articles1. coal seam gas coal seam gas (csg) "is a naturally occurring gas (principally...

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WHOSE RIGHT? THE ADEQUACY OF THE LAW GOVERNING COALSEAM GAS DEVELOPMENT IN QUEENSLAND

Susan Johnston*

Coal Seam Gas (CSG) is a commodity subject to competing demands. CSG is a coal industry byproduct. Removal of CSG is a necessity if miners are to work safely underground. However, inrecent times CSG has also become an increasingly valuable commodity in its own right. Gasindustry operators with no interest in the underlying coal resource are now seeking tocommercially exploit CSG. This paper argues that the potential for conflict between coal and gasindustry representatives over access to, and use of CSG is exacerbated by the legal frameworkpresently in place in Queensland. The paper highlights issues which need to be addressed;compares the approach taken in the United States with that taken in Queensland, and sets out thedesirable core elements ofany new legal regime.

1. COAL SEAM GAS

Coal Seam Gas (CSG) "is a naturally occurring gas (principally methane) found in associationwith coal seams". 1 Its chemical composition is "practically the same as, and occasionally identicalto, the chemical composition of natural gas".2 However, as its name suggests, CSG is integrallyassociated with coal seams. CSG is formed as a by-product of the natural conversion of peat tocoal. 3 Whilst concentrations vary markedly, CSG is found in all coal seams. 4 CSG "exists in coalin three basic states: as free gas; as gas dissolved in water in coal; and as gas "adsorped" on thesolid surface of the coal, that is, held to the surface by weak forces". 5 In essence, "the coal acts asa container for the gas. When the pressure on the surrounding coal is reduced, the gas isreleased".6

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B.A., Juris Doctor Candidate, University of Queensland. Formerly senior executive with QueenslandDepartment of Mines and Energy.Balfe P, 'Coal Seam Methane Experience in Australia: The Experience to Date' paper presented to theCommercial Opportunities in Coal Seam Methane Conference, Brisbane, 1996 at 1.NCNB Texas National Bank v West, 1993 Ala. LEXIS 981 at 16. (This case, and cases referenced atNotes 3,4, & 5 provide succinct and accurate descriptions of the properties ofCSG).Carbon County v Union Reserve Coal Co, 1995 Mont. LEXIS 124 at 6.United States Steel Corporation v Hoge, 468 A.2d 1380 (Pa. 1983) at 1382.Amoco Production Company v Southern Ute Indian Tribe, United States Supreme Court Opinion No.98-830, Decided 7/6/99 <http://laws.findlaw.com/us/000/98-830.html> (8/1101) at 5.Carbon County v Union Reserve Coal Co, 1995 Mont. LEXIS 124 at 3.

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The close physical relationship between coal and CSG has given rise to significant legal argumentin the United States to the effect that CSG can rightly be regarded as an intrinsic part of the coalresource.

7Correspondingly, the close chemical relationship between CSG and other natural gas

has produced a body of legal argument to the effect that CSG can rightly be regarded as a gaswhich is distinct from its coal container.8

CSG has long been recognised as a significant safety hazard to underground miners. "Overcenturies it has been the root cause of very many mine explosions with the loss of countlesslives".9 The methane contained within CSG is "highly flammable and explosive when mixed withair or oxygen".

10 Excess methane underground can also cause asphyxiation.11

One of Australia'smost recent, and most devastating mining accidents, the explosion at the Moura No.2 undergroundmine in Central Queensland in 1994, was caused by ignition of an accumulation of methane.

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Given the potential for, and the actual reality of, disasters caused by CSG, the Coal Mining(Underground Coal Mines) General Rule 1983 (Qld) requires underground operators to monitormethane levels, and to take action to prevent methane from accumulating.

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develop and implement hazard management plans for ventilation, methane drainage, and gasoutbursts.14 If prescribed methane concentrations are exceeded, miners must be withdrawn fromthe mine and work must cease.15

Historically, CSG exttacted from underground mines for safety purposes has almost always been16vented to the surface atmosphere through boreholes. Removal of CSG has been seen as a

necessary cost of underground coal mining, rather than an activity with intrinsic commercialvalue.17

However, more recently, CSG has begun to gain substantial attention in Queensland (and in otherparts of the world) as a significant and potentially viable energy source in its own right. Asdemand for natural gas has grown, and awareness of the properties of CSG has increased, attentionhas turned to the sijnificant, largely untapped, reserves of CSG contained within the coal basins ofeastern Australia. 1 Petroleum and gas industry operators, with no interest in the development ofthe surrounding coal, have begun to explore for, and in a limited number of cases to exploit, CSG.

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See McClanahan E, 'Coalbed Methane: Myths, Facts and Legends of its history and the Legislative andRegulatory Climate into the 21 st Century', (1995) 48 Oklahoma Law Review 474 at 477.Ibid.Strang J & Mackenzie-Wood P, A Manual on Mines Rescue, Safety and Gas Detection, Weston & Co.,Kiama, 1985 at 120.Ibid at 120.Ibid at 123.Report on an Accident at Moura No 2 Underground Mine on Sunday 7 August 1994 at 21. Eleven minerswere killed in this accident, and the underground operation was ultimately abandoned.Coal Mining (Underground Coal Mines) General Rule 1983 (Qld) Pts 2 - 8.Ibid Pt 61.Ibid Pts 2 - 8.Rowan G, 'Coal Bed Methane and Safety', 23/1/01 Personal email (23/1/01).Ibid.Norwest Mine Services, 'Background Briefing on Coal Seam Gas', Unpublished Background Report,17/1/01, updated 8/11/01.

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2. COMMERCIAL DEVELOPMENT OF CSG IN QUEENSLAND

Queensland has very large resources of CSG, conservatively estimated at 110 000 Petajoules.19

This is more than all of Australia's conventional natural gas reserves combined.2o While there hasbeen sporadic interest in the commercial development of a CSG industry in Queensland for nearlythirty years,21 exploration activities accelerated in the early 1990s and "peaked in 1994/95 with thedrilling of 35 wells and expenditure of approximately $34m on exploration and productiontesting".22 Queensland's large CSG resource has attracted the attention of major gas companies.Conoco, Mobil, Mitsubishi, BHP and Enron are among the companies who have explored for CSGin the state. A second boom is now taking place driven by a number of smaller companies activein the field and raising money for exploration23.

Many of the current Authorities to Prospect (ATPs) issued under the Petroleum Act 1923 arelocated over three m~or coal provinces - the Bowen, Galilee and Surat Basins - and are directedat exploring for CSG. 4

CSG now accounts for about 12% of production by gas industry operators and 23% of long termcontracts for gas. 25 The oommercial fields are Origin Energy's Moura project (estimated to berunning at 1.5 petajoules per year), and Peat project (2 petajoules per year); Tri-Star Petroleum'sFairview project (4 petajoules per year); Santos' Scotia Project (2 petajoules per year); andTipperary's Comet Ridge (2 petajoules per year)?6 It can fairly be said that there is significantpotential for further commercial exploitation of CSG, independent of coal mining, particularly ifgovernment policy continues to provide practical encouragement for gas development.

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A number of the state's coal mines, including German Creek, Oaky Creek, Moranbah North andNorth Goonyella are mining coal with significant CSG content. These mines all have activedrainage programs to remove CSG ahead of minin§.28 The sum total of gas removed in this way isestimated at between 5 and 10 petajoules per year. 9 However all of this gas is currently vented orflared. While no Queensland underground coal mine is currently commercially exploiting CSG

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Ibid.Ibid. This is not to suggest that all of these resources are either currently or potentially recoverable, asacknowledged in Dighton P., 'Journey to the Centre of the Earth: Coal Seam Gas in Queensland', (1998)Australian Mining and Petroleum Law Association Yearbook 416 at 418.Gately D, 'Coalbed Methane: Mineral or Petroleum?', paper presented to the Petroleum ExplorationSociety ofAustralia Queensland Symposium, Brisbane, 1996 at 2.Ibid at 5. This assessment has been endorsed in discussions with industry representatives.See for example the Arrow Energy Prospectus issued June 2000.Interview with senior officer, Queensland Department of Mines and Energy, 11 January 2001.Norwest Mine Services, op cit.Ibid.As is the case in the Queensland Energy Policy - A Cleaner Energy Strategy, released by theQueensland Government in May 2000.Norwest Mine Services, op cit.Norwest Mine Services, op cit.Norwest Mine Services, op cit.

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a number do have plans to do SO.31 Nevertheless most coal operators are presently primarilyfocused on removal of CSG for safety reasons.

