Unconventional Oil & Gas - Liz Allnutt

Perth partner Liz Allnutt explores the rules and regulations that govern Australia’s oil and gas industry.

This article was originally published by Unconventional Oil & Gas and is reproduced with permission.

Rules and regulation: navigating the governance maze

by Liz Allnutt

As the regulation of the oil and gas industry around Australia becomes increasingly complex, unconventional resources legal expert Liz Allnutt breaks down the regulatory process state by state, and highlights some of the key legal principles guiding the development of the unconventional sector around the country.

General legislative framework

In Australia, all six states and the Northern Territory have their own legislative power to govern onshore petroleum exploration and production activities within their boundaries. State legislation also regulates activities within coastal waters extending up to three nautical miles from the coastal baseline. The onshore petroleum regimes in each state are broadly similar but not identical. The onshore petroleum regimes in Australia start from a fundamental position of treating unconventional gas resources in the same manner as conventional petroleum resources.

In addition to the petroleum-specific legislation, there is other legislation that applies to petroleum exploration and production activities. This includes environment and heritage protection legislation (at state, territory and Commonwealth level), legislation governing the allocation of onshore water rights, native title and Aboriginal heritage protection legislation, legislation governing industrial relations and workplace health and safety, planning legislation and general land tenure legislation.

The Standing Council on Energy and Resources, comprising Australia’s energy and resources ministers, has endorsed and implemented a harmonised framework for the regulation of coal seam gas. The National Harmonised Regulatory Framework provides a suite of leading-practice principles to be used as a guidance and reference tool for Australian Commonwealth, state and territory government regulators for the coal seam gas industry.

The framework focuses on four key areas of operations, covering the life cycle of the development of natural gas from coal seams: well integrity, water management and monitoring, hydraulic fracturing and chemical use. The framework acknowledges that, although shale gas and coal seam gas have some common exploration and development procedures, the geological and hydrological issues that apply to different forms of unconventional gas are also significant.

There is no expectation that the harmonised regulatory framework developed for coal seam gas will be extended to apply to shale gas. However, it would be reasonable to expect that a similar harmonisation process may subsequently be implemented for the shale gas industry, and that some of the recommendations in the coal seam gas framework could be incorporated into that process.

Land access

In Australia, there is a general principle of multiple land use, which means that different parties may have coexisting rights or interests with respect to the same area of land. The types of land interests that may coexist with onshore petroleum titles include private land; leases from the government for pastoral, agricultural or other commercial purposes; mining (i.e. hard rock mineral) tenements; as well as native title rights and interests.

Where a petroleum title coexists with private land, operations cannot begin on the private land unless an agreement has been reached with the private landowner as to compensation, or the compensation has been otherwise determined by a court. For other types of land interest, the petroleum title holder is generally not prevented from proceeding with operations, but is required to pay compensation to other lawful occupiers of the land who are adversely affected by the petroleum operations. Where there is conflict between onshore petroleum titles and mining tenements, the relevant state or territory minister makes a decision as to the priority of operations.

Registered native title claimants and holders have procedural rights in respect of the grant of new petroleum titles within their native title claim areas. The main native title process that applies is the ‘right to negotiate’ procedure. This requires the native title parties to be notified of an application for a new petroleum title, be given the opportunity to make submissions with respect to the grant of the title, and negotiate in good faith the conditions on which the title may be granted. This process usually results in the parties also negotiating an appropriate compensation package for the native title party. If agreement cannot be reached, the matter can be determined by a regulatory tribunal.

Sites or objects of cultural significance to Aboriginal people are also protected and maintained under legislation. Consent is usually required before Aboriginal heritage sites or objects can be disturbed. Compliance with heritage protection protocols is usually a requirement of most negotiated native title agreements.

Types of petroleum and related titles

Different petroleum titles are required for each stage in the development of a petroleum project. Generally, titles fall into four main categories: exploration titles, retention titles, production titles and infrastructure titles. The terminology varies between Australian jurisdictions, but the most common terms are exploration permit, retention lease, production licence, pipeline licence and infrastructure licence.

