When is a water treatment plant part of coal seam gas ‘prospecting'? - Oil, Gas & Electricity

A recent decision by Justice Moore in People for the Plains Incorporated v Santos NSW (Eastern) Pty Limited and Ors [2016] NSWLEC 93 (People for the Plains v Santos) has provided some clarity around the types of activities that fall under the definition of 'prospecting' and can therefore be carried out without development consent.

The People for the Plains v Santos case has implications for the ability of mining companies to implement petroleum titles such as exploration licenses and assessment leases, and to meet beneficial reuse targets or conditions. It also demonstrates the NSW Land and Environment Court's approach to assessing prospecting activities carried out under the Petroleum (Onshore) Act 1991 (PO Act) and the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (Mining SEPP).

THE IMPLICATIONS OF THE DECISION

Justice Moore's decision allows Santos to construct and operate a wastewater treatment plant (WTP) which is directly associated with coal seam gas exploration and assessment through the same approval mechanisms as the exploration and assessment activities themselves. This means that the WTP is permissible without consent. His Honour also expanded the operation of section 33 of the PO Act to allow the WTP to operate across multiple petroleum titles.

However, Moore J did not address the issue of whether the WTP, required an Environmental Impact Statement (EIS). Further, Moore J considered that he did not need to address whether the WTP is better characterised as a "waste or resource management facility" under the State and Environmental Planning Policy (Infrastructure) 2007 (Infrastructure SEPP).

In this way, the decision has removed some potential barriers to implementing petroleum exploration licences and assessment leases. However, while the absence of an EIS was not an issue in this case, proponents are always required to carefully assess the potential for any development to come within Part 5 of the EP&A Act.

THE CASE

THE NATURE OF THE PROJECT

Santos NSW (Eastern) Pty Limited, Santos NSW Pty Limited and EnergyAustralia Narrabri Gas Pty Ltd (together, the Santos Interests) commenced construction of a WTP at Leewood in the Narribri Shire local government area in Northern NSW, near to the Pilliga State Forest.

The proposed WTP will manage and beneficially reuse water produced as part of the Santos Interests' coal seam gas exploration and assessment activities. The WTP will treat groundwater that flows from core sample holes, and will have the capacity to treat 1.5 megalitres of water and brine per day. The Santos Interests are required to beneficially reuse produced water by a condition imposed under the PO Act.¹

IS THE CONSTRUCTION AND OPERATION OF THE WTP PERMISSIBLE WITHOUT CONSENT?

2.1 Relevant provisions of the Mining SEPP

Justice Moore stated that, if the WTP and its activities are properly characterised as being for the purpose of petroleum exploration, then they are permissible without consent under clause 6(d) of the Mining SEPP.²

Clause 6(d) provides:

6 Development permissible without consent

Development for any of the following purposes may be carried out without development consent:

[...]

(d) petroleum exploration,

[...]

Petroleum exploration is defined in clause 3(2) of the Mining SEPP:

petroleum exploration means prospecting pursuant to an exploration licence, assessment lease or production lease under the Petroleum (Onshore) Act 1991 or exploration pursuant to an exploration permit, retention lease or production licence under the Petroleum (Submerged Lands) Act 1982.

Therefore, the construction and operation of the WTP will be permissible without consent if it is properly characterised as 'prospecting pursuant to an exploration licence, assessment lease or production lease' under the PO Act.

2.2 PO Act titles held by the Santos Interests

The Santos Interests held three PO Act titles that were relevant to the proceedings:

a petroleum exploration licence;
a petroleum assessment lease; and
a petroleum production licence.

Relevantly, the production licence and assessment lease were carved out of the exploration licence area. The WTP is to be located within the assessment lease area and it will treat water and brine produced in the areas under the exploration licence and assessment lease.

2.3 Are the WTP and its activities properly characterised as 'prospecting'?

Justice Moore applied the principles set out in Chamwell Pty Ltd v Strathfield Council (2007) 151 LGERA 400 (Chamwell) to characterise the construction and operation of the WTP. In Chamwell, Preston CJ stated that the characterisation of a purpose must be done in a common sense and practical way, and at a level of generality which is necessary and sufficient to cover the individual activities, transactions and processes being carried out.³

Therefore, in People for the Plains v Santos, applying Chamwell, Moore J considered that while the WTP and associated activities comprise a 'significant suite of linked engineering works', these activities are not to be examined as a series of disaggregated elements and uses but rather considered at a level of generality.⁴ His Honour did not consider the WTP in the abstract or consider its hypothetical uses, but rather looked at the factual reality of its intended use. In this regard, he noted that the Court is not required to decide on the most appropriate way to achieve the beneficial water reuse outcomes – it only needed to decide whether the activity chosen by the Santos Interests is appropriate for that purpose.⁵

