Key Points:

Explorers for coal and petroleum will need to consider the impact of potentially tougher and more detailed licence conditions and more stringent reporting obligations.

The New South Wales Government has recently completed a selective audit of coal and petroleum exploration licences (collectively, Exploration Licences) to check whether or not holders are adhering to the conditions set out in their licences. Its audit Report has just been released. While the audit results are encouraging overall, the audit recommendations signal the potential for more regulator involvement and tougher conditions on exploration activities.

The Government's audit delivers on one of several significant proposals by the Government in June last year, shortly after it was elected, which would have a major impact on mining projects in the State.

Impact on explorers

The Report impacts explorers in two key respects:

  • it assists explorers to identify high-risk areas of non-compliance and continue to implement best-practice approaches to ensure that licence conditions are complied with; and
  • it discusses potential changes to conditions and processes surrounding exploration licences in New South Wales, including the implementation of a co-ordinated audit program.

High-risk areas of non-compliance and best practice

The Report contains the results of a detailed independent audit of 42 Exploration Licences and while, overall, there was a high level of compliance with licence conditions, areas of significant risk non-compliance included failures to:

  • obtain appropriate approvals from the Department of Trade and Investment, Regional Infrastructure and Services (DTIRIS);
  • satisfy reporting requirements for geological and environmental conditions;
  • address environmental issues; and
  • keep and update necessary documentation.

Helpfully, the Report attaches relevant DTIRIS guideline documents which set out the intent of the audit process and contain suggested methods to verify whether conditions have been complied with. These guidelines assist all licence holders in:

  • continuing to implement best-practice systems to ensure that the conditions are complied with; and
  • preparing for any future audits.

Recommendations

The Report recommends, amongst other matters, that:

  • all conditions contained in Exploration Licences be reviewed to ensure that they are enforceable and represent best practice. In particular, the Report highlighted that a number of conditions are general in nature and difficult to enforce, and suggested that consideration be given for timeframes to be specified for the implementation of certain activities by licence holders;
  • a review be conducted with respect to reporting requirements, including the consolidation of reports and the timeframes for, and frequency of, reporting;
  • the assessment of exploration activities by the category system be reviewed and clarified so that explorers have a clear understanding of when further approvals are required;
  • an audit program be implemented to ensure that licence holders are complying with conditions; and
  • following the development of the new Environmental Assessment Guidelines for exploration activities, a review of the auditing and assessment processes for environmental performance be undertaken.

It's important to note that, while DTIRIS consulted with the Department of Planning and Infrastructure and the Office of Environment and Heritage during the audit, the audit deals only with exploration activities (where approvals from those agencies are often not required) and not full scale mining or petroleum production activities (where those approvals are required).

It seems to us that this fact, combined with recent amendments to NSW mining and petroleum legislation, gives rise to the potential for more environmental conditions in Exploration Licences going forward.

Where to from here?

While it is yet to be seen whether the recommendations contained in the Report will be adopted by the Government, holders of Exploration Licences should be aware that changes may be implemented with respect to the conditions contained in, and processes surrounding, existing and future Exploration Licences.

Explorers will need to consider the impact of potentially tougher and more detailed licence conditions and more stringent reporting obligations, and continue to ensure that appropriate compliance arrangements are in place, particularly in light of the areas of significant non-compliance identified in the Report.

The Report did not address the NSW Government's proposed new Strategic Regional Land Use Policy, which includes significant new requirements for exploration activities, such as new requirements for water approvals and a Code of Practice for coal seam gas exploration. The trend appears to be towards closer regulatory involvement in exploration activities. Explorers should make sure they understand how this broad trend is likely to affect their activities and factor this into the project planning.