There is one commercial CSG project which is currently being conducted by a coal industryoperator. Whilst underground mining was suspended at the Moura mine after the 1994 explosion,Rio Tinto are now extracting ~as from the site at a rate of about 2 petajoules per annum throughwells drilled from the surface.

3. POTENTIAL FOR CONFLICT OVER RIGHTS TO CSG

The growth in commercial interest in CSG development has set the scene for possible disputesbetween those wanting to extract CSG from coal seams in stand-alone gas operations; and thosewanting to primarily mine coal, (and in the process to extract CSG for safety purposes). It ishighly likely that at some future point "there may be two separate parties wishing to extractdifferent resources, Le. coal and methane [CSG] from the same area".33

Moreover there would appear to be growing potential for two se,parate parties to seek to extract thesame resource - CSG - for different purposes in the same area.3

In such a climate, rights to explore for and extract CSG need to be clearly stated, consistentlyadministered, and commonly understood. If the development of both the coal and the CSGindustries is to proceed a "secure and clear investment climate' needs to be provided.35

Unfortunately, as government, coal industry, and gas industry operators all acknowledge, thecurrent legal regime governing the development of CSG in Queensland does not provide thesecurity and transparency needed.36 Under the existing statutes "the rights to explore and producecoal seam gas are unclear and related Departmental policies and administrative practices have beeninconsistent".37

While a strong focus on open cut coal mining, and an earlier concentration on deep seams assources of CSG, have limited the number of actual conflicts between the parties thus far,38 theimportance of these factors is diminishing. Miners are increasingly going underground. 39

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Rowan op cit.Norwest Mine Services op cit.Dighton op cit at 418.Queensland Department of Mines and Energy, 'A New Coal Seam Gas Regime for Queensland - A finalposition paper proposing a new administrative and legislative framework for coal seam gas explorersand developers and coal explorers and miners', November 1997, Background Section.35 Ibid, Executive Summary Section at 1.There is no disagreement on this amongst the various parties. Interviewees, including those listed atNotes 24 and 31 were unanimously of this view. Additionally, from the December 1993 QueenslandGovernment Coal Seanl Methane Discussion Paper onwards, all Queensland Government policy paperson CSG have acknowledged that the current legal regime is not adequate.QDME 1997 Paper Background Section.Ibid.Norwest Mine Services op cit.

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Technological change is making shallow seams more attractive to gas operators.40 The potentialfor conflict is growing.

In 1995 there were two disputes between coal and gas industry operators which highlighted theimportance of providing clear and consistent access to CSG.41 In the first instance, Shell Coal werethe holders of an Exploration Permit for Coal (EPC) and a Mining Lease (ML) over an area alsocovered by an Authority to Prospect (ATP) for Petroleum held br BHP Petroleum. Both partiesbelieved that they had legal rights to the CSG within this area.4 The Queensland Governmentruled in favour of Shell Coal.43

The second conflict of interests also involved BHP. In that instance,Conoco had an ATP over asubstantial portion of BHP Mitsui Coal's Moura franchise area under the Thiess Peabody MitsuiCoal Pty Ltd Agreement Act 1962 (Qld). In the light of the Queensland Government's earlierdecision BRP believed that they had exclusive rights to the CSG within the franchise area.44 TheState Government granted Conoco a Petroleum Lease (PL) to allow extraction of CSG, advisingBHP after the event.45

These two apparently contradictory outcomes exacerbated uncertainty within both the coal and gasindustries as to the application of the then current legislative framework governing the commercialdevelopment of CSG.46 Flaws in this framework have led both government and industryrepresentatives to acknowledge that there may be significant scope for such confusion in thefuture. 47

4. CURRENT LEGISLATIVE FRAMEWORK

Exploration for, and exploitation of, CSG in Queensland currently occurs under both thePetroleum Act 1923 (Qld), and the Mineral Resources Act 1989 (Qld).

4.1 Petroleum Act Provisions

Section 2 of the Petroleum Act provides that "petroleum" includes any "naturally occurringhydrocarbon whether in a gaseous, liquid or solid state" but does not include "hydrocarbons andother substances or matter occurring in association with shale or coal and necessarily48 mined,

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Queensland Department of Mines and Energy, 'Revised Proposals for a Coal Seam Gas Regime forQueensland - A revised position supplementing the 1997 final position paper', January 2000 at 2.The conflicts are described in Day, R, 'Regulating Coal Seam Gas Development: Reconciling CoalMining and Coal Seam Gas Production,' Proceedings of the Commercial Opportunities in Coal SeamMethane Conference, Brisbane, 1996. The author has also discussed these events with government andindustry representatives who were involved at the time.Ibid, and Interview with senior company representative, BHP Coal, 11 January 2001.Day op cit.Interview with senior company representative, BHP Coal, 11 January 2001.Ibid.Ibid and Note 31.Ibid and Notes 24 & 31.Emphasis added.


extracted, produced or released by or in connection with mining for shale or coal ... " (thisexception is hereinafter referred to as the 'mineral hydrocarbon ').

Following on from the Shell/BHP and Conoco/BHP conflicts, and in a partial attempt to plug someof the then identified gaps in the legislation, the Petroleum Act was amended in 199649 and a newSection 150 inserted. Section 150 (2) provides that the Act "applies, and is taken always to haveapplied" as if CSG were petroleum. The Petroleum Act thus provides the legal framework whichgoverns the extraction of all CSG which does not fall within the scope of the 'mineralhydrocarbon'. Under the Petroleum Act exploration for CSG occurs under an Authority toProspect (ATP) for Petroleum; and actual extraction of CSG takes place under a Petroleum Lease(PL).

In the light of conflicting legal opinion at the time of the Shell/BHP clash, Section 150 (4) alsoprovides that "a ~erson is not, and never has been, authorised to extract and produce, or mine, coalseam gas merely 0 because an Act authorises 1he person to mine coal". Section 150(5) providesthat the entire section "has effect despite the provisions of any other Act enacted before thecommencement, including, for example - the Mineral Resources Act 1989".

4.2 Mineral Resources Act Provisions

Coal Seam Gas which falls within the scope of the 'mineral hydrocarbon' is explored for, andextracted under the Mineral Resources Act. Section 5 of the Mineral Resources Act defines"minerals" to include "hydrocarbons and other substances or matter occurring in association withshale or coal and necessarily mined, extracted, produced or released by or in connection withmining for shale or coal or for the purpose of enhancing the safety of current or future miningoperations for coal ...." As can be seen the definition does not entirely mirror that used in thePetroleum Act. 51 Exploration for CSG which falls within the scope of the 'mineral hydrocarbon'would occur under an Exploration Permit (EP), and extraction would take place under a MiningLease (ML).

Since the early 1990s it has been the policy of the Queensland Government to require those coaloperators wishing to develop CSG resources for commercial purposes to apply for the addition ofthe 'mineral hydrocarbon' to their coal mining lease.52 Section 150 (4) of the Petroleum Act wasintended to reinforce that policy requirement.53 However holders of normal (i.e. non mineralhydrocarbon) coal leases are currently allowed to extract CSG for safety and operational purposes.

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By means of the Petroleum Amendment Act 1996 (No 1) (Qld).Emphasis Added.The extent to which this variance provides an indication as to how the two definitions should beinterpreted is discussed in the section on 'Statutory Interpretation'.Day, op cit at 1.Dighton, op cit at 418.

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4.3 Overlapping Tenures

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There is at present no legislative impediment to the granting of overlapping exploration andproduction titles under the two Acts.54 Indeed, Section 47(1) (a) of the Petroleum Act stipulatesthat every Petroleum Lease shall contain "a reservation of power to authorise mining on the landfor any purpose other than the production or obtaining of petroleum or petroleum products, but notsuch as to interfere with, encroach upon, or endanger operations for producing or obtainingpetroleum...."

Consequently there are now "overlapping coal and petroleum tenures covering most of the coalmeasures throughout Queensland".55

4.4 Deficiencies in the Definitions

As noted, in Queensland exploitation of a particular CSG deposit can fall under the Petroleum Act1923 or the Mineral Resources Act 1989. The deciding factor is whether or not the CSG is"necessarily mined, extracted, produced or released". If so, the CSG is the 'mineral hydrocarbon' .However there is no common or clear view as to the meaning of the term 'necessarily'.

