The most important assets of a mining or petroleum company, whether at the exploration or production stage, are its tenements. Without those, the company has no right under Australian law to carry out the exploration and production activities necessary to develop its project.
With that in mind, the Queensland Government’s policies for resources tenure reform under its recent ‘Innovative resources tenures framework’ position paper (Policy) are particularly important for mining and petroleum companies. The reforms concern key aspects of tenement governance, such as term, renewability and relinquishment. As such, it is crucial that proponents are aware of what is proposed and the implications for their business.
This article summarises the key elements of this early-stage law reform proposal, including indicating what aspects may or may not be welcomed by industry.
In summary, the key points are:
- consistent with the move to a Common Resources Act, a system of uniform tenure types across minerals, petroleum, geothermal and greenhouse gas storage activities, namely an exploration authority (exploration and assessment), a development authority (retention and development), a production authority and an infrastructure authority (construction, production and infrastructure);
- exploration tenements will not be renewable after the maximum available term and will therefore be capped in duration;
- the maximum available term of exploration tenements will be extended to a new period roughly equal to the current initial term for the relevant resource type plus a single renewal (or slightly more for petroleum);
- obtaining retention tenure (at the end of the exploration tenement’s term) will depend on the applicant proving its project is not yet commercially viable;
- other criteria relevant to acquiring a retention status are “yet to be developed”;
- there will be relinquishment of half of the original area of the exploration tenement at the mid-point of the term, however there will be an opportunity to negotiate delayed or reduced relinquishment if there is strong performance (equally, there may be additional relinquishment if there is under-performance);
- there will be the opportunity to negotiate more favourable relinquishment commitments up-front, prior to grant, in respect of ‘greenfield areas’ (however there is no settled definition of this concept);
- the content of work plans will be goal-orientated against the tenement holder’s capacities rather than prescriptive and, up to the mid-point of the term, variations thereto do not require approval;
- there may not be a requirement for pre-requisite tenure; signalling the potential introduction of an invitation to tender process for retention and production tenements; and
- proposed transitional principles indicate existing tenements will stay the same and holders can opt-in to the new framework (however some renewals may be subject to the new regime, as will higher tenure grants).
Like any law reform, the actual impacts to business are likely to be revealed in subsequent details. These will be the subject of updates to this article in due course.
In the meantime, if you have any questions about this article or how your project should be transitioned to mitigate impacts, please contact us.
Non-renewal of tenement terms and extension of terms
A key proposal under the new policy is to remove the right for an exploration tenement holder to renew an exploration tenement on expiry of its term. The ‘quid pro quo’ for removing the right is a balancing proposal to extend the available terms for exploration tenements, as follows:
- exploration tenements for minerals will be granted for terms of up to 8 years;
- exploration tenements for coal will be granted for terms of up to 10 years; and
- exploration tenements for petroleum will be granted for terms of up to 12 years.
Where proponents have applied for less than the maximum term, an extension up to the balance of the full term will be possible (although reasons for extension will be required).
The justification for this capping system is that it gives certainty to tenement holders because they will no longer have to endure not knowing whether or not a tenement will be renewed (this decision is presently subject to the Minister’s discretion).
However, we anticipate that any excitement in industry for that will be offset by the new reality that a proponent will have only a finite amount of time to find and prove up discoveries: no extensions will be possible. At the end of the extended term, the proponent must apply for a production tenement and approvals, or seek retention tenure.
In the current resources climate, where mining and petroleum projects are frequently delayed due to reasons outside of a proponent’s control (e.g. downturn in commodity prices, inability to access funding, shareholder opposition), for many projects the ability to transition tenure to a retention status will be vital.
The Policy indicates that the threshold of ‘commercial viability’ will be retained as the relevant criteria for assessing retention applications (i.e. retention is available because the project is not commercially viable). However, whilst widely understood, this is a complex concept involving subjective views of what is an acceptable ‘return on investment’ for a particular project (something Governments and the private sector will often differ on). Otherwise, the Policy provides that:
“Thresholds and criteria for… the retention status will be developed prior to the implementation of this policy”.