In this case, the water that will be transported to and dealt with at the WTP is water that physically results from the activity of prospecting for petroleum or by the drilling and operation of pilot wells or assessment of what comes from them.⁶ The water has risen to the surface as a necessary physical element of the prospecting process, and having risen to the surface, it is required to be dealt with in an environmentally appropriate fashion.⁷

His Honour concluded that, in this case, the following uses associated with the WTP serve the purpose of petroleum prospecting and assessment:⁸

a water treatment plant, including pre-treatment and reverse osmosis plant;
a brine treatment plant;
a brine distribution manifold and associated piping, to allow water distribution into the water treatment plant and associated return flows to brine storage ponds;
a treated water storage tank (five mega litre capacity);
the construction of (and the ability to operate) a treated water pipeline extending to the Leewood property boundary to transfer water to another location for irrigation by a third party (if required);
a small potable water treatment system for water extracted from the licensed bore; and
other associated infrastructure, including a gas pipeline to fuel the generators.

His Honour noted that (v) will only be used 'if required', and will need to be considered further if it is used.⁹

Therefore, the operation and construction of the above aspects of the WTP is for the purpose of petroleum prospecting, and, subject to the argument detailed in section 4 below, is permissible without consent under clause 6(d) of the Mining SEPP.¹⁰

2.4 Is the WTP and its activities more accurately characterised as a 'waste or resource management facility'?

People for the Plains argued that the WTP is best characterised as a waste or resource management facility.¹¹ Such facilities require consent under Division 23 of the Infrastructure SEPP. Moore J did not explicitly dismiss this argument, but noted that his finding that the WTP is permissible without consent under clause 6(d) of the Mining SEPP meant that there was no need to consider the potential operation of the Infrastructure SEPP.¹²

2.5 Aspects of the WTP are for the purpose of Lucerne cropping

The proposal for the WTP includes commercial Lucerne cropping as part of the beneficial reuse of water from the facility. Moore J held that the following uses are not uses that serve the purpose of petroleum prospecting and assessment:¹³

irrigation of treated water at the Leewood property through a managed irrigation system (including a centre pivot and subsurface irrigation system); and
amelioration of soils within the Leewood irrigation area by deep tillage, fertiliser, lime and gypsum in preparation for irrigation.

These activities were characterised as being associated with the Santos Interests' proposed commercial Lucerne cropping activities on the assessment lease land. They are separate from and neither ancillary to nor subservient to petroleum prospecting.¹⁴ Therefore, his Honour considered the permissibility of these activities under the Environmental Planning and Assessment Act 1979 (EP&A Act) and the various instruments that sit beneath it.

2.6 Are the Lucerne cropping activities permissible without consent under the EP&A Act?

Justice Moore held that the Lucerne cropping activities are for the purpose of commercial agricultural activity.¹⁵ The WTP and the land proposed to be used for Lucerne cropping is zoned RU1 under the Narrabri Local Environmental Plan (Narrabri LEP). 'Extensive agriculture' is permissible without consent in zone RU1 under the Narrabri LEP. His Honour concluded that the Lucerne cropping activities are 'extensive agriculture' and are therefore also permissible without consent.

As noted above, a condition of approval for the Santos Interests' prospecting activities is the beneficial reuse of water. Moore J held that while Lucerne cropping is not required, it is clearly open to the Santos Interests to satisfy the condition in this way.¹⁶

WAS AN EIS REQUIRED?

Justice Moore did not consider whether the Santos Interests were required to produce an EIS in respect of the WTP and pursuant to Part 5 of the EP&A Act. The Review of Environmental Factors (REF), dated June 2015, concluded that 'the proposed activity is unlikely to have a significant impact on the community and environment, including threatened species, populations or ecological communities, and that an environmental impact statement is not required'.

The decision to approve the development has been criticised by some on the basis that no EIS was provided,¹¹⁷ but it is not clear whether this issue was raised during proceedings.

CAN THE WTP AND ITS ACTIVITIES BE CARRIED OUT ACROSS MULTIPLE PO ACT TITLES?

The WTP is located entirely on the assessment lease area. However, the Santos Interests propose to use the WTP to process water produced from prospecting activities on the exploration licence area. As noted above, the assessment lease area was carved out of the exploration licence area; that is, the assessment lease area is wholly contained within the exploration licence area.