4.4.1 Industry and Government Interpretations

There are significant differences of interpretation amongst industry parties as to exactly when CSGis necessarily extracted. It can be argued that for CSG to be deemed a mineral "coal miningoperations must be occurring or in realistic expectation". 56 This is the preferred petroleum industryinterpretation.57 If this approach is taken there nevertheless appears to remain considerable scopefor dispute as to when a coal operation would be viewed as being 'in realistic expectation'.Additionally, parties differ as to whether application of this interpretation would mean that all gasextracted from a mining lease which was being actively mined (even gas removed from an areaphysically distant from the mining operation), would be deemed a 'mineral' under thisinterpretation.58 It is unclear how the current Moura gas extraction operation, which is taking placeunder the Mineral Resources Act, could fall within this interpretation given the absence of anycurrent underground mining or of any firm plans to commence such mining.59

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Day, op cit at 2. As a matter of policy in 1994 the DME decided that future ATPs granted under thePetroleum Act would be exclusive of the area contained within any pre-existing MLs issued under theMineral Resources Act. However the Department's 2000 Policy Paper indicates that this restriction willbe lifted as part of its new legislative and administrative regime.QDME 1997 Paper Background Section.Note 21 at 3 - 4.Note 40 at 2.A point acknowledged by both government and industry interviewees.Note 24.


Alternatively it can be argued that "if it is a necessary consequence of any mining of the seam thatgas will be released from the seam then the CSG is a mineral". 60 This is an interpretation knownto be favoured by some coal industry operators.61

It is also arguable that Section 5 of the Mineral Resources Act allows another interpretation,namely that as all CSG extraction (at least that which occurs from mineable coal seams) will makeany future mining operations safer all CSG could be deemed to be of the 'mineral' type.62

However it may be that the reference to the need for a safety purpose would go to making such aninterpretation less likely to be upheld by any court. It may be difficult for gas industry operators tosustain an argument that they are extracting CSG "for the purpose" of improving coal miningsafety.

The Queensland Government considers that there is a pressing need to remove the eXIstingpotential for confusion, however the G:>vernment has yet to draft an alternative definition, or toprovide a published view of their interpretation of the provisions.63

4.4.2 Statutory Interpretation

This author sought to test the extent to which differences of interpretation of the definition of the'mineral hydrocarbon' might be able to be resolved through statutory interpretation.

The current definition of 'petroleum' was inserted into the Petroleum Act by means of Section 73of the Mining Act and Other Acts Amendment Act 1982 (Qld). The amendment provided that theterm 'petroleum' did not include shale, oil shale, or hydrocarbons "necessarily mined, extracted,produced or released by or in connection with mining for shale or coal".64 The Mining Act andOther Acts Amendment Act also amended the definition of 'mineral' in the then Mining Act byproviding that the term always did include shale, oil shale, and hydrocarbons "necessarily mined,extracted, produced or released by or in connection with mining for shale or coal".65 The effect ofthese amendments is to clearly provide that shale, and oil shale are minerals, not petroleum.However the amendments themselves provide no guidance as to when CSG might be 'necessarily'a mineral.

Nor do Hansard records shed any light on the intended approach to CSG. In his Second ReadingSpeech the then Minister for Mines and Energy stated that both amendments had been made toremove doubts that "oil extracted from shale or coal by in situ retorting or other methods" was amineral. 66 The Minister stated that such oil had "always been considered to come within theframework of the Mining Act and the Bill removes any room for doubt in the definition of'mineral' not only for the future but also for the past".67 However there was no mention of CSG in

60 Gately, op cit at 3 - 4.61 See Note 31.62 This is a logical flow on from the reasoning used by Gately, op cit at 4.63 QDME 2000 Paper, op cit at 2 - 3 and Note 24.64 See s 73 (d), (e), and (f) of the Mining Act and Other Acts Amendment Act 1982 (Qld).65 See s 7 (e), (f) and (g) of the Mining Act and Other Acts Amendment Act 1982 (Qld).66 Hon Ivan Gibbs, Second Reading Speech for the Mining Act and Other Acts Amendment Bill,

Queensland, House of Assembly, Queensland Parliamentary Debates, Volume 286 1981-82 at 4209.67 Ibid.


the Minister's speech. Nor was there any reference to CSG In the Committee stage ofconsideration of the Bill.58

Given that these amendments occurred at a time when there was minimal interest in thecommercial development of CSG; and given the stronger emphasis on oil shale in both theamendments themselves and the Hansard records; it seems reasonable to infer that little, if anyconsideration was given to the implications which the definitions might have for the extraction anddevelopment of CSG.

When the Mining Act 1968 was repealed and replaced with the Mineral Resources Act 1989 thedefinition of 'mineral' contained in the Mining Act was augmented by the inclusion ofhydrocarbons "necessarily mined, extracted, produced or released ....for the purpose of enhancingthe safety of current or future mining operations for coal..,,69 While this amendment seems aimedat directly providing for the extraction of CSG for safety reasons, the Second Reading Speeches70

again provide minimal guidance as to the circumstances under which such extraction would'necessarily' occur. 71

In short, an examination of extrinsic material associated with the definitions of both 'petroleum'and 'minerals' in the two statutes does not assist in resolving the issue of when CSG is'necessarily' de fined as a mineral.

4.4.3 Impact of the Ambiguity

The issue of whether or not a particular CSG deposit should be seen as 'petroleum' or the 'mineralhydrocarbon' is of much more than theoretical interest. Whilst the dividing line remains unclear,holders of overlapping tenures will have genuine grounds for dispute over the extent of their rightsto CSG. 72 As indicated, there are overlapping tenures throughout ~ueensland's coal basins.Currently, for example, twenty ATPs are overlain by coal tenures. In circumstances wherePetroleum ATPs overlay EPCs neither party can at present be sure what proportion of the CSG

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See Queensland Parliamentary Debates, Volume 287, 1981-82 at 4954 - 4956.See s 5 Mineral Resources Act 1989 (Qld).There are two Second Reading Speeches which relate to the Mineral Resources Act owing to thewithdrawal and amendment of the original Mineral Resources Bill. The first by the Hon Martin Tenni,Minister for Mines and Energy is found in Queensland Parliamentary Debates Volume 313 1989 at 543.The second speech, by the Hon R.C. Katter, Minister for Mines and Energy and Minister for Northernand Regional Development is found in the same volume at 1384.The first Second Reading Speech, by the Hon Martin Tenni, on 7 September 1989 states that thedefinition of 'mineral' would now incorporate "hydrocarbons extracted from coal seams where suchextraction is in association with the mining of that coal or facilitates the subsequent mining of the coal".This might seem to suggest a lesser requirement than that provided for in the Act itself, (there is nomention of the term 'necessarily'), however the wording of the Act will obviously take precedence overwhat may be merely abbreviated wording on the part of the Minister. The second speech on 5 October1989 makes no reference to the definition of 'mineral' .QDME 2000 Paper, op cit at 4.QDME 1997 Paper, op cit at 14.


resource would be available to the holder of an eventual production title. This has obviousimplications for companies wanting to obtain bank finance or to conclude a farm-out agreement. 74

Where granted Petroleum and Mining Leases overlap, (and the ML has been augmented by theaddition of the 'mineral hydrocarbon'), the two parties may conceivably have production rights tothe same resource.75

It can fairly be said both that there is real scope for dispute over rights to CSG; and that, in theevent of such disputes, deficiencies in the current definitions may have· the "effect of increasinglitigation'7Cnd the concomitant effects of increasing delay and expense for ·all involved in the legalprocess".

4.5 Incidental Rights

An additional, unresolved, issue is the extent to which coal lease holders may have an 'incidentalright' to extract and deal with CSG independent of any rights which a lease holder may beawarded to the 'mineral hldrocarbon'. This is an issue which has been raised over a number ofyears by industry groups.7

As indicated, it is Government policy to allow extraction of CSG for safety purposes under anordinary coal mining lease, without the addition of the 'mineral hydrocarbon'. At firstconsideration this would seem entirely consistent with section 234 (1) (a) of the MineralResources Act which provides that a lease may be issued "to mine the mineral or mineralsspecified in the lease and for all purposes necessary to effectually carry on that mining." There isno doubt that extraction of CSG is necessary in order for there to be effective (and safe)underground coal mining. Indeed, it can fairly be said that "the grant of coal mining rights wouldbe useless if it did not include the right to ventilate methane gas from the coal mining area,pursuant to the requirements of the law". 78

On the other hand, it may be less clear that, for example, extensive pre or post mining gas drainageis a necessary activity within the scope of Section 234 of the Mineral Resources Act. Additionally,having extracted the gas, it is not clear what a coal lease holder is actually authorised to do with it.

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Day, op cit at 2.Departmental maps indicate that there is at least one such overlap in existence. The existence of thisproblem is acknowledged in the DME's 2000 Policy Paper at 4.Gifford D, Statutory Interpretation, The Law Book Company Limited, Sydney, 1990 at 3. The absenceof any litigation thus far should be of little comfort. Both coal and petroleum industry interviewees haveindicated that whilst a combination of slow (but growing) demand for CSG; and optimism thatdeficiencies in the legal framework would shortly be addressed; have mitigated against litigation thusfar, this is unlikely to continue indefinitely.Interviews referred to in notes 44, 24 & 31.NCNB Texas National Bank v West, 1993 Ala. LEXIS 981 at 19.

