Who does this affect?

  • Coal mining lease applicants whose applications are not likely to have been granted by 27 September 2016.
  • Coal mining parties who intend to lodge mining lease applications after 27 September 2016.
  • Coal miners who are parties to existing co-development agreements (based on the current overlapping tenure laws)
  • that may benefit from new, comprehensive and industry accepted approaches.
  • The holders of all coal exploration tenure or coal mining leases, who will need to understand the new safety requirements applicable to overlapping areas.
  • Gas parties who are caught by the new overlapping tenure regime and need to understand the obligations on coal miners to strategise and plan effectively.

On 27 September 2016, a new regime of laws governing overlapping coal and coal seam gas tenements – which is fundamentally different from the existing system – will commence, unless sooner amended, postponed or repealed. The new regime is based on extensive industry consultation and set out in Chapter 4 of the Mineral and Energy Resources (Common Provisions) Act 2014 (Qld) (MERCP Act).

The new laws contain mandatory requirements which overlapping coal and gas parties must comply with on commencement, or shortly afterwards. Organised proponents will have thought strategically in advance about the decisions required by the new regime, to ensure there are no delays or impediments to project timetables and delivery.

The key issues for the coal miner under the new regime will depend on the type of mining tenure which it and the overlapping gas party hold on commencement of the new regime, what applications are on foot at that time and what type of mining tenure is applied for afterwards. There are different consequences under the transitional arrangements for the new regime and under the regime itself depending on the combination of overlapping coal and gas tenures.

In this article, we set out these key issues, so that coal miners are ready for the commencement of the new regime on 27 September 2016 and can take the steps recommended as part of an effective transition plan. Find out how we can help you prepare.

For clarity, any reference to mining or mining tenure in this note is in respect of coal, and any reference to petroleum or petroleum tenure is in respect of coal seam gas. No other commodities are subject to the new laws.

Does the new regime apply to me?

The transitional provisions for the new regime provide that the new laws will apply on commencement in the following circumstances:

  • Where the coal miner holds a mining lease application which has not been granted on commencement which overlaps with petroleum exploration tenure (i.e. an authority to prospect), including where such petroleum exploration tenure was applied for after the date of the mining lease application and granted before commencement;
  • Where the gas party holds a petroleum lease application which has not been granted on commencement which overlaps with coal exploration tenure (i.e. an exploration permit for coal or a mineral development licence); and
  • Where the coal miner holds a mining lease application which has not been granted on commencement which overlaps with a petroleum lease application which has also not been granted on commencement (or vice versa), and the applicants are not parties to a coordination arrangement under the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (P&G Act) in force immediately before commencement.

The new laws will also apply where coal exploration tenure overlaps either petroleum exploration tenure or a petroleum lease or petroleum exploration tenure overlaps either coal exploration tenure or a mining lease.

The transitional provisions for the new regime provide that the new laws will not apply on commencement (unless the coal miner and the gas party agree to opt-in to the new scheme and a joint notice about the agreement is given to the Minister) in the following circumstances:

  • Where a coal exploration tenure or mining lease, whenever granted, overlaps a petroleum lease that was granted before commencement;
  • Where a petroleum exploration tenure or petroleum lease, whenever granted, overlaps a mining lease that was granted before commencement;
  • Where a mining lease application not granted by commencement overlaps a petroleum lease; and
  • Where a petroleum lease application not granted by commencement overlaps a mining lease.

Where the new regime does not apply, the Mineral Resources Act 1989 (Qld) (MR Act) and the P&G Act apply to the overlapping tenure as if the MERCP Act has not been enacted.

However the new safety requirements associated with the new regime will apply to all coal exploration and mining tenement holders whose tenements overlap gas tenure, irrespective of date of grant, subject to a 6 month grace period from the date the new requirements commence.

How does the new regime apply?

Notice of mining commencement

Arguably the biggest impact to the coal miner where the new regime applies is the requirement to give notice of the commencement of mining activities (under an advance notice) to the gas party before commencing such activities in the overlapping area. The amount of notice which must be given will depend on the combination of overlapping tenure in question. Generally speaking, unless a shorter notice period is agreed with the gas party, a coal miner must give the gas party 18 months’ notice of mining commencement before accessing petroleum exploration tenure and 11 years’ notice before accessing a petroleum lease (granted after commencement). However, these periods change in certain circumstances (including with regard to the pre-commencement lodgement of a petroleum lease application, and with regard to high performing wells or fields).

