Australia: Coal seam gas operations on rural land in Victoria – negotiation, occupation and compensation

We recently raised the topic of the potential for coal seam gas (CSG) exploration and production activities progressing in Queensland and the issue of landowner consent¹. That article outlined the statutory process in Queensland for agreeing compensation with a resource company or, where such an agreement cannot be struck, the mechanisms for determining landowner compensation. This article considers the equivalent regime in Victoria.

The Victorian State government has implemented a moratorium on fracking (a process required for CSG extraction) which is to remain in place until at least July 2015². Victoria's abundant conventional gas resources are likely to be in high demand as liquefied natural gas (LNG) export facilities come online in other States in coming years. It is expected that resulting increases in gas prices will in turn result in increasing pressure to turn to unconventional gas extraction methods, such as CSG, as a source of additional gas supply within the State.

In Victoria, licences for the exploration and production of CSG are governed under the Mineral Resources (Sustainable Development) Act 1990 (Vic) (Mineral Resources Act). It may come as a surprise to many rural landowners and occupiers in Victoria to learn that, as in Queensland, landowners must grant access to a licensee that has been granted a licence in respect of that landowner's or occupier's land. There is a right to compensation payments for a range of factors including loss of possession of the land affected, damage to the land or improvements on the land, severance of the land from other land of the owner or occupier, loss of amenity, including of recreation and conservation values, and any decrease in market value of the owner's or occupier's interest in the land³.

If it is necessary for the owner or occupier to obtain replacement land, the compensation payable must take into account incidental expenses incurred by the landowner or occupier in obtaining and moving to that land. This would be expected to cover any real estate agent's fees, stamp duty payable and legal costs incurred by the landowner or occupier.

When it comes to negotiating the quantum of compensation, there is very little guidance under the Mineral Resources Act regarding the quantum of compensation payable by licensees, other than a cap of $10,000 for compensation payable in respect of "loss of amenity"⁴. This lack of clarity is of concern.

There is also a provision providing for a "solatium" payment of up to 10% of overall compensation payable to owners and occupiers, to compensate them for "intangible and non-pecuniary disadvantages that are not otherwise compensable"⁵. This means that, for any land affected, landowners or occupiers are able to seek payment for those effects.

Whilst it is not a requirement for the licensee to do so, it would be uncommon for the licensee not to attempt to enter into a written compensation agreement with the landowner or occupier, and to do so much in advance of proceeding with any exploration or extraction activities on an owner or occupier's land. If agreement cannot be reached between the parties, this does not prevent the licensee from accessing the land or conducting its activities. The licensee will be able to proceed with its proposed activities in accordance with the terms of its licence and the Mineral Resources Act whilst the terms of compensation payable are settled in the Victorian Civil and Administrative Tribunal (VCAT). It is unlikely that a licensee would proceed to have the terms of compensation settled by VCAT unless the licensee was confident that it had already offered the owner or occupier compensation that, at the very least, met all of the requirements of the Mineral Resources Act. Parties should note that in the absence of agreement, VCAT may impose terms.

If you have been approached by a resource company, are currently engaged in negotiations or require advice about a grant of tenure over an area encompassing your property, please contact the Holding Redlich Agribusiness & Rural Industries Group.

Footnotes

¹ http://www.holdingredlich.com/agribusiness-rural-industries/coal-seam-gas-operations-on-rural-land-be-prepared-for-negotiation
² http://www.vic.gov.au/news/gas-market-taskforce-report.html
³Mineral Resources Act, Sections 85(1) and 85(1A)
⁴ Mineral Resources Act, Section 89
⁵ Mineral Resources Act, Section 85(2)(b) – quoting from legislation directly

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.