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There is also an issue as to what implications Section 150(4) of the Petroleum Act 1923 may havefor the holders of an 'ordinary' coal ML.79 In providing that a person is not authorised to extractCSG "merely" because they hold a coal lease, the section would seem to place in doubt the legalposition of those coal miners who may remove and vent CSG without having a specific right to the'mineral hydrocarbon'.

While in practice most underground coal operators have obtained specific rights to the 'mineralhydrocarbon' under Section 298 of the Mineral Resources Act 80the issue of the extent of the'incidental rights' granted to ordinary coal lease holders remains a very real one. Unless the scopeof these 'incidental rights' is clear, the extent of the rights remaining to be accessed either throughSection 298 of the Mineral Resources Act or through the provisions of the Petroleum Act will beopen to dispute.

The issue of the scope of 'incidental rights' to CSG which would attach to granted rights to exploitcoal resources has been canvassed in a number of United States State Supreme Court Cases, and,most recently in the United States Supreme Court Case of Amoco Production Company v SouthernUte Indian Tribe. 81 These cases, and their possible implications for Queensland, are discussedfurther later in this paper.

4.6 The'As of Right' 'Entitlement'

Section 40 (2) of the Petroleum Act states that provided" the holder of a Petroleum ATP declaresthat petroleum 'believed on reasonable grounds to be payable' has been discovered within the ATParea; and provided the ATP holder lodges a development and production program with theMinister; "the applicant is entitled to have a lease granted".82 The wording of the Petroleum Act isthus quite different to that of the Mineral Resources Act where holders of Exploration Permits, (orMineral Development Licences) have no 'as of right' entitlement to a Mining Lease.83

The apparent existence of the 'as of right' entitlement means that the holder of an ATP whichoverlaps a granted ML is entitled to the grant of production rights over CSG found on the ML,unless that CSG can be clearly determined to fall within the scope of the 'mineral hydrocarbon.'Given the lack of a unambiguous definition of the 'mineral hydrocarbon' the potential for legaldispute seems significant. 84

The combination of an 'as of right' entitlement under the Petroleum Act; and unclear 'incidentalrights' to CSG under the Mineral Resources Act; also gives rise to the prospect that holders ofMining Lease Applications (MLAs) may need to negotiate their ventilation and methane drainageregimes in advance with holders of ATPs in order to obtain the certainty of access to CSG which islikely to be necessary for project financing.

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Section 150(4). "A person is not, and never has been, authorised to extract and produce, or mine CSGmerely because an Act authorises the person to mine coal."See Interview at Note 24.Amoco Production Company v Southern Ute Indian Tribe, United States Supreme Court Opinion No.98-830, Decided 7/6/99 <http://laws.findlaw.com/us/000/98-830.html> (8/1/01).Petroleum Act 1923 (Qld) s 40(2).Section 267 of the Mineral Resources Act 1989 provides that the Minister may reject a MLA at any time.This potential for conflict is referred to in Dighton op cit at 419.


It should be noted that at various points over the past 15 years the actual existence of an 'as ofright' entitlement under the Petroleum Act has been ~uestioned by legal commentators. In 1986one commentator argued that the apparent entitlement 5, was 'rendered inoperable' by virtue of acombination of Sections 9 and 9A of the Act (as it then was86) and a 1963 Proclamation.8? Section9 provided that "the Governor in Council "was empowered to proclaim any area of land not to beopen to lease".88 On 7 March 1963 the Governor in Council issued a proclamation to the effectthat "all land within the state of Queensland shall not be open to Permit or Lease" under thePetroleum Act. 89 However this apparently all encompassing declaration was mitigated by theexistence of s9A which provided that, notwithstanding the existence of any proclamation madeunder s9 "upon application by the holder of the authority to prospect, a permit may be granted inrespect of such land." The end result, at least according to one view, was that all grants ofPetroleum Leases "remain at the discretion of the Governor-in-Council". 90 This same argumentwas successfully used in 1995 at the time of the Shell/BHP conflict to persuade the Governmentthat no 'as of right' entitlement existed.91

During the course of preparation of this paper various coal industry represmtatives again queriedwhether or not an 'as of right' entitlement existed under the Petroleum Act. 92 The situation wasalso described by Government representatives as one warranting more explicit treatment under theAct.

93However whilst there may not be a common understanding across the various interested

parties, the current legal position does now seem to be clear.

In 1995 the Petroleum Amendment Regulation (No.3) (Qld) inserted a new Section 248 into thePetroleum Regulation 1966 (Qld). Section 248 repeals all subordinate legislation made under theAct other than the Regulation itself. Thus the Proclamation was repealed in 1995.

In the absence of any new sweering proclamation covering the state, an 'as of right' entitlementwould currently appear to exist.9

4.7 Section 47 (1)

As indicated, Section 47(1) (a) of the Petroleum Act is aimed at allowing the Governor in Councilto authorise mining of other minerals on a Petroleum Lease. However the wording of this sectionis such that it could conceivably be construed as have the unintended consequence of precluding areservation of power to grant rights to extract CSG under any ML which overlaps with a PL. This

85

86

87

88

89

90

91

92

93

94

Then contained in s28 of the Petroleum Act 1923.These sections have been renumbered as ss 17 and 18(8) of the present Act.Gately D, 'Queensland Petroleum Act - Rusting Anachronism or Well-oiled Discretion?', (1986), TheAPEA Journal, 42 at 47.Ibid.This Proclamation was published in the Queensland Government Gazette No. 48, 19 March 1963.Gately, 1986, op cit.Interview at Note 44 and Interview with a senior resource industry lawyer 5 February 2001.Interviews referred to at Notes 31 & 44.Interview referred to at Note 24.The situation would have been much less clear cut prior to the 1995 amendment of the PetroleumRegulation 1966. The conflicting sections (currently numbered as ss 17 (2) and (40)) were incorporatedinto the Petroleum Act at the same time, making any attempt to follow the 'last resort rule'; that "thelater section prevails over the earlier one"; impossible. (This rule is described in Gifford, op cit at 113).


is because such extraction would very likely "interfere with, encroach upon, or endangeroperations for producing or obtaining petroleum" 95 in the fonn of CSG. 96 QDME staff haveindicated that they will be reviewing the implications arising from this Section.9?

4.8 Access and Responsibilities

Even where the nature and extent of production rights to a particular CSG deposit are clear, therewould appear to be significant sco~e for dispute over such issues as resource preservation, surfaceaccess and safety responsibilities.9 Where an ATP overlaps with a coal ML, for example, there isno statutory responsibility on the ATP holder to ensure that its exploration activities do notinterfere with coal lease holder's capacity to extract coal safely. This is an issue of immediate,practical concern to the coal industry given present lack of certainty as to the impact which someCSG extraction techniques may have on the coal seam. 99

Nor are there any provisions governing the circumstances under which overlapping tenure holderswill have access to the land surface.1oo

At present the Coal Mining Health and Safety Act 1999 (Qld) makes holders of coal leases legallyresponsible for the safety and health of all of those within the lease area. 1

01 Neither this Act, northe Petroleum Act explicitly deal with responsibility for safety in circumstances where the coallease is overlapped by a petroleum tenure.

These matters would all currently need to be dealt with by means of insertion of particular leaseconditions, as provided for under Section 276 (1) (0) of the Mineral Resources Act and Section 93(2) of the Petroleum Act. The lack of any statutory provisions, and the accompanying forcedreliance on Ministerial discretion, has been criticised by both petroleum, and coal industry

. 102representatIves.

96

95

101

97

98

99

Petroleum Act 1923 s 47(1)(a).This is the author's interpretation, however it has been supported by interviewees.See Interview at Note 24.Dighton, op cit at 418.A technique of particular concern is 'hydrofracturing', wherein fluid is forced into the coal seam tocause it to fracture. The possible safety and operational impact of hydrofracturing for coal operators hasbeen hotly debated for many years. See Kemp lH. & Peterson K.M., 'Coal-Bed Gas Development inthe San Juan Basin: A Primer for the Lawyer and the Landman', Geology and Coal Bed MethaneResources: Northern San Juan Basin, Rocky Mountain Association of Geologists, Colorado, 1988 at260; Carbon County v Union Reserve Coal Company, 1995 Mont. LEXIS 124 at 9 and Rowan, op cit.

