Victorian onshore gas exploration: Requirements for restarting operations

Written by Dominic Townsend and Grace Lewis.

2022 is set to herald the recommencement of onshore gas exploration in Victoria after an almost 10-year hiatus.

Following on from last April's alert regarding the new regime, the Petroleum Regulations 2021 (Vic) (Regulations) governing onshore gas exploration and production in Victoria commenced in November 2021. The Regulations pave the way for the restart of onshore conventional oil and gas exploration in Victoria – particularly in the prospective onshore Otway and Gippsland basins. The Victorian Government hopes this will unlock up to 830 petajoules of gas for the domestic market, which has been forecast by the ACCC to potentially be in shortfall as early as this year[1]. 

The Regulations and the Petroleum Act 1998 (Vic) (the Act) impose strict requirements that must be complied with before exploration permit holders are permitted to commence onshore petroleum exploration activities. The requirements highlight the Government’s desire to:

1. ensure the risks of operations and impacts on affected parties are addressed; and
2. be kept fully informed regarding petroleum operations.

This paper:

• summarises the key requirements for restarting exploration operations;
• explains the specific operation plan requirements;
• outlines the applicable landowner consent regime; and
• highlights some additional matters of which permit holders and stakeholders should be aware.

Summary of key requirements

Operation plans

• Additional to existing work plans - Permit holders must develop an operation plan and submit it for approval by the Minister via the Resource Rights Allocation Management business portal. The operation plan is a separate requirement to the work program the permit holder submits with its application or tender for the permit and which forms the basis of the work commitments for the permit.

• Content - The operation plan must (in summary):
  • describe the equipment and facilities to be used in the operation;
  • include a comprehensive description of each proposed stage of the operation, including (A) construction, (B) operation, (C) decommissioning; and (D) rehabilitation, and a process for notifying the Minister prior to the commencement of each stage;
  • include an environment management plan;
  • include a statement of the particular exploration activities that are proposed to be carried out, including G&G surveys, wells to be drilled, samples and petroleum extraction; and
  • if a well is to be drilled, include a well operation management plan[10].

• Review requirement - The operation plan must be reviewed by the permit holder:
  • before the commencement of each stage of the petroleum operation;
  • every 5 years; and
  • whenever there is a significant change to the risks that the operation may pose.

A report of the finding of the review must be provided to the Minister[11].

• Notification to ‘relevant persons’ and demonstration of consultation - Prior to submitting the operation plan to the Minister for approval, the permit holder must notify any “relevant person”, which includes any person (or organisation) who may be affected by the proposed operations. This is a broad category of persons, which may be difficult to define with certainty in practice.

Nevertheless, it will be important for permit holders to show that they have considered any submissions made by, and consulted with, relevant persons prior to submitting the operation plan for approval by the Minister. This is because one of the grounds for approving the plan is the Minister being satisfied that the permit holder will consult effectively with such persons over the life of the operation[12].

• Environment management plan - The environment management plan must (among other things)[13]:
  • describe the environment and particular sensitivities in the area of operations;
  • describe any cultural, historical, aesthetic, social, recreational, ecological, biological, landscape and economic aspects of the environment that might be impacted by the operations;
  • include a risk assessment in respect of the impacts of the operations on the environment;
  • contain an implementation strategy including the systems, practices and procedures the permit holder will implement to ensure that any adverse environmental effects of operations are eliminated or minimised, so far as reasonably practicable;
  • provide for monitoring, audit and review of environmental performance; and
  • include a statement of the corporate environmental policy of the permit holder and a report on consultations with governmental agencies and third parties in relation to the plan.

• Well operation management plan - The Regulations provide for a long list of matters that must be included in the well operation management plan[14], including:
  • a timetable and description of the stages of the well activity;
  • details of the design of each well and ancillary equipment, and how modifications to and suspension and abandonment of the well will be managed;
  • an explanation of the philosophy and criteria for the design and construction of the well and possible petroleum production activities of the well;
  • the logs to be run, proposed sampling and testing methods, and the performance objectives of the well; and
  • an explanation of how well integrity hazards and protection of aquifers will be managed.

In preparing the well management plan and conducting operations, permit holders should comply with the Code of Practice. A failure to comply with the Code of Practice could be used as evidence of a breach of the conditions of the permit and the Act (for example, a failure to comply with the requirement in s 164 of the Act to ensure that petroleum operations are conducted in a proper and workmanlike manner)[15]. 

