Queensland's new framework for the development of the deep gas and oil industry

In brief

The Queensland Government has released a plan to encourage the viability of the emerging 'unconventional' deep gas and oil industry. Partner Igor Bogdanich, Managing Associate John Hedge and Lawyer Ellie Mulholland analyse the recommended changes to Queensland's onshore petroleum regulatory framework, which are aimed at reducing regulatory and commercial barriers to investment, and ensuring that the industry develops in an environmentally and socially responsible way.

Background

Queensland has been at the forefront of the development of the coal seam gas (CSG) industry in Australia, with three CSG to LNG projects rapidly closing in on first LNG production.

The Queensland Government is now looking to support the development of the next generation of unconventional oil and gas projects and on 28 August 2014 released A Framework for the next generation of onshore oil and natural gas in Queensland (the Framework) to support the commercialisation of deep gas and oil. The Framework aims to encourage the viability of the emerging deep gas and oil industry by reducing regulatory and commercial barriers to investment, and ensuring that the industry develops with an awareness of its environmental impact and community concerns. Deep gas and oil is seen as a crucial component of the Queensland Government's ResourcesQ 30-year vision for the development of a strong resources industry.

Deep gas and oil opportunities in Queensland

Deep gas and oil refers to shale gas, shale oil, tight gas and basin-centred gas. These unconventional oil and gas resources are usually found in rocks with low permeability within deep basins and require stimulation, such as hydraulic fracturing, to allow the gas or oil to flow through the well to the surface.

The Framework recognises key commercial drivers that would support the development of a deep gas and oil industry in Queensland, including:

• serving as a source of additional natural gas for the new LNG facilities in Gladstone (either to extend their life or expand the volume of LNG production); and/or
• meeting domestic natural gas needs and increasing supply to the Australian eastern gas market.

The deep gas and oil industry in Queensland is in its infancy, with approximately 30 exploration wells drilled to date. The Framework identifies five locations across Queensland where early indications show the presence of deep gas or oil: the Cooper Basin and overlying Eromanga Basin, Southern Georgina Basin, Isa Superbasin, Bowen Basin and Maryborough Basin (as shown in the map below).

Source: Geological Survey of Queensland, 2014. Framework, p 4.

The new framework

Deep gas and oil industry projects would currently be covered by the existing State and Federal regulatory framework for onshore oil and natural gas developments (particularly the Petroleum and Gas (Production and Safety) Act 2004 (Qld), Environmental Protection Act 1999 (Qld) and Water Act 2000 (Qld) with a Federal overlay from the Environmental Protection and Biodiversity Conservation Act 1999 (Cth) and Native Title Act 1993 (Cth)).

The Framework does not seek to overhaul this, but rather makes recommendations to enhance the current regulatory regime, as well as non-legislative planning and policy steps to support industry development and community engagement. As reported in our previous Focus, the petroleum legislation is ultimately intended to largely be replaced by a 'common resources act' so the Framework-related changes may occur in advance of, or as part of, legislation designed to progressively implement the 'common resources act'.

The twelve recommendations

The recommendations to support the development of the deep gas and oil industry aim to make the industry more economically viable, boost investment opportunities, encourage the transition from exploration to first commercial production and reduce red tape. These include to:

• Provide greater tenure security for industry – recognising that short tenure, inflexible work programs and relinquishment dates hamper deep gas and oil exploration activities, industry participants will benefit from recent amendments to petroleum legislation that provide greater flexibility to tenure holders (set out in more detail in our recent Focus) and the ongoing review by the Queensland Department of Natural Resources and Mines, to be completed by the end of 2015.
• Develop a Cooper Basin Industry Development Strategy – given the strong likelihood that first Queensland commercial production of deep oil and gas will occur in the Cooper Basin (due to existing production in South Australia and infrastructure connecting the basin), relevant Government Departments will work with industry to develop a basin-specific infrastructure plan by the end of 2014.
• Improve inter-jurisdictional collaboration – many of the key deep gas and oil potential deposits straddle Queensland borders. To reduce duplication of regulation, improve interstate access and transportation arrangements, and facilitate the implementation of the proposed Cooper Basin Industry Development Strategy, the Queensland Government will pursue collaboration with the South Australian and Northern Territory governments, including through the COAG Energy Council and the Roundtable of Oil and Gas Projects in South Australia (previously known as the South Australian Roundtable for Unconventional Gas Projects).
• Identify and support infrastructure needs – the Queensland Government will work with industry and other jurisdictions to assist it to plan the critical infrastructure, such as pipelines, that will be required if the resources in these locations (some substantial distances from existing pipelines) prove commercially extractable.
• Increase subsurface knowledge – the Geological Survey of Queensland will work with industry to identify further potentially prospective areas and gaps in current geoscientific knowledge of deep gas and oil resources to reduce explorer and investor risk.
• Review and streamline electrical standards – a review of electrical standards, followed by potential legislative changes, aims to address the need to rewire expensive drilling equipment purchased overseas (often built to North American electrical standards).

A further suite of recommendations aim to ensure that the development of the deep gas and oil industry follows best practice from an environmental and community impact perspective (to ensure the industry develops with a social licence to operate). These include to:

• Review hydraulic fracturing conditions – the Government will review the current conditions and, if necessary, develop new ones to ensure Queensland has a best practice framework in place for hydraulic fracturing of deep gas and oil (noting that Queensland already bans use of BTEX compounds in hydraulic fracturing and imposes conditions as part of environmental authorities for oil and gas projects using hydraulic fracturing techniques).
• Update environmental impact statement guidelines – the Government will review the activities required to extract deep gas and oil to determine whether the Environmental Impact Statement triggers need to be amended.
• Update the regulatory framework for management of underground water – the Government will also assess the underground water management framework to avoid, minimise or mitigate the effects of water use in these types of projects on aquifers that support the agriculture industry.
• Amend current codes of practice – current codes of practice relating to well heads and water bores (developed for the CSG industry) will be reviewed to ensure they capture the specifics of deep gas and oil operations.
• Expand the role of the CSG Compliance Unit – the Government will investigate whether the model used for landholder and community engagement for the CSG industry should be extended to the deep gas and oil industry.
• Proactively engage and inform the community – each individual operator will be required to have a comprehensive community engagement plan incorporating the key principles endorsed by governments and industry in 2005. The Government has begun its own education program with new fact sheets available on the Department of Natural Resources and Mines website. 

Next steps

Work is already underway by the relevant Queensland Government departments to implement the recommendations, with the first key policies and legislative changes expected throughout 2014 and 2015.

Industry stakeholders should stay abreast of the regulatory reforms and opportunities to engage with Government on the development of the key guidelines, policies and plans (in relation to not just deep gas and oil projects, but more general reforms to oil and gas regulation in connection with the Modernising Queensland Resources Acts reforms and the ResourcesQ initiative).

The Government has indicated that there will be public consultation on some Framework recommendations through the relevant Government Department (without yet confirming the extent of those consultations). Those with an interest should keep an eye on the Queensland Government's website for consultation on the Framework recommendations.