100 Section 237 of the Mineral Resources Act 1989 applies only to circumstances where a Mining Leaseholder is seeking conduct activities on the surface of land which is not the subject of another productiontenure.Coal Mining Health and Safety Act 1999 (Qld).

102 'Industry Response to the 29 November 1996 Position Paper', unpublished paper produced by theQueensland Department of Mines and Energy, at 2.


5. TABLED OPTIONS FOR CHANGE

5.1 History

Recognition of the need for transparent CSG rights; expressed concerns by industry parties; and adesire to foster growth in both the coal and CSG industries; have driven a series of Governmentattempts to devise a new legal regime to govern the commercial development of CSG inQueensland.103 The Government released discussion or policy papers on proposed new legalregimes in 1993, 1996, 1997, and 2000. There have also been two Reviews, and numerousindustry submissions. A revised position paper is currently under Government consideration but,as at time of writing, is not yet publicly available.104 The plethora of position papers reflects thedifficulty which the Government appears to have had in reconciling industry positions, and in

I ·f·· b·· 105cart ytng tts own 0 ~ecttves.

A combination of the 1997 position paper ';4 New Coal Seam Gas Regime For Queensland"(hereinafter called 'the 1997 paper'), and the 2000 'Revised Proposals for a Coal Seam GasRegime for Queensland", (hereinafter referred to as 'the 2000 paper') currently represents theGovernment's formal proposals for change.

5.2 The 1997 Paper

5.2.1 Principles

The 1997 Paper is based on five 'guiding-principles' which, in abbreviated form, are as follows:

• "both coal and coal seam gas are valuable resources" and the extraction of both should beencouraged;

• "the rights to extract and utilise CSG need to be clarified and certainty provided to bothindustries";

• "for safety reasons a coal miner must have overriding control of the management of CSGbeing released into a working mine";

• "the effect on the existing rights of current tenure holders is to be minimised"; and

• while simultaneous development or access "is to be encouraged" "potential impacts of eitherindustry on the other should be minimised". 106

However the actual proposals contained within the 1997 Paper seem at odds with several of these'principles' .

103 QDME 1997 Paper, op cit at 1.104 See Interview at Note 24.105 See Interviews referred to at Notes 24, 31, 44, & 91.106 QDME 1997 Paper, op cit, Executive Summary Section.

272

5.2.2 Key Proposals

The key proposals are as follows:

Articles (2001) 20 AMPLJ

• "Pre-existing Mining Leases and Mining Lease Applications be given exclusive "CSG rightsto the 'centre of the earth",.107 Thirty of these MLs and MLAs are currently overlain byATPs.108

• ATPs overlapping Mining Leases be subject to mandatory relinquishment at renewal. 109

• "Coal CSG areas be established wherein "CSG rights (along with coal rights) will attach tonew MLs down to specified depths".110 These coal CSG areas will include all current MDLs,some other identified coal deposits and the Thiess Peabody Mitsui coal field area.

111New

coal CSG areas may be declared by the Minister.112 These areas "would apply to currentATPs, subject to Ministerial consideration of any objections from the ATP holder".113Twenty-two pre-existing ATPs could be affected by the declaration of 'coal CSG areas,.114"Holders of current ATPs who have undertaken exploration in 'coal CSG areas' will not becompensated for any disadvantage arising from the new arrangements". 115

• Within a coal CSG area "applications for PLs may be granted below the depth limit".116Where rights are 'strata titled' in this manner "the holder of a prior MDL or ML will beobliged to provide surface access on reasonable terms to an applicant for an underlyingPL".117

• Where rights are 'strata titled' holders of a coal lease may nevertheless be able to "drain gasfrom below the depth limit ahead of mine workings" notwithstanding that this "might involvethe unavoidable diminution of the CSG resource of the underlying PL holder". 118

• "Outside of 'coal CSG areas' utilisation and commercial production of CSG will bedetermined by a "first in first served" policy where priority is provided by the application dateof the production title".119 However where there is a MLA over an existing ATP, the ATPholder will be invited to lodge an application for a PL "over, adjacent, or surrounding the areaof the ML application". 120 This application will need to be lodged within a specified period,otherwise the MLA application "will be processed in the usual manner". 121

107 Ibid at 4.108 Ibid at 14.109 Ibid at 4.110 Ibid, Executive Summary Section.111 Ibid at 4.112 Ibid at 5.113 Ibid at 6.114 Ibid at 14.115 Ibid at 15.116 Ibid, Executive Summary Section.117 Ibid, Executive Summary Section.118 Ibid at 12.119 Ibid at 7.120 Ibid at 8.121 Ibid at 8.

(2001) 20 AMPU The Adequacy (~f the lAw Governing Coal Seam Gas Developl1zent in Queensland 273

• Outside coal CSG areas, and where there are no other tenures present, new CSG productionrights will be granted to the 'centre of the earth' .122

• "Exploration titles will allow concurrent exploration for coal and CSG" however "explorationactivities can only take place within the area of a production title, with the agreement of theholder of that title".123

• "Prior title holders will be obligated to provide surface access on reasonable terms andconditions to later overlapping title holders".124

5.2.3 Implications

The 1997 Paper thus deals with the potential for conflict and confusion over legal rights to CSG bymeans of a relatively complex system of allocation of rights based on geographical areas and depthlimits. This system appears to give greater priority to coal industry interests than it does to theinterests of gas operators. Effectively, CSG falling within the geographical and depth limits isclassed as a mineral. Outside those limits CSG is neither classed as a mineral, nor as petroleum,until such time as an application for a production title is lodged. This aspect of the proposedregime seems completely at odds with the expressed desire to provide clarity and certainty to bothindustries.

The Paper does not explicitly deal with the issue of incidental rights.

The value and meaning of the apparent 'as of right entitlement' to a Petroleum Lease provided forin S40(2) of the Petroleum Act is clearly diminished by proposals to award CSG rights to the'centre of the earth' to pre-existing MLA and ML holders; and by proposals for the creation of'coal CSG areas'; notwithstanding the pre-existence of granted ATPs covering these areas.

The requirement that pre-existing title holders be required to provide access to holders of newtenures introduces new conditions beyond those already applying to leases. Unless agreement canbe reached with existing titleholders 125

, it seems likely that a specific legislative provision wouldneed to be introduced to effect this requirement. 126

Lack of clarity as to the circumstances under which the holder of a coal lease which abuts a deeperpetroleum lease will be able to extract CSG outside of his lease area for safety purposes, has thepotential to provide another source of dispute· between the parties and to reduce certainty.

The allocation of CSG rights automatically with Mining Leases can hardly be said to encouragethe simultaneous development of the coal and CSG industries which is listed as one of the Paper'sguiding principles. Indeed, the failure to separate a coal lease holder's incidental right to CSG,from production rights to CSG, would seem to provide little incentive to gas industry operators.

122 Ibid at 7.123 Ibid at 8.124 Ibid at 9.125 If agreement was reached s294 of the Mineral Resources Act 1989 could be applied.126 Section 295 of the Mineral Resources Act 1989 does not appear to offer the necessary scope for such an

insertion against the will of a pre-existing titleholder.


Under the regime proposed, the holder of a petroleum ATP who intends to explore for, and laterextract, CSG, can have all rights to CSG obliterated by the issuing of a coal lease to an operatorwho may view CSG as no more than an unwanted by-product of his mining operation.

5.2.4 Reaction to the 1997 Paper

While the coal industry was understandably happy with the 1997 Paper127 the paper was, equallyunderstandably, opposed by the Australian Petroleum Production and Exploration Association(APPEA). APPEA described the proposed new regime as 'open-ended', 'highly discretionary'and more complex than the existing statutory framework. 128

APPEA argued that "Petroleum Leases and Mining Leases should only be granted over thespecific resources identified for extraction, and not otherwise alienate exploration acreage". 129The organization described "the alienation of large areas of potential CSG resources from activeexploration by non-coal companies" as a "major objectionable feature of the Department ofMinerals and Energy's proposed regime". 130

Following on from the strong, negative, APPEA reaction, the Government devised the 2000 Paper.

5.3 The 2000 Paper

The 2000 Paper is described as a 'supplement' to the 1997 Paper and contains a similar mix ofobjectives and principles to those outlined in the earlier document. However the actual proposalsthemselves are significantly different. Whereas the 1997 Paper could be said to exhibit a biastowards the coal industry, the 2000 Paper effectively tips the balance of priority towards gasindustry operators. While 'coal CSG areas' are retained, the 2000 Paper states that the concept ofATP holders being able to apply for PLs covering the surface of coal CSG areas is "thought tohave some merit". 131

ATP holders would also now "be able to apply for PLs to produce CSG within the entire 'coalCSG areas' where no coal mining development has been proposed for the next five years, withoutany existing tenure holders consent".132 However "the views of the coal tenure holder would berequired for the positioning of all major infrastructure". 133 Petroleum Lease holders would also "beobligated to provide all reasonable access to any future coal mining operations, including, if

. I .. d ... hI" 134necessary, removIng stee casIng, ecommissioning 0 es etc .

