Greater flexibility for onshore petroleum tenure holders in Queensland

In brief

Queensland's petroleum legislation was recently amended to provide greater flexibility to onshore petroleum tenure holders for a variety of matters, including extensions to work programs and terms of authorities to prospect, relinquishment conditions and work programs, and greater flexibility in both the reserves required for the grant of a petroleum lease and timing for commencement of production. Partner Ben Zillmann , Senior Associate John Hedge and Lawyer Andrea Moffatt report on these amendments, which have been designed to better align tenure issues with the practicalities of large-scale multi-tenement projects, but also to offer flexibility for smaller projects.

Background

Following consultation with the petroleum industry through the Ministerial Advisory Committee on Exploration and the ResourcesQ initiative, the Queensland Government identified that the commercialisation of oil and gas resources in Queensland was being hindered by factors such as inflexibility of work programs and the length of tenure terms.¹ As part of its commitment to reducing red tape and minimising barriers to investment in the resource industry, the Government introduced a number of amendments to the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (the PGPSA) as part of the Land and Other Legislation Amendment Act 2014 (Qld) (the LOLA Act), which commenced on 28 May 2014. There were also some minor amendments passed to validate certain matters under the Petroleum Act 1923 (Qld).

Extension of terms and work programs for ATPs

To ensure that the PGSPA provides ATP holders with time to undertake genuine exploration activities before being required to relinquish part of the area,² the PGPSA has been amended to provide that where:

• an ATP was in force before 1 July 2014; or
• an ATP was granted on or after 1 July 2014 under section 41 of the PGPSA (the tendering process) and either the holder was the preferred tenderer for the ATP before 1 July 2014 or the holder is on or after 1 July 2014 regarded as the preferred tenderer for the ATP for the call for tenders that closes on 29 September 2014,

there is either:

• where the ATP was granted for a term of 12 years, an automatic extension of the work program of the ATP for two years; or
• where the ATP was granted for a term of less than 12 years, a right (that may only be exercised once) to apply to the Minister seeking an extension of the term of their ATP (and the current work program for the ATP) for two years.

Where the work program for an ATP is extended for two years under these provisions, the activities provided for in the work program remain unchanged, and the requirements in the work program for the carrying out of stated activities will be taken to be adjusted to allow for the activities to be undertaken during the extended remaining period for the work program. To the extent a two-year extension would take the work program beyond the end of the ATP's term, the extension is instead limited to the remaining term.

Where Ministerial approval is given to extend the term of an ATP by two years, the requirement to relinquish part of the area of an ATP on or after the date the amendments come into force will instead be 'required to be made at the end of the extended remaining period for the work program'. The Explanatory Notes to the LOLA Act suggest that this was intended to defer relinquishment requirements for two years.³

Amendment of the work program or relinquishment condition of an ATP

The amendments also allow for ATP holders to seek Ministerial approval of special amendments to the relinquishment conditions of, or work program for, an ATP.

In making a decision on such matters, the Minister may (without limitation) have regard to the optimisation of the development and use of the State's petroleum resources and whether the relinquishment requirements or the work program amendment provisions allow for sufficient flexibility to achieve such optimisation.

There is no prescriptive list of the types of amendments that could be sought. However, both an explanatory note in the LOLA Act⁴ and an example given in the Explanatory Notes⁵ anticipate that one circumstance where amendments might be appropriate is where an ATP forms part of a wider project, so that, for example, it may be appropriate to permit the holder of multiple ATPs related to the same project to:

• satisfy relinquishment conditions of one ATP by relinquishing ground from another project ATP; and/or
• spread the work program commitments across a number of ATPs within an approved project-grouping.

Neither the LOLA Act nor the Explanatory Note go any further in describing what degree of connection between tenements would be required for them to be considered part of the same project or project-grouping, although the Minister has indicated this approach 'supports the scheduling of field operations; optimises the use of crews, plant and equipment; and aligns tenure management with the commercial realities of the phased development of these large projects'.⁶

If the Minister approves a special amendment to the operation of the relinquishment requirements and/or the work program, a change of the conditions of the ATP may also be approved.

Other miscellaneous changes

The amendments also contain a number of other miscellaneous (but important) changes, including the following:

• An applicant for a petroleum lease will now be required to include a statement by a suitably qualified person that the proposed area contains commercial quantities of petroleum (as opposed to the previous more prescriptive requirements for 20 per cent of discovered petroleum to be classified as proved or probable reserves under the SPE Code, which applied under the Petroleum and Gas (Production and Safety) Regulation 2004 (Qld));
• The timing in which holders of a petroleum lease may apply for a change of the date on which they are to start production has been changed from one year to one year or such shorter period as is prescribed by regulation (subject to transitional provisions that allow applications within six months after the amendments commenced where the holder could still not meet the shortened period for such applications to be made);
• Petroleum lease holders are now able to change the production commencement day for the lease (from the normal statutory requirement of production within two years of grant) if the holder enters into a 'relevant arrangement' (a contract to supply petroleum from the lease) after the lease takes effect. Previously the production commencement day was only able to be more than the standard two years after grant if the holder had entered into a relevant arrangement before the grant of the lease. The Minister will still be able to refuse the application if the Minister reasonably believes supply under the relevant arrangement is unlikely to be carried out, or the arrangement is not an arm's-length commercial transaction.
• Both the PGPSA and the Petroleum Act 1923 (Qld) have been amended to confirm that notice of an approval of a proposed later work program or proposed later development program for an ATP will be valid, even where the notice was given after the start of the period of the proposed program. This amendment aligns with the existing departmental practice of allowing the ATP holder to carry out authorised activities in accordance with the proposed later work program where it was lodged, but has not been approved, before the existing work program's expiry.

Next steps

These reforms are part of a wider range of red tape reduction and reforms to resources legislation being pursued by the Department of Natural Resources and Mines in connection with the ResourcesQ initiative and Modernising Queensland's Resources Act Program.

Petroleum tenure holders in Queensland will therefore need to continue to keep up to speed with the Queensland Government's ambitious plans for law reforms in this area and the implications for their projects.