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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2009-07-02 Daily Xml
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PETROLEUM (MISCELLANEOUS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 29 April 2009. Page 2125.)

The Hon. D.W. RIDGWAY (Leader of the Opposition) (15:44): This bill is similar to the Torrens Linear Park bill and is one that ministerial advisers indicated was not that urgent. As such, it has not gone through our full party room process. Nevertheless, to start proceedings I am happy to make my contribution and indicate opposition support for the second reading stage. At the same time, we reserve our right to make amendments or potentially vote against the measure, although I think that will be unlikely.

The bill does a number of things: it strengthens the provisions for gas storage; creates greater security of tenure and flexibility in the licensing and activity approval provisions; provides for enhanced competition in relation to minerals processing; enhances landowner notice entry and compensation provisions; refines the royalty payment provisions; reinforces the 'one window to government' concept; and streamlines the data submission requirements.

The bill had its genesis in a discussion paper released in 2005 on implementation issues related to the Petroleum Act 2000. The initial four-year operation period of that act had understandably presented implementation problems, and the discussion paper attempted to identify those issues and suggest appropriate solutions. A green paper on the proposed amendments followed late in 2006, and this government bill is a response to the issues initially identified and the proposed amendments that followed. A name change from the Petroleum Act to the Petroleum and Geothermal Energy Act reflects the changing face of the mining sector and of our focus on renewable energies and the great asset South Australia has in the geothermal resource that is in our state's north.

In addition to the name change, it is supported by an addition to the objects of the act regulating the exploration of geothermal resources and natural reservoirs for storage and production. The definition of 'petroleum' is extended to cover the product of coal gasification, a process used to produce synthetic petroleum. Other substances occurring as a result of petroleum storage in underground reservoirs are covered as regulated substances. The bill also clarifies that petroleum produced and reinjected into a natural reservoir is owned by the licensed producer and not the crown.

The minister has already been able to designate highly prospective regions under an amendment in respect of the competitive tender process and the regions. So the minister, on my understanding, already has a responsibility to designate a highly prospective region under the act. Such areas are the Cooper and Otway Basins, and the minister is required to give out an acreage by tender. These areas, seen to be highly prospective for petroleum exploration, will be replaced by a 'competitive tender region'. Market supply, proximity to infrastructure and technological innovations, amongst other things, will all contribute to the suitability of an area for the competitive tender process, and this change highlights that geological prospectivity is only one contributing factor. This change is predominately for marketing purposes, although I suspect it will now make access to these areas more streamlined.

A change to the act means that exploration licences for these areas will be renewable twice rather than once, and the maximum area for a petroleum exploration licence will be extended to 10,000 square kilometres. The opposition has always been a bipartisan supporter of our minerals and petroleum industries—

The Hon. R.P. Wortley interjecting:

The Hon. D.W. RIDGWAY: Sadly, we have another inane interjection from the Hon. Russell Wortley. While we have enjoyed bipartisan support in recent years, the current Premier was vehemently opposed to the development of Roxby Downs.

The amendment bill amalgamates the definitions of 'owner' and 'occupier' as 'owner of the land' for the purposes of avoiding unintended consequences, such as only the occupier of the land being notified, while the landowner, who is entitled to compensation for entry, is not notified.

I think that is very important because, as we saw with some of the old mines in and around the Barossa Valley, with high commodity prices (the price of copper and some of the other metals had gone up before the global financial crisis), there was tremendous pressure on those old resources for mining companies to explore and perhaps open up some of the old mines. While we are debating the petroleum bill, I think it is important to recognise landowners' rights, and this piece of legislation enhances the protections for landowners.

Under clause 44, an owner of the land may now be compensated for reasonable costs incurred in relation to any negotiation or dispute relating to access to land and activities carried out on the land. Compensation will also be provided for the devaluation of land caused by the development of permanent facilities by the licensee.

I ask the minister whether he can actually provide some details of the likely circumstances where compensation would be payable to a landowner. My understanding is that it is likely to be by the licensee, so obviously the person proposing the development, but I think there is always a grey area and creative tension between landowners and miners, whether they are miners digging something up or working in the petroleum industry.

The Hon. P. Holloway: SEA Gas Petroleum.

The Hon. D.W. RIDGWAY: The minister interjects, 'SEA Gas', when it put the pipeline through from Victoria through to South Australia. There are always issues and I think, by and large, they are negotiated on the way through, but it appears that the bill does enhance and provide more clarity of that whole process. I would certainly like some explanation from the minister in relation to that.

A number of licence changes will appear in this new bill. Under, I think, section 13 of the act, there is a range of licences, and I will just speak to them quickly. There is a preliminary survey licence, a speculative survey licence, an exploration licence, a retention licence, a production licence, a pipeline licence and then, of course, an associated facility licence.

The exploration, retention and production licences will each be broken into three subcategories: petroleum, geothermal and gas storage. We in the opposition support this change because it is important that we support some of these emerging activities in our petroleum industry. The preliminary survey licences permit the preparatory work necessary prior to mining activities. The bill will allow the minister (on application) to vary the area to which the licence relates, which is already the case for the pipeline licence. Further, there will no longer be a maximum aggregate five year term for a preliminary survey licence. This is already the case for speculative survey licences.

As stated, the exploration licence class will be divided into three categories. Depending on the category, the licensee may carry out exploratory operations (operations to establish the nature and extent of the discovery) and establish the feasibility of production and appropriate production techniques. The holder of an exploration licence will be entitled to the grant of the corresponding retention or production licence for the regulated resource discovered in the area. Therein lies the significance of the divisions of the three licence categories.

