Australia: Landholders in Queensland were bound by a gas agreement they did not sign

The Land Court has handed down its first decision on an application that allowed a gas field development to proceed on private land without the landholders' agreement.

QGC wanted access to an unimproved property south of Chinchilla to drill six gas production wells.

On the uncontradicted evidence of QGC's valuer, the Land Court ordered the payment of $35,000 in compensation and imposed conditions to regulate the parties' future relationship.

Most unfortunately, the landholders were not represented at the hearing and did not tender any evidence.

The decision creates an undesirable precedent and reminds landholders of the need to engage carefully in the resources-friendly land access regime that exists in Queensland.

The law

Queensland's resources legislation is premised on the principle that the extraction of resources including gas by private companies is to be encouraged to generate royalties for the State. It is an offence for anyone, including a landholder, to obstruct a resource company from carrying out authorised activities without a reasonable excuse.

Generally, landholders cannot say "no" to gas field developments. Instead, they are entitled to compensation, but not in an amount proportionate to the value of the target resource or the resource company's anticipated profits. Landholders' compensation entitlements are limited to the monetary impacts the interruption will have on their existing asset values and cash flows.

Resource companies can compel landholders into negotiations to allow the developments to proceed. The Land Court becomes involved if either the gas company or the landholder refers a failure to reach agreement to the Court for determination.

Failure to agree

The reported decision does not detail QGC's attempts to reach agreement, but states that one of the landholders was in Switzerland and reveals that neither were actively represented by lawyers at the hearing.

By referring the failure to reach agreement to the Land Court, QGC obtained immediate access to begin work.

Compensation assessment

To secure the greatest amount of compensation, a landholder needs to prove up the costs, damages and losses the landholder will incur because of the proposed activities. Usually, this is done with the assistance of an experienced valuer, accountant and lawyer. And the good news for landholders is that the gas company is obliged in most instances to cover these costs.

However, many landholders are still not obtaining professional assistance.

Of the $35,000 awarded, $5,000 was for disturbance during construction. The Court said it was "doing the best that it can" in the absence of any evidence as to the actual impact of construction activities. In the usual case, that impact could include significant losses of profit and additional costs as the landholder works around the gas company's disruption.

Approximately $7,000 was awarded for the decline in value of the area occupied by gas infrastructure and access tracks and the balance approximately $23,000 for the decline in value (assessed at 10% of market value) of the balance of the property.

Gas companies have long sought recognition of their view that a gas field development has little impact on the productive capacity and therefore value of what they call the "balance land". In this case, QGC found an opportunity to obtain a Land Court ruling on the issue in the absence of any evidence or submissions from the landholder.

In other words, only QGC presented its case, which went uncontested.

Other conditions

The Land Court also imposed the terms of the Queensland Government's template conduct and compensation agreement as conditions binding on the landholder, QGC and their successors in title for the life of the gas project.

Since that template was released by the then State Government in 2010, Thynne + Macartney has been warning landholders about its shortcomings.

It omits certain conduct rules (for example, those related to weed control) that most people (including many gas companies) accept are common sense, weakens the landholder's bargaining position if ever the gas company proposes to expand its project, and fails to protect the landholder from liability arising from things that go wrong.

The Land Court might have been persuaded to impose more balanced conditions had the landholders been adequately represented.

Implications

The case is a reminder that a gas company can approach a landholder and accurately say, "whether you like it or not, we will gain access to your property and, whether you sign it or not, in the end there will be a conduct and compensation binding on you and future owners of your property."

The landholders' response should be to secure the maximum amount of compensation to which they are entitled, to impose comprehensive conduct rules on the gas company to give the parties the best chance of successful co-existence and to avoid surrendering rights to further compensation if something goes wrong or the gas company extends its project in the future.

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.

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