notes to LOLA explain that this new knowledge threshold will provide sufficient information for the application to be assessed while not being unduly onerous for industry.

Extension of production commencement days for petroleum leases

Petroleum lease holders are generally required to start production no later than two years after the petroleum lease takes effect (section 154(1) of the P&G Act).

The exception to this rule is if a "production commencement day" is stated for the petroleum lease that is more than two years after the petroleum lease takes effect. This may only occur where the Minister is satisfied that the petroleum lease holder has entered into a "relevant arrangement".

A relevant arrangement is a contract, co-ordination arrangement or other arrangement that a petroleum lease applicant has entered to supply petroleum produced from the area of the petroleum lease. This concept recognises that, for projects relying on multiple petroleum leases, production from all of the petroleum leases may not commence at once, but rather be staged over a number of years.

However, the P&G Act only allowed a petroleum lease to have a production commencement day beyond the two-year limit, and only allowed to petroleum lease holder to subsequently apply to change this date, if the relevant arrangement had been entered into prior to or at the grant of the petroleum lease.

The LOLA amends the P&G Act to allow the holder of a petroleum lease that was granted on the basis that production would commence within two years, to apply for a production commencement day beyond that two-year period if the holder has since entered a relevant arrangement.

Importantly, this application may only be made no later than one year (or shorter period prescribed by regulation) before the day by which production under the petroleum lease is to start.

The transitional provisions allow a six-month grace period after these changes commence to make an application, but this only applies to petroleum leases for which a production commencement day is stated.

The changes do not expressly provide for the scenario where a petroleum lease does not state a production commencement day, and the two-year start date for that petroleum lease has already passed or will occur within one year.

These amendments are to commence on a date to be fixed by proclamation.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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