127 See Interviw at Note 44.128 Jones B, 'Coal Seam Gas - legislative and regulatory issues', submission by the Australian Petroleum

Production & Exploration Association (APPEA) to the Queensland Department of Mines and Energy(QDME), August 1999.

129 Ibid.130 Jones B, 'Alternative Regime for Coal Seam Gas in Queensland', submission by APPEA to the QDME,

September 1999.131 QDME 2000 Paper, op cit at 4.132 Ibid at 5.133 Ibid at 5.134 Ibid at 5.


Rather than requiring the mandatory relinquishment of ATPs which cover MLs, as proposed in the1997 Paper, the 2000 paper suggests that new ATPs could be granted over MLs although they"will be conditioned on the ATP holder not disrupting or interfering with the mining operations etcunder the mining tenure". 135

In order to encourage maximum utilization of CSG resources the Minister would have the powerto ask future Mining Lease holders "why any collected gas was not being utilised, and if hebelieves the gas can be economically extracted, the power to advertise for expressions of interestin utilizing the gas and the power to grant a PL (over the ML) to a third party.,,136 The extent towhich these provisions should apply to existing MLs is left open in the 2000 paper.

The paper acknowledges an APPEA view that extraction of CSG under an ML should only be"permitted as part of the current or future mining operation to ensure safe mining", 13 7 however itprovides no clear response to this view.

The 2000 paper also emphasises the Government's desire to see access, compensation, and consentissues resolved between the parties; and indicates that Government will be giving furtherconsideration to the incentives which might be provided to encourage cooperation amongst titleholders.138

5.3.2 Reaction to the 2000 Paper

The peak mining industry body, the Queensland Mining Council (QMC) responded to the 2000Paper by expressing strong opposition to the new elements within it. The QMC indicated that that"these measures would introduce a potentially untenable degree of uncertainty, complexity andMinisterial discretion that would need to be mitigated if the revised proposal went ahead". 139

In the light of the QMC reaction, the Government then entered into another round of discussionswith both coal and gas industry operators.

The new, as yet unseen, policy paper is believed by both industry groups to take greater account oftheir positions.14o

5.4 Issues with the Government's Approach to Reforming the Legal Framework

The need to clarify the legal framework governing the extraction of CSG in Queensland arisesfrom the inherent ambiguity in the statutes and the desirability of minimizing the potential for

135 Ibid at 5.136 Ibid at 6.137 Ibid at 2.138 Ibid at 7.139 Pinnock M, 'Revised CSG policy proposal', submission by the Queensland Mining Council (QMC) to

the QDME, February 2000.140 See Interview referred to at Note 31.


conflict between coal and gas industry interests. This has been consistently recognised byGovernment.141

Redressing the identified deficiencies requires identification of, and adherence to, clear, noncontradictory priorities. The Government needs to choose between a variety of potential means ofachieving the certainty which all parties are seeking; and to construct a legal regime whichconsistently reflects this policy choice.

The multiplicity of Government objectives and the history of significantly divergent proposals,suggests that Government has failed to do so.142

6. ALTERNATIVE LEGAL REGIMES

Queensland is not the only jurisdiction faced with determining an appropriate legal regime forCSG. Australia's other significant black coal producing state, New South Wales, also hasextensive reserves of CSG. Internationally, the United States has a well developed CSG industry,and at both federal and state levels has had to devise legislation which specifically covers CSG. Indesigning a new legal regime for CSG in Queensland there would appear to be value inconsidering whether any lessons can be learnt from these other jurisdictions.

6.1 New South Wales

6.1.1 Development

New South Wales has an estimated potentially recoverable resource of 15000 petajoules, severaltimes more than the State's estimated reserves of conventional natural §as.

143Significant reserves

are found in the Sydney, Gunnedah and Clarence-Moreton Basins.14

Exploration for CSG "hasbeen carried out for some years in the Sydney and Gunnedah Basins, with concentrated effortssince 1988 in the Sydney Basin".145 However exploration in NSW has not been conducted on thesame scale as it has in Queensland and, due to the lower level of activity, the practical prospectsfor conflict between gas and coal industry interests have been limited thus far. 146 There is onecurrent example of overlapping exploration tenures. In that case, Sydney Gas is exploring forCSG in an area overlain by a BHP Coal Exploration Licence. 147 The only commercial exploitationof CSG is at BHP's Appin, Tower and Westcliff mines in the Illawarra Region. These minesjointly produce about 5 PetaJoules of CSG per year, with the gas being used for on site power

. 148generatIon.

141 See Day, op cit at 1; and QDME 1997 Paper at 1.142 This is view supported by interviewed industry representatives.143 'Coal Seam Methane in New South Wales' , New South Wales Department of Mineral Resources

(DMR) Webpage,< http://www.minerals.nsw.gov.auJpetrol/csm.htm>, (1/3/01).144 Brown K et aI, New South Wales Coal Seam Methane Potential, NSW DMR, Sydney, 1995 at 1.145 Ibid at 5.146 Telephone interview with senior executives NSW DMR, 11 January 2001.147 Ibid.148 Norwest Mine Services, op cit.

(2001) 20 AMPU The Adequacy of the ww Governing Coal Seanl Gas Developnlent in Queensland 277

6.1.2 Current Legal Framework

The New South Wales Department of Mineral Resources (DMR) has·a stated policy of givin~

"total priority" to coal mining ahead of the development of a stand-alone CSG industry.14However the actual legislative framework in NSW is somewhat at odds with this policy. CSG inNSW is clearly defined as 'petroleum' within the meaning of Section 3 of the Petroleum(Onshore) Act 1991 (NSW). Section 41 of the Act confers exclusive rights over petroleum miningto holders of petroleum Production Leases.

Under the Mining Act 1992 (NSW), the holder of a Mining Lease may apply for the inclusion ofpetroleum within his lease. 15o However this application must be refused if the land to which theapplication relates is subject to an issued tenure under the Petroleum (Onshore) Act 1991.151

Thus, where there is a pre-existing Exploration Licence, (regardless of whether or not this Licenceis particularly directed towards exploration for CSG), the holder of a Mining Lease is not able toobtain rights to that CSG.

Where a ML holder is granted rights to petroleum the Minister can apply conditions as to the useto which any recovered petroleum is put152; and as to the ~oint mining and development of thepetroleum with the holder of a petroleum Production Lease. 53

The legislation does not provide for the extraction of CSG during coal mining other than throughthe inclusion of petroleum in the lease.

6.1.3 The Administrative Regime

In practice, the DMR allows coal lease holders to extract CSG both prior to, and during coalmining operations, "as part of their normal lease activities,,,154 without the specific addition ofpetroleum to the lease. However the Department has acknowledged that the legal basis for, andscope of this permission, is ill defined. 155

It is also departmental policy to grant all petroleum tenures exclusive of coal MLs. 156 Thus there isno current prospect that a coal lease holder will be faced with a situation where he cannot ventCSG because of the existence of an overlapping Exploration Licence. However the Departmenthas acknowledged that an issue will arise whenever an existing collieries, which is surrounded bya Petroleum Exploration Licences, seeks to expand.157 An additional Mining Lease may be

149 See Interview referred to at n 146.150 Mining Act 1992 (NSW), S 78 (1).151 Mining Act 1992 (NSW), S 78 (4) (b).152 Mining Act 1992 (NSW), S 78 (5) (d).153 Mining Act 1992 (NSW) 1992, S 78 (5) (e).154 See Interview Referred to at n 146.155 Ibid.156 Ibid.157 Ibid.


granted, but, arguably, the lease holder will have no capacity to access the CSG which rests withinthe coal.158

The DMR is also developin& a policy of requiring CSG explorers and producers to protect themineability of coal seams.15 Conditions along these lines have already been applied to SydneyGas, and the Department has indicated that it would "undoubtedly put such a concept in leaseconditions" in the future.160

6.1.4 Lessons For Queensland

In clearly defining CSG as petroleum, the New South Wales regime avoids one potential basis forextensive and costly litigation between coal and gas industry operators.

The clear policy focus of the New South Wales Department is also a significant advantage. Coalminers and CSG operators investing in New South Wales should be left in no doubt about theDepartment's approach, and should thus have a measure of certainty about the conditions andrequirements which are likely to be placed upon them.