Exploration titles

An exploration title gives the holder the exclusive right to explore for petroleum within the title area. Exploration titles are usually granted for a term of between five and seven years. In most cases they can be renewed, but there is often a requirement to relinquish portions of the title on renewal. Exploration titles usually have minimum work conditions attached to them. Typically, these require a combination of technical, geological and marketing studies, seismic acquisition and the drilling of at least one exploration or appraisal well during the term of the title (and each renewal).

The release and award system for petroleum exploration acreage differs between jurisdictions. There is either an invitation and competitive tender process, an open application system or a combination of both. Broadly speaking, for areas where there is significant commercial interest, a competitive tender process is likely to apply.

Retention titles

In some jurisdictions, a retention title can be obtained over areas where petroleum discoveries are not currently commercially viable but are likely to become commercially viable in the future. The initial term of a retention title is generally five years and may be renewed. When the petroleum discovery is deemed to be commercially viable, the retention title must be converted into a production title.

Production titles

The holder of an exploration title containing a declared discovery is entitled ‘as of right’ to a production licence over the area containing the discovery. A production title gives the holder an exclusive right to carry out operations (e.g. drilling of developmental wells) for the recovery of petroleum within the relevant licence area. In Western Australia (for production titles granted after May 25, 2011), South Australia and Victoria, onshore production titles are granted on a ‘life of field’ basis. In the remaining jurisdictions (and for Western Australian production titles granted prior to May 25, 2011) the term of a production title can vary from 20 to 30 years, and can be renewed at the discretion of the regulator.

Pipeline and infrastructure licences

The holder of a pipeline licence has the authority to construct and operate a petroleum pipeline and ancillary storage tanks and facilities. The key difference between onshore pipeline licences and exploration and production titles is that a pipeline licence is usually only a licence to operate the pipeline infrastructure, and appropriate land tenure – for example, an easement over the pipeline land corridor (although separate access rights may need to be obtained). Infrastructure licences are used for the construction and operation of facilities and services outside a production title area.

Other petroleum authorities

There are also other types of petroleum authorities, such as access authorities and special prospecting authorities. Broadly speaking, these authorities allow for the carrying out of certain approved petroleum activities (e.g. seismic surveys) but not the drilling of wells. Access authorities generally only allow exploration survey work to be conducted in areas adjacent to an existing petroleum title. Special prospecting authorities are designed to encourage exploration in areas where little or no exploration has been undertaken. Special prospecting authorities may be applied for with an ‘acreage option’, which enables the holder to apply for an exploration permit within six months of the expiry of the authority. However, the option does not impose any obligation on the Government to grant a title, as title is only granted on the merits of the proposed work program and on satisfying the assessment criteria.

Environmental protection

There is a framework of state and Commonwealth legislation applicable to onshore petroleum activities. A number of states have introduced environmental and safety management regulations that are specifically directed at the unconventional gas industry, or primarily impact on it. For example, additional notification and reporting obligations are required for activities involving hydraulic fracturing. This includes disclosure of chemical compounds added to the water injected in fracturing operations.

State environmental approvals

The environmental regulation of onshore petroleum activity varies between the states and territories, although there are some common features. Most petroleum exploration and production operations require environmental approval under the state or territory petroleum legislation, which is usually issued on the approval of a satisfactory environment management plan. This plan must outline the potential environmental impacts, their significance and how those impacts are to be managed. For hydraulic fracturing activities, it should address, among other things: transport of equipment; fuel, chemical and hazardous materials handling; and management of produced water and flowback fluid.

Where onshore petroleum activities are likely to have significant environmental impact, a more comprehensive and detailed assessment is required under the relevant state or territory environmental protection legislation. There are various levels of environmental impact assessment, depending on the environmental significance and complexity of the proposed project. A public consultation process may be required for some projects.

Commonwealth environmental approvals

Actions that will have a significant impact on a matter of national environmental significance require approval under the Commonwealth environment legislation in addition to state or territory environmental approval. Matters of national environmental significance include listed threatened species and ecological communities, migratory species and areas of high conservation value.

Water

Access to water is an important consideration for the recovery of unconventional gas. State and territory governments regulate and manage water resources with the aim of protecting them and promoting sustainable and efficient use of water. Licences and permits are issued for water use under specific water rights legislation. Water generally cannot be taken from a watercourse or groundwater aquifer without a licence, and separate licences are required for the operation of artesian wells.