The requirement for notice is ‘quid pro quo’ under the new laws for the coal miner’s right of way to mine through the area of petroleum exploration tenure or a petroleum lease without having to obtain the consent or other authorisation of the gas party (as is the case under the current overlapping tenure regime). Failure to comply with these strict requirements is therefore not tolerated under the new regime and coal miners that fail to give the prescribed notice will be unable to carry out the mining activities in overlapping areas.

We note that special notice requirements apply to gas parties holding petroleum leases granted after commencement but not later than 31 December 2016 and which are in the “Surat Transitional Area” (Surat PLs). Where a coal miner lodges a mining lease application which overlaps a Surat PL, the mining commencement date must not, unless the gas party agrees to an earlier date, be before 1 July 2030 or, where the acceleration right is used by the coal miner, before 1 July 2020.

Joint Development Plan

Another key requirement where the new regime applies is for the coal miner to agree a joint development plan (JDP) with the overlapping gas party where the coal miner lodges a mining lease application which overlaps a petroleum lease application or petroleum lease granted after commencement. The JDP is broadly equivalent to a co-development plan (typically attached to a co-development agreement) agreed by the coal miner and gas party in respect of the current overlapping tenure system. However, under the new laws, the significance of the JDP is elevated. This is because, unlike a co-development plan (agreed privately to coordinate the parties’ activities), the coal miner will be unable to conduct authorised activities under its mining lease (once granted) unless there is an agreed JDP with the petroleum lease applicant or holder (PL Holder) and the Minister is notified of such agreement.

The new laws also prescribe mandatory content requirements for the JDP. The JDP must: identify the coal miner and PL Holder and state the term of the JDP; establish an area representing the first ten years of mining under the mining lease for which the coal miner has a right of way and exclusive use (this area is called the initial mining area or IMA); state the agreed mining commencement date for the IMA; describe the parties’ proposed activities in the overlapping area and locations for such activities; identify zones for simultaneous operations (i.e. outside of the IMA); and describe how the activities proposed by the coal miner and the PL Holder optimise the development and use of the State’s coal and gas resources.

The coal miner must include the JDP in the advance notice, which must be given to the PL Holder within 10 business days after the coal miner applies for the grant of the mining lease. Where the mining lease application overlaps petroleum exploration tenure only, the advance notice does not have to include a JDP and essentially need only specify the IMA, any rolling mining areas (RMAs) – effectively one-year future expansion increments of the IMA - and the mining commencement dates for these areas.

In the situation where the coal miner has lodged a mining lease application (not granted by commencement) over a petroleum lease application, the coal miner must provide a compliant advance notice (including the JDP) to the PL Holder within 10 business days of the new regime commencing (i.e. 27 September 2016). In the situation where the coal miner has lodged a mining lease application (not granted by commencement) over a petroleum exploration authority, the coal miner must provide a compliant advance notice (specifying the IMA and RMAs and mining commencement dates) to the gas party within 10 business days of the new regime commencing (i.e. 27 September 2016).

The new laws require that an agreed JDP is notified to the Minister within 12 months of the proposed document being given to the PL Holder. If the coal miner is unable to achieve agreement with the PL Holder within 6 months, the coal miner is responsible for commencing arbitration proceedings in respect of relevant disputes so that the 12 month deadline is met.

Joint Interaction Management Plan

Shortly after the MERCP Act was passed by Parliament, associated legislation (which has not yet commenced) was passed creating new safety obligations for coal parties carrying out on-site exploration or production activities in an overlapping area. The new safety provisions will apply to existing and future coal and gas operations, however a grace period of 6 months will apply prior to the new provisions taking effect. The new safety provisions are expected to commence in or around the date of commencement of the new overlapping tenure laws.

The key obligation for the coal party under the new safety provisions is that before any on-site exploration or production activities are carried out in the overlapping area, the site senior executive (SSE) for the coal exploration or mining tenure must make a compliant joint interaction management plan (JIMP) with gas explorers or producers in the overlap area (and beforehand to make reasonable attempts to consult with these gas parties in lieu of resolving any disputes by arbitration). Mandatory content requirements of the JIMP relate to identifying hazards and risks to be controlled in the operational zones defined by the JDP, and the monitoring of trigger events or material changes which will require the plan to be reviewed if they occur. The JIMP must establish timing for response procedures and reporting procedures. Proposed or likely interactions with other persons in the overlapping area and associated risks from those interactions must be documented, together with the safety responsibilities of each relevant person, including stating the names of personnel with responsibility for the operating plant in the operational zones.

The JIMP must also provide a description of the implemented process for reviewing and revising (including through ongoing consultation) the JIMP, including how the details of any new site senior executive or other senior person in the management structure for the mine will be communicated to all operators. As soon as practicable after making a JIMP, and before the coal party carries out any exploration or production activities in the overlapping area, the SSE for the coal mine must notify the chief safety inspector that the plan has been made.