Landowner consent

• One of the major hurdles to undertaking ‘on the ground’ petroleum exploration operations is the requirement to enter into a compensation agreement with landowners and occupiers prior to undertaking operations on their land.

• Permit holders should engage with landowners and occupiers in relation to the proposed operations in order to obtain their consent and agree on compensation. Compensation is payable in respect of loss or damage to land, and includes compensation for loss of possession, damage to improvements, loss of amenity and decrease in market value[16]. Compensation is subject to a 10% uplift for intangible losses. The total compensation that can be claimed by both owners and occupiers must not exceed what a single owner and occupier is entitled to receive[17].

• If a permit holder is unable to enter into a compensation agreement with the owner and occupier of the land on which the proposed operations will occur, within 14 days of a proposal being given to the landowner and occupier by the permit holder, then the permit holder may refer the matter to the Victorian Civil and Administrative Tribunal for determination[18]. However, the Tribunal must be satisfied that the permit holder has attempted to negotiate the settlement of the compensation claim[19]. Therefore, permit holders will need to engage with landowners and occupiers for a reasonable period and should document all attempts to agree compensation, prior to seeking determination by the Tribunal.

Additional matters to note

• Insurance and rehabilitation bonds - While the specific requirements for the rehabilitation bond and insurance are not clear, we expect that similar requirements to those in place for mining in Victoria are likely to apply, as follows:
  • the rehabilitation bond may be an unconditional bank guarantee for 100% of the anticipated costs of rehabilitating the land the subject of the operation plan for the permit; and
  • the required insurance is likely to include public liability insurance in respect of doing work under the licence (e.g. a minimum of not less than $10 million).

• Reporting - Permit holders are subject to onerous reporting requirements, including requirements to provide the following reports to the Minister:
  • notice of the commencement and completion of petroleum operations;
  • annual reports, which detail the exploration activities, conclusions and reports and studies conducted, within 60 days of the end of each financial year (or when the permit ceases to have effect);
  • weekly survey reports for G&G surveys, survey acquisition data, survey processing reports and survey interpretation reports;
  • daily drilling reports;
  • initial well completion report and data, within 6 months after the rig release date, and a final well completion report and data, within 12 months after the rig release date; and
  • incident reports for any incidents that are reasonably likely to cause significant damage to individuals, the environment or the petroleum operation[20].

• Onshore permits only - The above requirements for ministerial consent, operation plans, rehabilitation bonds and insurance do not apply to offshore petroleum permits, including where exploration or production operations authorised under offshore permits are conducted from onshore. Offshore permits within 3 nautical miles of the Victorian coast are separately governed by the Victorian Offshore Petroleum and Greenhouse Gas Storage Act 2010 (Vic) (although access to onshore land for undertaking offshore petroleum operations is governed by Part 6A of the Act and the landowner access regime discussed above).

• 5 year term reset - The existing term of petroleum exploration permits was ‘reset’ for a term of 5 years from the date the ban is lifted, ending on 1 July 2026[21]. The term of retention leases was also reset from that date[22].

• No fracking - It is an offence to carry out hydraulic fracturing[23].

Please don’t hesitate to contact us if you have any specific queries.

References

[1] See ACCC press release 126/21 “Looming gas supply shortfall for east coast market” dated 17 August 2021.

[2]Petroleum Act 1998 (Vic), s 138.

[3] Ibid ss 161-163.

[4] See the draft “Code of practice for the construction, operation and decommissioning of petroleum wells in Victoria” issued by the Department of Jobs, Precincts and Regions.

[5] Ibid s 173.

[6] Ibid s 171.

[7] Ibid s 128.

[8] Ibid s 145.

[9] Ibid s 146 and see the Aboriginal Heritage Act 2006 (Vic), s 42.

[10] See Petroleum Regulations 2021 (Vic), reg 22(1)(a)(iv).

[11] Ibid reg 22(b).

[12] Ibid regs 23 and 24(1)(b).

[13] Ibid regs 30-34.

[14] Ibid reg 36.

[15]Petroleum Act 1998 (Vic), s 251.

[16] Ibid s 129.

[17] Ibid s 130.

[18] See Petroleum Regulations 2021 (Vic), reg 53.

[19]Petroleum Act 1998 (Vic), s 134(3).

[20]Petroleum Regulations 2021 (Vic), regs 38-49.

[21]Petroleum Act 1998 (Vic), s 261.

[22] Ibid s 262.

[23] Ibid s 16A.