Of most interest to the opposition is clause 17, which provides that the maximum licence area for gas storage will be 2,500 square kilometres. The rights under this licence will continue after the exploration and production licences have been extinguished. Royalties will not be payable for gas storage, and the maximum licence area for a geothermal exploration licence is to be increased from 500 to 3,000 square kilometres. The opposition is likely to support this because it enhances the storage of gas and CO2 sequestration, which will also be covered under this bill.

Interestingly, clause 45 creates a provision for the precedence of exploration licence applications; namely, applications will be dealt with in order of receipt unless the minister calls for tenders for exploration licences under section 22 of the act. So, it puts in a 'first in, best dressed' basis for exploration licences.

The class of a retention licence (which a number of clauses are addressing) protects the interests of a licensee and discovery of a regulated resource until they have properly evaluated the productive potential. Once again, the licence is divided into three: for a gas storage retention licence it will facilitate the testing of natural reservoir storage suitability; the area of a petroleum retention licence is to be limited to 100 square kilometres; and for geothermal retention or gas storage it is 1,000 square kilometres. I think one can see that it underpins our emerging geothermal industry and also recognises the importance of gas storage.

There will be three categories of production licences, and the main purpose is to cover the in situ gasification and coal seam methane as part of the petroleum production process, and to cover the storage or withdrawal of petroleum as part of ensuring supply and delivery to the market. In South Australia we have not seen as much in situ gasification or coal seam methane production as in other parts of Australia but we know that South Australia has a very rich resource in the Arckaringa Basin, to name but one. I think the Officer Basin is another and there is a whole range of areas where we have coal of quite high quality but deeply buried a long way from market and a long way from anywhere that needs to burn coal.

We also have a number of deposits on the West Coast, some at Lochiel, even Cooke Plains in the Mallee, and Kingston in the South-East, although the Kingston resource is below the aquifer and that has always presented problems. Many years ago Western Mining was looking at trying to mine there but the community was quite concerned because it would have to undertake a dewatering of the area which would have had a huge impact on the underground water resources in the South-East. More recently, another company (Hybrid Energy) was looking at a way of strip mining (I cannot remember the exact term) to access that coal. Its plan was not to dig it out as coal, as Western Mining's was some 20 or 30 years ago, but to have a coal to liquids plant and turn it into diesel on site and then sell the diesel.

These production licences will be an important part of the industry going forward. I think we have accessed the low-hanging fruit in terms of the oil and gas which has been easy to access in our state, and now we will have to look at accessing some of the resources that are more difficult to get to. Also, the associated facility licence allows for the operation of facilities outside a licensed area that are reasonably necessary or incidental to the primary operations. This definition will be divided into an associated activities licence or a special facilities licence. Currently, only a petroleum production licensee or an associated facilities licensee can build or operate a processing facility. This new associated facility licence will allow third parties, non-primary licence holders, to construct and operate facilities.

Often you will find that there will be companies that are expert in accessing a resource but not expert and not having the capacity to turn that resource into another product. We might see some coal being brought to the surface and then the associated facility licence (operated by another company) turning coal into liquid or gasification. The current act has created some unnecessary impediments to this sort of entrepreneurial investment in searching or processing the production of minerals and for geothermal energy. It is important that the potential for this third party ownership and operation of processing facilities not only provides an opportunity for that third party investment but also for companies that have expertise, not necessarily in mining or petroleum exploration but in other areas, in order to allow access into the market.

Clause 33 of the bill provides that licensees will have to lodge monthly returns showing the quantities, substance or energy produced/sold and the royalties payable. The minister can gazette particular licences or categories of such where this does not apply. This will assist the government in creating a more accurate projection of royalty payments. I have asked the minister questions on monthly returns before, and in the budget you will see an estimation of royalties. Really, the government is in the hands of the miners and the petroleum producers. I think that monthly returns seem to be a logical way forward.

Clause 55 of the bill will require a licensee to carry out a fitness-for-purpose assessment of facilities operated on land within their area at prescribed intervals. This will be to assess the risk to public health and safety, the environment and the security of production or supply of natural gas (if it is relevant), and a report as such will need to be provided by the licensee, who must promptly carry out any remedial action that is necessary or appropriate in view of that report. Failing to comply will attract a penalty.

Again, it is important as our mining industry and energy industry expand that the community has some confidence that people are operating within the framework that has been established under this legislation. It is sad to say that the government has not resourced the EPA or PIRSA adequately to monitor some of these mining and energy operations. We saw what happened with Marathon Resources a couple of years ago where the regulatory authorities were not paying attention and, of course, we had a problem with Marathon Resources and the disposal of waste from its drilling.

The opposition sees this as a reasonable step forward. We have not taken this through our party room as yet, but I indicate that we have contacted nearly 20 stakeholders, including the Aboriginal Legal Rights Movement, Adelaide Energy Pty Ltd, Australian Coal Association, Australasian Compliance Institute, Australian Pipeline Industry Association, Beach Petroleum Ltd, BHP Billiton, EnergyQuest, Flinders Power, Geothermal Resources Ltd, Heathgate Resources Pty Ltd, Hybrid Energy SA, Origin Energy, Origin Energy Retail, Petratherm, Santos, SAPEX, Torrens Energy and Stuart Petroleum.

All of these companies have been contacted for their feedback; at this stage, we have had only one response. However, I intend to take this through our party room process before we next sit. With those few comments, I seek leave to conclude my remarks later.

Leave granted; debate adjourned.


[Sitting suspended from 16:05 to 18:15]


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