Compensation

Apart from notice, the other mechanism favouring the gas party to balance the impact of the coal miner’s right of way is the right of the gas party to claim compensation from the coal miner where its infrastructure and, in certain circumstances, gas reserves, are affected. The new laws provide that the gas party may claim compensation as soon as it considers that a compensation liability has arisen.

Where the authorised activities of the coal miner under the mining lease will cause the holder of petroleum exploration tenure to have to abandon certain infrastructure, the coal miner is liable to compensate the gas party for the cost of abandoning the infrastructure. Qualifying infrastructure in these circumstance includes pilot wells (not planned for abandonment and being used or held for future use) and ancillary infrastructure, and abandonment costs are to be determined in accordance with regulations.

Where the authorised activities of the coal miner under the mining lease will cause the holder of a petroleum lease to have to replace (defined to include removing or relocating) certain infrastructure, the coal miner is liable to compensate the gas party for the cost of replacing the infrastructure. Qualifying infrastructure in these circumstance includes major petroleum pipelines and facilities, water observation bores, facilities and equipment used to transport water and electricity, accommodation camps, major roads, communication facilities, workshops, stores and infrastructure connecting major facilities to in-field petroleum wells. Replacement costs are to be determined in accordance with regulations.

Most significantly, the coal miner will have to compensate the holder of a petroleum lease for lost petroleum production where the coal miner uses its unilateral right to accelerate mining commencement (and truncate the mandatory notice periods described above), as it is entitled to do. In this context, ‘lost production’ means gas production that would have taken place during the notice period by the petroleum lease holder and is calculated as prescribed by regulation.

Disagreements regarding the amount of compensation, when a compensation payment must be made and other aspects of the compensation provisions, can be referred by either party to arbitration. Qualifying arbitration institutes are prescribed and decisions are to be handed down within months of referral. Therefore, coal miners who are proactive and seeking to avoid resolution of compensation matters by third parties should already be talking with their overlapping gas parties about matters which could affect future compensation liability. These discussions are easily broached in the context of agreeing the JDP, as described above, and at other suitable junctures.

Is there anything I need to consider if the new regime does not apply to me?

Just because the new regime does not apply to a coal miner because of its overlapping tenure combinations, this does not mean there is nothing for the coal miner to consider regarding the new laws. These coal miners should carefully consider the benefits of opting-in to the new scheme and prospects for landing an opt-in agreement with the overlapping gas party, even where there is an existing co-development agreement in place.

Some reasons for opting-in to the new scheme may include:

  • Certainty regarding the right to mine, mining commencement and associated notice periods, or a unilateral right to accelerate mining commencement (subject to compensating the gas party for lost gas production), where existing co-development agreements are uncertain in respect of such matters;
  • The facilitating effect of the advance notice and the JDP in relation to clearly defining dates for mining commencement and gas party exit, exclusive and simultaneous zones of operations, and relevant mapping;
  • Certainty regarding compensation procedures (e.g. where an existing co-development agreement does not provide for this, or does so in an uncertain or outdated manner), including reconciliation payments by the gas party, and calculation of compensation (as prescribed by regulation);
  • A prescribed process for giving the gas party incidental coal seam gas produced during mining and ability to offset gas offered to the gas party against the coal miner’s compensation liability; and
  • Mandatory arbitration referral in the event of prescribed disputes.

How can KWM help?

We can work with you to:

  • Analyse your matrix of overlapping tenure to identify obligations and opportunities under the new laws;
  • Draft, as applicable, precedent advance notices, JDPs and JIMPs ready for completion and proposal to overlapping gas parties on commencement of the new laws and associated legislation;
  • Determine development priorities and mining commencement dates;
  • Advise on your rights and obligations in response to mandated requirements upon petroleum parties under the new regime;
  • Work with your commercial team or consultant to determine strategies to minimise or mitigate future compensation liabilities for specific assets requiring accelerated mining commencement;
  • Determine a strategy for engagement with overlapping gas parties to ensure coal mining priorities are met whilst maintaining legal compliance;
  • Engage with gas parties to discuss development plans, mining commencement, proposed JDPs, proposed JIMPs, pre-determined compensation liability and to discuss opting-out of any non-mandatory provisions of the new scheme;
  • Where the new laws do not apply, review existing co-development agreements (based on the current system) to identify provisions or schedules for replacement by sections or parts of the new system (typically via a deed of amendment);
  • Advise on strategy for arbitration referrals and dispute resolution under the MERCP Act; and
  • Provide advice and conducting workshops on any specific aspects of the new regime which are unfamiliar or to upskill in-house capability.