On 30 August 2016, the Victorian Government announced a permanent ban on all unconventional on-shore gas development (which includes hydraulic fracturing (fracking) and coal-seam gas extraction) and a moratorium on any other on-shore gas operations until 30 June 2020. Both of these announcements are extensions to an existing moratorium on any form of on-shore gas development, instigated in 2012 by the previous Victorian Government.
For any company holding an exploration permit, or other petroleum tenement, these announcements could mean a loss of investments, for money already spent on exploration and potential future profits. This article will consider the effects of the 30 August announcement, and what avenues of recourse may be open to affected companies.
On 24 August 2012, the Hon Michael O’Brien, then Minister for Energy & Resources, issued a media release1 placing an indefinite hold on the following activities:
- exploration activities under existing exploration permits which involve fracking (including surveying or drilling for core samples);
- approval of any work programs which involve fracking; and
- approval of any coal seam gas related exploration permits.
On 28 May 2014, the Hon Russell Northe, Minister for Energy and Recourses, released a second order2 expanding the moratorium to put “a hold on work plan approvals for on-shore gas exploration”. The expanded memorandum prevents any new exploration permits or any new work from being undertaken pursuant to an existing exploration permit.
On 30 August 2016, Premier Daniel Andrews announced a permanent ban on all unconventional onshore gas extraction activities, which includes fracking and coal seam gas extraction, and announced an extension to the existing hold on approvals for all onshore gas work programs until 30 June 2020.
Effect of Moratorium
The moratorium on on-shore gas extraction and work plans is an internal administrative action taken by the Victorian Government, rather than a legislated rule of law. The moratorium places a requirement upon public servants to refuse applications for tenements, rather than expressly placing restrictions upon businesses.
The current Victorian system provides that any person interested in extracting on-shore gas follow the process set out under either the Petroleum Act 1998 (Vic), for conventional gas (but also including tight and shale gas), or the Mineral Resources (Sustainable Development) Act 1990 (Vic), for coal seam gas. Under both Acts a person is first required to apply for an exploration permit. Under this permit a person is allowed to investigate what natural resources are contained in a particular area and devise a plan for extraction of those resources. The second step, following successful exploration, is for the permit holder to apply for a production licence, which will allow it to begin extraction works.
Under both acts3 companies holding exploration permits are only allowed to commence exploration work which has been approved under a work plan. A work plan is a list of works to be undertaken by a company pursuant to its permit. All work plans must be submitted to the Victorian Department of Energy for approval.
Under the moratorium, any work plan presented to the Department of Energy will be prima facie denied. As a consequence, companies who may already hold an exploration permit are prevented from progressing with any work on their sites with the only option seemingly available being to keep paying the renewal fees on permits and wait for the Government to come to a final policy decision.
The issue then, for affected companies, is that an exploration permit does not guarantee that a production licence will be granted within any set period of time. As such permit holders will be reliant on the Government taking a stance in the future in favour of on-shore gas extraction so that a production licence can be applied for and relevant work plans finalised and accepted.
Andrews Government Ban on Extraction
In its 30 August announcement, the Andrew’s Government stated that legislation enforcing the ban on unconventional on-shore gas activity, notably fracking and coal seam gas extraction, would be brought before Parliament sometime this year. As at the time of writing, a bill has yet to be introduced. In preparing its new Bill, the Government will need to determine whether this new legislation will attempt to invalidate existing exploration licences or if the proposed amendments will focus on assessing any future applications, with existing exploration permits being, for example, paid out on an individual basis.
When considering whether to invalidate licences through legislation, the Victorian Government may find a cautionary tale in the case between Metgasco and the New South Wales Government4. In this case, Metgasco held a number of exploration licences in New South Wales and applied in March 2013 to commence production on a well at a site in Rosella. The New South Wales Government allowed the application and Metgasco began to develop the project. However community backlash against the project caused the Government to rethink and subsequently order that work at the Rosella well be suspended, citing a failure by Metgasco to correctly conduct community consultation. Metgasco applied to the New South Wales Government for a review of this decision, but the Government maintained its position. Metgasco subsequently appealed the matter to the New South Wales Supreme Court.
The Court found in favour of Metgasco, noting that while the consultation process may not have convinced the local community to support Metgasco’s planned extraction, the requirement for consultation was to ensure that the community was well informed, rather than to actually obtain community support. Subsequent to this ruling, the New South Wales Government changed tactics and offered Metgasco a payment of $25 million in exchange for the exploration and production licences held by Metgasco5. Since this decision the New South Wales Government has confirmed its position against further mining and resource extraction in the State, and has begun a process of buying back exploration or production licences. The most recent example is a buy-back of BHP Billiton’s exploration licence for the proposed Caroona mine, at a price of $220 million6.
The Victorian Government would do well to consider the experiences of New South Wales as it formulates its legislation. By cancelling existing permits or licences, holders may decide to apply to the courts to recover both monies already spent and potential lost profits. With the potential for adverse orders in litigation as well as the threat of this matter carrying on through to an election, the Victorian Government may find that adopting the New South Wales Government’s method, making payments to recover permits and licences, preferable. For now we can only wait to see which route the Government will take.
With the Government’s 30 August announcement, we are only beginning to see what the future may hold for on-shore gas extraction in Victoria. The announcement leaves permit holders trapped in a holding pattern and we can only wait to see whether this Government, or the next, will attempt to ban all on-shore gas activities, or if the ban will remain limited to fracking and other coal seam gas extraction methods.