These are positive aspects which the authors of the new Queensland regime can draw from.

However, as Queensland operators from both industries could attest, Departmental policies aresubject to change. An alteration in the DMR's existing policy of exc luding colliery areas fromgranted petroleum titles could significantly exacerbate the potential for conflict between theparties.

Were that to occur, the discrepancies between departmental policy and the statutes themselves arelikely to give rise to very different outcomes to those envisaged by the Department. Coal operatorscould find themselves litigating to establish their 'incidental rights' to CSG. Even where'incidental rights' are established, operators whose coal ML is overlain by a PetroleumExploration Licence could find themselves unable to make any use of extracted CSG.

There would seem to be sound grounds for re-examining the adequacy of the current statutoryframework in NSW, before it is subjected to serious pressures as a result of growing interest in thecommercial development of CSG.

6.2 United States

6.2.1 Development Limited by Dispute Over Ownership

The lack of commercial CSG production in Australia is in marked contrast to the United Stateswhere CSG now accounts for about 7% of US natural gas production - or nearly 1,300 petajoules

158 This is on the basis of application of s 78(4)(b) of the Mining Act 1992; and in the light of there being noclearly defined 'incidental right' to CSG which attaches to rights to coal granted under the Act.

159 See Interview referred to at n 146.160 Ibid.


per year.161

At fEresent well head prices, this gives the US CSG industry annual revenues of aboutUS$3.5 billion. 62

However, notwithstanding the current position, the growth of the United States CSG industry hashistorically been limited by disputes over ownership of, and access to, the resource.

163In the

United States, ownership of individual minerals can vest in the Federal Government, StateGovernments, Indian Tribes, or private companies and individuals.164 It is quite possible forpetroleum rights, coal rights, and surface rights attached to the same parcel of land to be separatelyowned. Indeed, much of the US case law is focused on resolving disputes over ownership of CSGin circumstances where petroleum and coal rights have been given to different parties.

The complex ownership arrangements in the US are quite different to those in place in Queenslandwhere all petroleum, and most minerals, are the property of the Crown.165 It was primarily thisdissimilarity in ownership arrangements 166 which led the Queensland Government to cautionagainst "any attempt to use policies and legislation from the United States,,167 in Queensland.

However while any attempt to simply transfer a US State legal regime to QIeensland would beclearly unworkable, US cases dealing with ownership of CSG rights do provide useful insightsinto the scope of the 'incidental rights' to CSG which might be vested in the owner of a coalresource.

Additionally, for some twenty years now individual. US States and the US Federal Governmenthave had to manage the competing demands of coal and CSG operators. While their success indoing so has been variable 168, some of the resulting State statutes may provide useful guidance asto how access, coal mine safety, and resource protection issues can be resolved in an environmentofoverlapping interests.

6.2.2 Ownership Determined by Particular Wording and Context

United States Courts have very largely determined disputes over ownership of CSG on the basis ofthe wording, and context, of the particular statutes which originally vested rights in the parties~69This is because the various State Supreme Courts have been unable to identify a general legalprinciple which would assist in determining whether or not overall rights to CSG should attach to

161 Energy Information Association Website: <http://www.eia.doe.gov/pub/state.data/pdf/UNITEDSTATES.pdf>, (3/1/01).

162 Norwest Mine Services, op cit.163 See Amoco Production Company v Southern Ute Indian Tribe, United States Supreme Court Opinion

No. 98-830, Decided 7/6/99 <http://laws.findlaw.comius/000/98-830.html> (8/1101) at 4; and LewinJ.L., 'Coal Bed Methane: Recent Court decisions leave ownership up in the air but new Federal andState Legislation should facilitate production', (1994) 96 West Virginia Law Review, 631 at 633.

164 Kemp J.H. & Peterson K.M., op cit at 1.165 See s 9 of the Petroleum Act 1923, and s 8 of the Mineral Resources Act 1989 respectively.166 See Interview referred to at Note 24.167 QDME 1997 Paper, op cit, Background Section.168 See the generally positive assessment of US legislative approaches in Lewin op cit, and more negative

views of Federal Government approaches expressed in Coal Week February 2000.169 See discussion in McClanahan, op cit at 477; and Lewin op cit.


the holder of coal, or gas, rights.17o

The only United States Supreme Court decision dealing withrights to CSG, Amoco Production Company v Southern Ute Indian Tribe (Amoco),171 largelyavoids delineation of general plinciples, and instead focuses on interpretation of specific statutesconveying coal and gas rights.

Given that the majority of cases relate to legislation which was promulgated long before thecommercial value of CSG was recognised, most of the statutes under examination make noreference to CSG. Accordingly, Courts have attempted to determine whether, based on the termsof the statutes, and the commonly understood meanings of the terms 'coal' and 'gas' at the timethe statutes were proclaimed; legislators would have formed any particular view as to CSG. h 172rIg ts.

Where determination of likely legislative intent has proved too difficult, some US State Courtshave considered whether or not CSG can be definitely classed as either' coal' or 'gas' on the basis

f · . h "fi . 173o Its In erent sCIent! IC propertIes.

As a consequence, the US case law seems, on first examination, to be a conglomeration ofcontradictor~ decisions.174 In Pennsylvania, full rights to CSG have been determined to attachcoal rights;1 5 in Alabama, rights to CSG contained within the coal seam attach to coal rights, butrights to CSG which has 'migrated' outside the 'source' seams attach to gas rights;176 in Montanarights to CSG have been defined as gas rights although incidental rights to CSG have been held toattach to coal rights177. InAmoco the US Supreme Court held that conveyance of coal rights understatute in 1909 and 1910 did not encompass conveyance of rights to CSG. 178

6.2.3 Incidental Rights

However, while judgments vary, one common aspect of many of the US decisions is therecognition and preliminary scoping of incidental rights. In NCNB Texas National Bank v West,179the Alabama Supreme Court discussed the 'incidental right' of coal owners to "properly ventilateexisting or proposed coal mining operations".180 The Court saw this right as a 'qualified' right,rather than an 'absolute right of ownership' .181 The terms of the judgment suggest that the Court

170 See NCNB Texas National Bank v West, 1993 Ala. LEXIS 981 particularly at 11.171 Amoco Production Company v Southern Ute Indian Tribe, United States Supreme Court Opinion No.

98-830, Decided 7/6/99 <http://laws.findlaw.com/us/000/98-830.html> (8/1101).172 As discussed in McClanahan, op cit at 477.173 See for example NCNB Texas National Bank v West, 1993 Ala. LEXIS 981 at 6.174 Lewin, op cit has expressed the view, at 647, that, in the US there is "indeterminacy of CBM ownership

at common law."175 United States Steel Corporation v Hoge, 468 A.2d 1380 (Pa.1983) at 1380.176 NCNB Texas National Bank v West, 1993 Ala. LEXIS 981 at 19 - 20.177 Carbon County v Union Reserve Coal Co, 1995 Mont. LEXIS 124 at 10.178 Amoco Production Company v Southern Ute Indian Tribe, United States Supreme Court Opinion No.

98-830, Decided 7/6/99 <http://laws.findlaw.com/us/OOO/98-830.html> (8/1/01) at 9.179 NCNB Texas National Bank v West, 1993 Ala. LEXIS 981.180 NCNB Texas National Bank v West, 1993 Ala. LEXIS 981 at 19 - 20.181 NCNB Texas National Bank v West, 1993 Ala. LEXIS 981 at 17.


saw the scope of the 'incidental right' as being limited to a right to ventilation of CSG "pursuant tothe requirements of the law". 182

In Carbon Country v Union Reserve,183 a judgment in which the Montana Supreme Court held thatCSG was not a constituent part of the coal estate184, the Court nevertheless recognised "the needand right of the coal owner to "extract and capture coal seam methane gas for safety purposesduring the mining process as an incidental mining right".185 However the Court stated that "theexistence of that right does not, without a specific grant, also encompass either actual title to thegas estate, or the right to produce it for commercial purposes".186

In Amoco the US Supreme Court, whilst finding that coal rights did not encompass rights to CSG,stated that "it may be true, nonetheless, that the right to mine the coal implies the right to releasegas incident to coal mining where it is necessary and reasonable to do so".187 However the Courtwent on to state that "the right to dissipate CSG where reasonable and necessary to mine the coaldoes not, however, imply the ownership of the gas in the first instance.,,188

Thus it would be fair to say that US Superior Courts have generally held that holders of coal rightshave an incidental right to CSG which extends to extraction and capture of CSG in line with safetylegislation; but which falls short of a right to ownership. While the scope of the incidental righthas not been fully defined, it is arguable that the right "might not permit the coal owner to produceCBM from mineable coal in a stand-alone operation not associated with any future miningplans,,;189 given that the incidental right relates to CSG which "escapes as a natural and inevitable"d fl"" 190InCI ent 0 coa mInIng .

