On 13 November 2014, the NSW Government released its Gas Plan which is designed to deliver world’s best practice regulation and secure vital gas supplies for the State.  As part of the roll out of the Gas Plan, the Petroleum (Onshore) Amendment (NSW Gas Plan) Act 2014 (Gas Plan Act) has commenced and draft State Environmental Planning Policy Amendment (Gas Exploration and Mining) 2014 (Draft SEPP Amendment) has been released for public comment. 

In summary, the key regulatory changes for the onshore gas industry are:

• All existing petroleum exploration licence applications and applications for petroleum special prospecting authorities will be expunged and lodgement fees will be refunded to applicants.
• The NSW Government will offer a one off buy-back for the surrender of exploration licences.
• Future CSG development will be limited to about 15% of the State (including a prohibition of such development in National Parks).
• CSG proponents will no longer be responsible for identifying gas exploration opportunities and will need to tender for exploration opportunities identified by the NSW Government through the introduction of the Strategic Release Framework (Framework) on 1 July 2015. Where any area covered by an expunged application is identified by the NSW Government for CSG development under the Framework, the Minister must first invite the applicant for the expunged application to make a fresh application.
• Titleholders who do not efficiently and actively explore for or produce gas may lose their titles under the new “use it or lose it” policy.
• The Draft SEPP Amendment proposes to require CSG exploration activities to be assessed and determined by the Minister for Resources and Energy (Minister) under Part 5 of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act). As a consequence, CSG explorers will not have merit appeal rights in relation to the Minister’s decision to refuse an activity or impose onerous conditions.

Background

Following a 19 month review of CSG activities in the State, the NSW Chief Scientist and Engineer released the Final Report on 30 September 2014.  The Final Report presented the Chief’s Scientist’s findings, including that the risks of CSG development can be effectively managed, and made 16 recommendations to the Government.

On 13 November 2014, the NSW Government released its Response to the Final Report and accepted all of the Chief Scientist’s recommendations which are adopted in the Gas Plan.   

The Gas Plan

The NSW Gas Plan provides a strategy across five priority areas:

1. Better science and information to deliver world’s best practice regulation.

To ensure that the State’s water resources are protected, the NSW Government is drawing on existing datasets to gather the facts to make informed decisions. The data is being gathered by the NSW Office of Water from a network of 3,500 bores.

 2. Pause, reset and recommence – gas exploration on our terms.

Currently, petroleum titles and applications cover 45% of the State. Under the Gas Plan, the coverage of gas exploration licences will be drastically reduced to 15% through the introduction of the Gas Plan Act which:

• Expunged or cancelled 16 petroleum exploration licence applications and applications for petroleum special prospecting authorities (expunged applications) as of 13 November 2014.
• Required the refund of the prescribed lodgement fee ($1,000) to applicants of expunged applications.
• Statutorily exempted the NSW Government from paying compensation to the applicants of expunged applications as a consequence of the enactment of the Gas Plan Act.
• Gave applicants for expunged applications the first opportunity to make fresh applications for petroleum titles where the area covered by the applications is identified for release by the NSW Government.

Further, the NSW Government will:

• Offer a one off buy-back of petroleum exploration licences to existing titleholders across the State. The details of the buy-back are not identified in the Gas Plan other than to say that “limited compensation” will be offered in exchange for the surrender of licences.
• Prohibit CSG development in National Parks, reducing the total area covered by petroleum titles by about 11%.

The Government will also introduce the Framework which will identify the most appropriate areas for gas extraction, ensure that community consultation is conducted upfront and put the title area out for public expressions of interest. Under the Framework, the Government will choose the most suitable and capable proponents to undertake CSG development and implement a “use it or lose it” policy in relation to issued titles. No new applications will be accepted until the Framework is in place.

3. Strong and certain regulation.

World best practice environmental and regulatory standards will be applied to CSG development, including minimum standards for assessment of petroleum applications to ensure titleholders have the necessary skills and financial backing. Petroleum exploration applications will be assessed by the Office of Coal Seam Gas and determined by the Minister, and production applications will be assessed by the Department of Planning and Environment and determined by the Minister for Planning or its delegate, the Planning Assessment Commission.

The Environment Protection Authority (EPA) will be appointed as the lead regulator and will be responsible for enforcement of conditions of development consent under the EPA Act and approvals under the Petroleum (Onshore) Act 1991 (NSW). While CSG development already requires titleholders to hold an environment protection licence, this requirement will be extended to conventional, tight and shale gas development.

 4. Sharing Benefits.

Legislation will be introduced to:

• Ensure that landowners share in the financial benefits of CSG activities. Legislation will be introduced to ensure titleholders pay compensation to landowners in the vicinity of the development on the same terms as landowners who host the gas development.
• Ensure that landowners receive independent expert advice on benchmark compensation rates from the Independent Pricing and Regulatory Tribunal.
• Establish a Community Benefits Fund, with voluntary contributions from both gas companies and the Government, to fund local projects in communities where CSG developments occur.

5. Securing NSW gas supply needs.

CSG production development that is able to demonstrate that it will provide substantive amounts of gas into the market will be designated as a Strategic Energy Project to ensure that gas production is progressed as efficiently and safely as possible. However, this designation will not exempt such development from the requirements to meet environmental standards and undertake community consultation.

An independent expert will be appointed to undertake a review of the settings required to develop a competitive gas industry in the State and secure supply needs, including the royalty payment regime. It is anticipated that the recommendations will be made in May 2015.

Draft SEPP Amendment

The Draft SEPP Amendment proposes to amend:

• State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (Mining SEPP) by removing petroleum exploration activities from being development permissible with consent (including the 5 wells rule) so that these activities are no longer assessed by the Department of Planning and Environment as a development application, but rather are assessed by a relevant determining authority (in this case, the Minister) under Part 5 of the EPA Act.
• The Mining SEPP to require a consent authority to consider the Voluntary Land Acquisition and Mitigation Policy in determining applications for State significant mining, petroleum and extractive industry projects.
• State Environmental Planning Policy (State and Regional Development) 2011 to remove references to petroleum exploration from specified development in Schedule 1 under petroleum (oil and gas) (including the 5 wells rule) so that it is no longer considered to be State Significant Development.

The Draft SEPP Amendment was publicly exhibited between 18 November and 2 December 2014.