People for the Plains submitted that the relevant provisions of the PO Act require each area affected by a petroleum title to be treated separately, such that there can be no carryover of prospecting activities on neighbouring titles.¹⁸ This is a literal reading of sections 29 and 33 of the PO Act, which only allow the prospecting and/or assessment activity on the land affected by that title (emphasis added):

29 Rights of holders of exploration licences

The holder of an exploration licence has the exclusive right, in accordance with the conditions of the licence, to prospect for petroleum on the land comprised in the licence.

33 Rights of holders of assessment leases

The holder of an assessment lease has the exclusive right to prospect for petroleum and to assess any petroleum deposit on the land comprised in the lease.

However, this would logically lead to an outcome where the Santos Interests are required to construct separate water treatment facilities on each tract of land affected by a PO Act title. As noted by the Santos Interests in their submissions, the environmental rationale for such an outcome is not clear.¹⁹

To avoid this logical difficulty, Moore J adopted a purposive approach to the interpretation of the PO Act as explained by the High Court in Cooper Brookes (Wollongong) Pty Limited v the Federal Commissioner of Taxation (1981) 147 CLR 278 and Taylor v The Owners of Strata Plan 11564 and Others (2014) 253 CLR 531. Applying Taylor, his Honour determined that it was necessary to read words (underlined below) into s 33 that were not expressly contained in the statute in order to give effect to the intent of the PO Act:²⁰

33 Rights of holders of assessment leases

The holder of an assessment lease has the exclusive right to prospect for petroleum and to assess any petroleum deposit on the land comprised in the lease and on the land of any exploration license from which the lease has been excised and to assess any petroleum deposit on the land comprised of the lease.

The incorporated words allow the WTP to operate with respect to the assessment lease land and the surrounding exploration licence land.

Justice Moore noted that he was required to adopt the narrowest possible expansion of the scope of s 33 while giving effect to the intention of the PO Act.²¹ Therefore, while the above position retains a nexus between the areas affected by the PO Act titles, specifically that one was carved out of the other, his Honour noted that a 'more expansive position might potentially be considered to be correct'.²²

JUSTICE MOORE'S CONCLUSIONS

Justice Moore concluded that:

construction and operation of the WTP is for the purpose of prospecting and exploration and is therefore permissible without consent under the Mining SEPP;
the WTP can operate with respect to both the assessment lease and exploration licence lands under a purposive reading of s 33 PO Act; and
the Lucerne cropping activities are permissible without consent under the Narrabri LEP.

Because of these conclusions, his Honour did not address the other arguments advanced by the Applicant against approval of the WTP. The challenge was dismissed, with costs reserved (because of the public interest nature of the proceedings, Moore J allowed for submissions on whether costs should follow the event).²³

WHAT ARE THE IMPLICATIONS OF THE DECISION?

Justice Moore's practical and common sense approach to characterising the actual purpose of the WTP and construing the terms of the PO Act allows the Santos Interests to construct and operate a WTP which is directly associated with petroleum exploration and assessment through the same approval mechanisms as the exploration and assessment activities themselves.

In this way, the decision removes some potential barriers to implementing petroleum exploration licences and assessment leases. However, while the absence of an EIS was not an issue in this case, proponents are always required to carefully assess the potential for any development to come within Part 5 of the EP&A Act.

Footnotes

¹ People for the Plains v Santos, [83].

² People for the Plains v Santos, [24].

³ Chamwell at [36], [45].

⁴ People for the Plains v Santos, [37]-[42].

⁵ People for the Plains v Santos, [49].

⁶ People for the Plains v Santos, [43].

⁷ People for the Plains v Santos, [44].

⁸ People for the Plains v Santos, [46].

⁹ People for the Plains v Santos, [47].

¹⁰ People for the Plains v Santos, [51], [79].

¹¹ "People for the Plains Inc. v Santos NSW (Eastern) Pty Limited and Others", Environmental Defenders Office (no date), available here.

¹² People for the Plains v Santos, [105]-[106].

¹³ People for the Plains v Santos, [48].

¹⁴ People for the Plains v Santos, [82], [89].

¹⁵ People for the Plains v Santos, [90].

¹⁶ People for the Plains v Santos, [83]-[86].

¹⁷ "Court gives green light to CSG water treatment facility near Narrabri", Environmental Defenders Office 1 August 2016 (available here).

¹⁸ People for the Plains v Santos, [54]-[55].

¹⁹ People for the Plains v Santos, [74].

²⁰ People for the Plains v Santos, [64].

²¹ People for the Plains v Santos, [71], [75]-[76].

²² People for the Plains v Santos, [76].

²³ People for the Plains v Santos, [99]-[101].

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