Most would be aware of issues surrounding overlapping tenure. For some time now Queenslanders have been awaiting release of draft legislation to implement proposals for reform. Late last year the Director-General of Natural Resources and Mines, in a letter to the Queensland Resources Council, indicated the Government’s position on transitional arrangements for a defined area in the Surat Basin. 

Background

Issues concerning overlapping tenure, particularly to do with coal and coal seam gas, have been on the agenda for some time now. In January 2011 a consultation draft of the Mine and Petroleum Legislation Amendment Bill 2011 was released with the purpose of ensuring that the framework for overlapping coal and petroleum tenure adequately supported the establishment of Queensland’s CSG to LNG industry and optimised the use of the State’s coal and CSG resources.

Following release of the draft bill there was much consultation among industry. This resulted in the release in May 2012 of a proposal for a completely new legislative framework for managing coal and coal seam gas overlapping tenure. The framework was set out in a paper entitled ‘Maximising utilisation of Queensland’s coal and coal seam gas resources – a new approach to overlapping tenure in Queensland’ (the White Paper). The White Paper proposed substantial changes and Government indicated a general acceptance of those proposals. Accordingly, when draft legislation is finally released, we can expect it to encapsulate the issues set out below.

Key reforms expected to be implemented in the draft legislation

A ‘right of way’ for coal mining leases

It is anticipated the draft legislation will contain provisions whereby the holder of a mining lease (ML) for coal will, subject to certain restrictions outlined below, have the exclusive right to develop coal deposits within an initial mining area (or areas) (IMA). That IMA will represent the first 10 years of mining operations based on the ML holder’s mine plans and associated infrastructure. The IMA is notified at the time of lodging the Mining Lease Application.

Whilst the ML holder is utilising the IMA, following the expiry of the relevant notice periods, the rights of holders of any overlapping petroleum lease (PL) and/or authority to prospect (ATP) will be suspended. The PL or ATP tenement will technically still remain in full force and effect, but the rights and obligations in relation to the overlapping area will be modified. For example, the PL or ATP holder will be relieved from relinquishment obligations and work program conditions to the extent of any area the subject of an IMA.

The PL holder will still retain all of its rights to conduct activities outside the area of the IMA.

However, the holder of the ML will be entitled to expand its mining operations into the future mining areas beyond the original IMA by adding rolling mining areas annually. Each rolling mining area will represent 1 year of incremental mining operations.

In that event, as mine activities progress beyond the IMA, the holder of any coal seam gas tenure under a PL or ATP will progressively have to abandon areas of its tenement to the holder of the ML. As this occurs, the PL or ATP holder will be able to re-access the area no longer utilised by the ML holder.

Restrictions

Certain restrictions have been placed on the above position to ensure the interests of coal seam gas tenure holders are also protected. The proposed restrictions include:

  • The holder of a coal ML must provide 10 years’ notice to holders of a PL before commencement of mining in the IMA and consequent abandonment by the relevant PL holder. This 10 year notice period may be shortened by the Miner provided the specified compensation obligations are paid to the holder of the relevant PL (including for lost coal seam gas). This restriction is intended to ensure that coal seam gas tenure holders have adequate opportunity to maximise extraction ahead of coal mining operations.
  • Compensation must also be paid by the holder of the coal ML for affected coal seam gas infrastructure.
  • An 18 month advance confirmation notice must be given before the IMA takes effect in situations where a coal ML is granted over an ATP.
  • The holder of an affected coal seam gas tenure has the first right of refusal to any incidental coal seam gas produced by the ML holder.

Transitional  arrangements

The White Paper proposes that the new regime should apply to all existing exploration tenure and all new production tenure.

Existing production tenements and future applications overlapping the area of existing production tenements would remain subject to the current legislative requirements, unless parties elect to opt-in to the new framework.

However, there is currently no clear consensus on whether the new principles should apply to existing production tenement applications and retention tenements (i.e. mineral development licences and potential commercial areas).

It is important to note that this is effectively a statutory default arrangement which will apply unless overlapping tenure holders agree a specific co-development arrangement of their own.

Way forward

Pending the draft legislation due to be released for consultation early this year, the Queensland Government has set out its position on the necessary transitional arrangements.

However, this clarification specifically relates only to production tenure applications in a defined geographical area in the Surat Basin

(Grandfathered Production Tenure Application).

Some of the transitional arrangements for Grandfathered Production Tenure Applications are as follows:

  • A 15 year notice period where a coal ML application is lodged over an existing PL in the defined area.
  • A restriction on truncating the 15 year notice period with the consent of the PL holder.
  • The transitional provisions will apply to all production leases granted subsequent to the commencement of the legislation but prior to 21 December 2016.