The Queensland Government has announced its decision on the transitional arrangements to apply to the implementation of the new overlapping tenure regime.

In January 2011, the Queensland Government announced its intention to overhaul the existing regulatory framework governing overlapping coal and coal seam gas (CSG) tenements.

Following extensive discussion and consultation led by the Queensland Resources Council (QRC) and the Australian Petroleum Production and Exploration Association (APPEA), and at the urging of the Queensland Government, a joint industry proposal titled ‘Maximising utilisation of Queensland’s coal and coal seam gas resources – a new approach to overlapping tenure in Queensland’ (known as the White Paper) was fi rst submitted in June 2012.

The White Paper, which is over 100 pages in length, proposes signifi cant changes to the way competing coal and coal seam gas interests in Queensland are managed.

On 28 November 2013, the Queensland Government revealed its decision on the key outstanding issues surrounding the transition of the proposed new regime, paving the way for draft legislation to be released for comment before the end of the year.

The current framework

The current framework operates to provide the holders of prior production tenure with a right of veto over the development of a competing resource within the boundaries of the production lease.

As a result, Queensland has been the subject of a ‘race for tenure’. Applications for production leases over areas encompassing competing exploration projects have often been met with a request for the Minister to make a preference decision, effectively favouring the approval of one project over the other.

In these circumstances, unless the parties have been able to successfully negotiate a ‘coordination arrangement’ providing for the concurrent development of both resources, production tenure may not be granted until a preference decision is made.

To date, no preference decisions have been made, leaving many proponents without the ability to proceed to the production stage.

The White Paper

The reforms proposed by the White Paper are highly detailed and technical in nature.

It is intended to remove the ‘preference decision’ mechanism and veto powers held by production lease holders in favour of a default path to production for all tenure holders.

Overlapping tenure holders may opt out of the proposed new default arrangements by agreeing upon a tailored solution for their particular projects. It is intended that the model proposed under the White Paper will apply where the parties are unable to reach agreement.

A right of way for coal

The key principle underpinning the proposed default framework is the grant of a prevailing ‘right of way’ for the holders of coal mining leases.

Under this principle, coal miners will have an exclusive right to develop coal deposits within a defi ned ‘area of sole occupancy’. An area of sole occupancy is intended to be the minimum area which is necessary to conduct safe and effective mining operations. The rights of holders of overlapped petroleum leases and authorities to prospect will be temporarily deferred within the areas of sole occupancy.

The operation of the right of way principle, and the determination of areas of sole occupancy, will be subject to:

  1. The rolling abandonment model; and
  2. 10 year notice periods.

Rolling abandonment model

Rolling abandonment involves pre-determined areas of sole occupancy within which the rights of petroleum tenure holders will be suspended. In theory, as a mine face advances, the petroleum tenure holder gradually abandons areas in favour of the miner, and areas of sole occupancy are returned to the petroleum tenure holder after the mine face passes.

An initial mining area (IMA) will be declared as an area of sole occupancy, and is intended to represent the fi rst 10 years of coal mining operations under a mining lease. It is proposed that an applicant for a mining lease may nominate multiple IMAs within the same lease.

It is proposed that an overlapped petroleum tenure holder will be provided with notice of the IMA at the same time that the relevant mining lease application is lodged, and then a further notice 18 months before the commencement of mining in the IMA.

Where a mining lease is to be granted over a petroleum lease, a 10 year notice period will apply before mining within the IMA commences. The 10 year notice period starts 12 months after the mining lease application is lodged. Where a mining lease is to be granted over an authority to prospect, only the 18 month notice before commencement of mining is required.

As the mining activities reach the boundaries of an IMA, the area of sole occupancy will incrementally move forward through a roll out of areas to be mined in stages (known as rolling mining areas or RMAs). Each RMA panel is to represent one year of mining.

Notice periods

It is proposed that a notice period of 10 years must ordinarily pass before a petroleum tenure holder will be required to vacate an area of sole occupancy. A coal miner has the power to shorten this period, however the miner will be obliged to compensate an impacted petroleum lease holder for lost gas production and the costs of relocating minor and major gas infrastructure. Theoretically, it is hoped that a period of 10 years advance notice will allow the petroleum tenure holders to maximise gas extraction and extract the bulk of production and economic benefi t from wells and infrastructure before they are obliged to vacate those facilities.

It is possible for a petroleum lease holder to apply to have the notice period extended in ‘exceptional circumstances’ for high-performing wells or fields.

Other key principles

The White Paper addresses other key principles under the proposed new regime, including issues relating to:

  1. Matters of compensation, including in respect of lost CSG production and in respect of impacts on key gas infrastructure;
  2. First rights of refusal for petroleum tenure holders for any incidental CSG production;
  3. Access to land owned by the overlapping tenure holders;
  4. Synchronisation of pre-mine drainage;
  5. Exchange of information between the parties; and
  6. Expert determination on various matters in dispute.

The transitional arrangements

The White Paper proposes that the new regime will 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 regime requirements.

The proponents of the White Paper could not reach agreement in respect of the application of the new regime to:

  1. Applications for production tenements that have been made and are awaiting approval; and
  2. Retention tenements (mineral development licences and potential commercial areas).

The coal position

The coal members had initially proposed that, from 31 December 2012, the new regime should apply to all future production tenures, including those currently in application phase or subject to retention tenure.

The CSG position

The CSG members proposed that applications for production tenure within a defi ned geographical area within the Surat Basin (Grandfathered Production Tenure Applications) remain under the current regime for four years commencing on 31 December 2012, such that any production tenure granted out of these applications up to 31 December 2016 would remain subject to the existing regime.

The CSG members proposed that all other production tenure applications and all retention tenures operate under the new regime from the date of commencement.

The decision

Via a letter to the QRC from the Director-General on 28 November 2013, the Queensland Government has communicated its intention to implement the following transitional arrangements:  

  1. The new regime will apply to all existing exploration tenure, and all future production tenements granted after the date of commencement of the amending legislation (subject to certain exemptions for Grandfathered Production Tenure Applications);
  2. Existing production tenements, and all future applications for production tenure overlapping the area of existing production tenements, will remain subject to the current regime;
  3. In respect of production tenure granted out of Grandfathered Production Tenure Applications, where a mining lease is granted over a petroleum lease, a 15 year notice period will apply (instead of the usual 10 year notice period) before the lease holder will be required to vacate an area for sole occupancy. The 15 year notice period may only be truncated with the consent of the petroleum lease holder.

Some uncertainty

There is some uncertainty as to how the Government will apply the new arrangements.

The proposed extended notice period and protection against truncation is stated only to apply to petroleum leases granted after the commencement of the amending legislation, and before 31 December 2016. There will be pressure on the Government to expedite the grant of applications for petroleum lease that are currently yet to be decided.

It is unclear how the Queensland Government intends to progress competing applications for production tenure during the period between commencement of the new legislation and 31 December 2016.

If these applications are to be subject to the current requirement for a Ministerial preference decision in the absence of a negotiated alternative, then the Government will need to give applicants greater certainty that such preference decisions can and will be made during the relevant period.

Next steps

A first draft of the legislation to introduce the new regime proposed under the White Paper, excluding the recently announced transitional arrangements, is expected to be released for discussion before the end of the year.

At that time, an information paper outlining the Government’s intended application of the transitional arrangements will be provided for comment.

Draft legislation with respect to the transitional arrangements will be released early in the new year.