Under a system of capped exploration terms, this lack of detail coupled with differing perspectives regarding when a project is not commercially viable, may be disconcerting for industry.
Relinquishment: Non-‘greenfield’ areas
The Policy includes new proposals for relinquishing exploration tenure which are designed to more effectively influence the exploration performance of the tenement holder.
How much of the original exploration tenement that must be relinquished is determined by the performance of the tenement holder for the period until the mid-way point of the tenement’s term (mid-term). That is:
- exploration tenement for minerals – at 4 years;
- exploration tenement for coal – at 5 years; and
- exploration tenements for petroleum, geothermal and greenhouse gas – at 6 years.
The Policy sets out possibilities for the tenement holder’s conduct during this period: ‘strong’, ‘acceptable’ and ‘underperformance’.
The consequences of performing at each of these levels are as follows:
- Strong - ability to negotiate a proportional or deferred relinquishment;
- Acceptable – relinquish 50% of the original tenement area; and
- Underperformance – possible relinquishment of more than 50% of the original area and/or penalties, or cancellation of the tenement (in serious cases).
There is a general lack of detail concerning what these terms mean, however it is clear that ‘acceptable’ means reasonable exploration effort and ‘strong’ and ‘underperformance’ are measured as conduct above and below that threshold respectively. In terms of what is meant by ‘exploration effort’, that seems to be the extent to which the tenement holder’s activities have aligned with the exploration objective and geological model (see below regarding changes to work plans) and how the tenement holder has increased its knowledge of the resource potential.
Relinquishment: ‘Greenfield’ areas
The risk of exploration in ‘greenfield’ areas is generally greater than in ‘brownfield’ areas because less is known about the underlying mineral or petroleum resource. To incentivise exploration in these under-explored or unexplored areas, the Policy indicates there may be the opportunity for proponents in these areas to negotiate up-front, prior to grant, mid-term relinquishment obligations.
Whilst this idea should prove attractive to industry, the award of an opportunity to negotiate coupled with the absence of a settled definition of what is ‘greenfield’ in this context detract from certainty.
Work plans and variations
The Policy implements changes to industry requirements in respect of exploration work plans and their variation. Prescriptive work plans, setting out work scopes on a yearly basis, will be replaced by purposive plans, which are only required to state the exploration objective and geological model adopted by the holder.
In recognition of the varying nature of exploration work, no approvals of variations to that information are needed until the mid-term (upon which point reasons for significant changes may be needed). Holders will be expected to report against the work plan on an annual self-assessment basis without the need to meet prescriptive legislative requirements.
We expect the administrative efficiencies of this system (which will eliminate hundreds of interactions with Government and corresponding non-compliance actions) will be welcomed by Government and industry alike.
The Policy proposes there be circumstances where pre-requisite tenures are no longer a necessary requirement for subsequent tenure.
Whilst further detail is needed to properly understand this statement (including the circumstances in which this applies), it signals an intention to introduce an invitation to tender process for retention and production tenements (where underlying exploration tenure is not required). We think the ability, in a depressed market, for a struggling mining or petroleum company to be able to directly acquire retention acreage (without needing to first incur significant expense on exploration activities) is a particularly helpful reform.
Resource information authority
A new type of authority is proposed to enable the gathering of information where activities do not trigger native title negotiations (although whether this will apply in areas where native title has been determined to exist remains unclear). The authority may include attributes of a data acquisition authority, water monitoring authority, petroleum survey licence and prospecting permit available under the current framework. The proposed term of the authority will be 2 years (with no ability to renew). Importantly, the authority will not confer the right to a higher form of tenement.
The Policy notes the following transitional ‘principles’ (further detail is to be created following industry consultation in late 2015):
- existing tenements will be maintained;
- existing tenement holders can ‘opt in’ to the new framework to the equivalent tenement;
- progression to higher tenure may only be available under the new framework;
- renewal of existing tenements may be limited in duration to coincide with the new laws (i.e. unless specified otherwise, further extensions will need to be applied for under the new framework); and
- production tenures that have ‘rights and processes in common between the current and new tenure framework may be transitioned by the statute to the new framework’.