6.2.4 Legislative Approaches

While the various judicial decisions provide some guidance to US industry on the likely existenceand scope of incidental rights; it has been legislation, not judicial determinations, which hasprovided certainty as to ownership of, and access to, CSG in the United States. In 1992 the UnitedStates Congress enacted the National Energy Policy Act (EPACT). This Act was aimed at"encouraging coalbed methane development" 191by providing a default legislative regime whichwould apply in 'Affected States' until those states developed their own statutes dealing with CSGownership and development.192

182 NCNB Texas National Bank v West, 1993 Ala. LEXIS 981 at 19.183 Carbon County v Union Reserve Coal Co, 1995 Mont. LEXIS 124.184 Carbon County v Union Reserve Coal Co, 1995 Mont. LEXIS at 8.185 Carbon County v Union Reserve Coal Co, 1995 Mont. LEXIS at 10.186 Carbon County v Union Reserve Coal Co, 1995 Mont. LEXIS at 10.187 Amoco Production Company v Southern Ute Indian Tribe, United States Supreme Court Opinion No.

98-830, Decided 7/6/99 <http://laws.findlaw.comJus/000/98-830.html> (8/1/01) at 8.188 Amoco Production Company v Southern Ute Indian Tribe, United States Supreme Court Opinion No.

98-830, Decided 7/6/99 <http://laws.findlaw.comJus/000/98-830.html> (8/1/01) at 8.189 Lewin, op cit at 646.190 Ibid at 645.191 McClanahan, op cit at 519.192 Ibid at 520.


As a result of the EPACT, most States then devised their own legislative response to concerns overCSG ownership and access.193 Examination of the EPACT, and the legislation now applying inWest Virginia suggests several principles which may be of relevance to design of a new legalframework in Queensland.

The EPACT emphasises that commercial development of CSG must not be at the detriment ofmine safety or of preservation of the coal resource. 194 In this context, CSG operators whose gasrights overlap with coal rights must seek the written consent of the coal owner prior to stimulationof a coal seam. 195 If such consent is not forthcoming, the CSG operator an apply for adetermination from the Secretary of the Interior, but, in so doing, the CSG operator must be able toprovide 'prima facie' evidence that the proposed activities will not "cause unreasonable loss ordamage to the coal seam considering all factors", or "violate mine safety requirements".196 Whena CSG operator does drill through a coal seam they are required to "provide for subsequent safemining through the well" in accordance with established standards.197 The incidental rights toCSG held by coal owners at common law are enshrined in the statute. 198

Statutory requirements governing the commercial development of CSG in West Virginia are foundin Article 21 Coalbed Methane Wells and Units, of the Environmental Resources Act of WestVirginia. Coalbed Methane is specifically referred to throughout the Article, and· is explicitlydistinguished from coal. Article 21 begins with a clear declaration of policy namely that "thevalue of coal is far greater than the value of coalbed methane and any development of the coalbedmethane should be undertaken in such a way as to protect and preserve coal for future safe miningand maximum recovery of the coal". 199

Article 21 then goes on to stipulate a legal regime in which: the common law right of coal ownersto vent CSG for safety reasons is enshrined in statute;200 operators of CSG wells are required toprotect the mineability of the coal resource;20 1 and the onus is on the holder of the CSG rights tomake prior contact with the holder of the coal rights whenever CSG extraction could have animpact on coal operations.202

6.2.5 Lessons For Queensland

Both the EPACT and the West Virginian legislation set clear priorities and incorporate provisionsdesigned to achieve those priorities. The access regime reflects the stated aims of the legislationwith preference effectively being given to the holder of the coal rights. Coal owners' incidentalrights are explicitly recognised. While Queensland may not choose the same priorities as theUnited States or West Virginian Governments, the framework of clear objectives, and consistent

193 McClanahan, op cit and the Energy Information Association Website, op cit.194 National Energy Policy Act 1992 813368 (d).195 National Energy Policy Act 1992 813368 U) (1).196 National Energy Policy Act 1992 S13368 U) (2) (E).197 National Energy Policy Act 1992 S13368 (1).198 National Energy Policy Act 1992 S13368 (n).199 22-21-1 (a).200 22-21-1 (b) (1).201 22-21-14.202 22-21-14 (c)

(2001) 20 AMPU The Adequacy ql the Law Governing Coal Sean1 Gas Developn1ent in Queensland 283

provisions which reflect those objectives, would seem to offer greatest prospects for the certaintywhich. all parties in Queensland are seeking. 203 Legislative recognition of. 'incidental rights' alsoseems a basic building block of any effective legal framework.

7. DESIGNING A NEW LEGAL FRAMEWORK FOR CSG DEVELOPMENT INQUEENSLAND

7.1 Principles

CSG is a commodity subject to competing demands. In crafting a legal framework which providesfor the commercial development of CSG it will be necessary for the Queensland government tomake a clear choice between the range of policy options which are currently available to it.Experience in the United States has shown that a statutory regime which, in cases of conflict, givespreference to one outcome above another, adds to certainty for both the coal and the gas industries.A new Queensland legal framework should contain a limited number of mutually supporting,rather than potentially contradictory, objectives.

7.2 Fundamental Requirements

A first, essential, step in construction of a new legal regime should be clarification of the scope ofthe 'incidental' rights to CSG which attach to the awarding of an 'ordinary' coal lease. Withoutthis, parties will be unclear as to exactly what rights to CSG are available more broadly.

It is also suggested that a new legal regime explicitly recognise the term 'Coal Seam Gas'. Thiswill minimise the scope for dispute over the commodity which is being referred to.

Those wishing to obtain access to CSG rights, (over and above defined 'incidental rights') shouldhave to make an explicit application in this regard. This will ensure that rights are clearlyallocated, and minimise prospects of sterilisation of the CSG resource due to the awarding of anon-specific mining or petroleum production lease.

7.3 One Option for Change

With these points addressed, it is suggested that one approach to designing a new legal frameworkcould be to adopt the objective that CSG development be encouraged consistent with the safety ofcurrent and future coal mining operations; and the preservation of mineable coal seams.

Under such a regime:

• Coal operators wanting other than 'incidental' access to CSG would need to specifically applyto have CSG added to their EP, MDL, or ML;

203 This is not to suggest that the administration of this legislation has been without its problems (see CoalWeek, February 28 2000).

284 Articles (200 I) 20 AMPU

• Petroleum title holders wanting access to CSG would similarly have to make specificapplication;

• Once rights of access to CSG had been awarded under one tenement they would not beavailable to other tenement holders;

• All those awarded CSG rights would be required to develop work programs designed tominimise the impact on mineable coal seams; and

• The circumstances under which one tenure holder was required to provide access to anotherwould be clearly articulated in legislation. Core access principles would be stipulated, andwould need to be followed in all detailed access agreements between the parties.

Thus rights to CSG would be clearly and exclusively awarded.

As the QDME has found, additional provisions would have to be introduced to deal with currenttenures if clarity and certainty is to apply to existing tenure holders as well as to new entrants.Any transitional provisions will, of necessity, involve the extinguishments of some existing rights.The High Court of Australia recently confirmed204 that mining rights may be extinguished by StateGovernments without any corresponding constitutional requirement for compensation on 'just

,205 C .. h· Id b ~ I"terms . ompensatlon In t ese cIrcumstances wou e a matter lor government po ICyconsideration.

It is suggested that where there are existing tenures the following transitional provisions apply:

• 'incidental' rights to CSG should be awarded to all holders of coal tenures;

• holders of coal MLs should be given first right of application for the addition of CSGdevelopment rights to their lease;

• in circumstances where there are overlapping exploration tenures, and both parties are seekingto explore for CSG, rights should be awarded on the basis of the date of the commencement ofthe original exploration permits.

8. CONCLUSION

There is a clear and pressing need to amend the current legal regime governing the commercialdevelopment of CSG in Queensland.

Ambiguities inherent in the current statutes exacerbate the potential for conflict between coal andgas industry operators who already have competing aims.

This paper provides one option for change. However, regardless of which option is preferred, theauthor believes any new legal regime must: be based on clear, non-contradictory priorities;explicitly allocate rights to CSG itself, (as distinct from rights to petroleum or to the 'mineralhydrocarbon'); and distinguish 'incidental rights' held by coal lease holders from broader rights toCSG.

204 Durham Holdings Pty Ltd v The State ofNew South Wales [2001] HCA 7 15 February 2001, unreported.205 Ibid at points 7 & 14.


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