Oil and gas rights and landowner dealings

By James Minchinton.

Key Points:
Consultation and communication with landowners are important legal obligations in petroleum project development.

Holders of petroleum tenements exercise their rights concurrently with the owners and occupiers of underlying land. These concurrent usage rights have the potential to create tension between the landowners and petroleum companies particularly where the intended land uses are not complementary.

The Petroleum and Gas (Production and Safety) Act 2004 (Qld) ("PAG Act") introduced a range of measures which are intended to alleviate and mitigate these tensions. These measures impose consultation and communication obligations on the holders of petroleum tenements such as authorities to prospect for petroleum ("ATP"), petroleum leases and pipeline licences.

Unlike those relating to mining tenements under the Mineral Resources Act 1989 (Qld), there is, for the most part, uniformity in the obligations relating to landowner dealings for each of the main types of petroleum tenements. The differences, to the extent that there are any, arise because of the different impact that the activities that may be carried out on each tenement has on the underlying land.

The obligations of tenement holders in respect of landowner dealings fall into three categories:

• obligations to consult
• obligations to provide notices to landowners; and
• the obligation to pay compensation to landowners.

Obligations of consultation

Obligations of consultation generally arise during the application process for a tenement.

An application for an ATP, a petroleum lease or a pipeline licence must include a statement about how and when the applicant proposes to consult with, and keep informed, each owner and occupier of land on which authorised activities are to be (or are likely to be) carried out. This is not necessarily each and every parcel of land underlying the petroleum tenement as activities may only be carried out on part of the area of the tenement.

There is no obligation in the PAG Act which requires the applicant to comply with the statement about the proposed consultation. The proposed statement about consultation is, however, likely to be made a condition of the petroleum tenement which will then need to be complied with.

It is a mandatory condition of every ATP, petroleum lease and pipeline licence that the holder must consult, or use reasonable endeavours to consult, with each owner and occupier of land on which authorised activities are to be, or a likely to be, carried out. The consultation must be about the carrying out of authorised activities to the extent that they relate to the owners and occupiers. The consultation must be carried out as provided for in the terms and conditions of the petroleum tenement (or if not provided in the terms and conditions, as provided by the Minister). The actual ability to consult will, in part, depend upon the attitude and availability of the landowner.

An initial hurdle and potential problem for the petroleum tenement holder is to identify and locate each owner and occupier of the land. Occupiers in particular may be difficult to identify as their interests in or rights to use the land may not appear as a registered interest on the title (such as an easement) and may exist only as contractual rights between the owner and the occupier. In order to discharge their obligations to consult with owners and occupiers, a tenement applicant or holder will need to be able to demonstrate that they have endeavoured to identify all such owners and occupiers.

Notices of entry

After the grant of a petroleum tenement, the holder must provide each owner and occupier of land with several notices.

The first notice is an entry notice. This notice must be given to each owner and occupier of land at least 10 business days prior to the proposed entry. It must contain details of the proposed activities and the expected duration of the activities.

The second notice must be given prior to the first entry on the land and at least two business days before entry. It also must be given to each owner and occupier of the land. It must contain details of the proposed entry and accurately describe when and where the activities are to be carried out.

The third type of notice is a notice that is to be given after the activities have been carried out. It must be given within three months of the end of the period stated in the entry notice. It must be given to each owner and occupier of the land and must state what activities were carried out on the land and where those activities were carried out.

Again, the difficulty here is to identify each owner and occupier of the land and to ensure that the notices are provided to them.

Compensation

Probably the most contentious issue between petroleum producers and landowners is compensation. The quantum of compensation is regularly the subject of negotiation and dispute.

A petroleum tenement holder is required to pay compensation to each owner and occupier of the land. Owners and occupiers are entitled to be compensated for the compensable effect the owner or occupier suffers and any consequential damages incurred because of the compensable effect. The compensable effect is:

• deprivation of possession of the surface of the land
• diminution of the value of the land
• diminution of the use that may be made of the land and any improvements thereon
• severance of any parts of the land; and
• any cost or loss arising from the carrying out of the activities on the land.

For further details about compensation, please refer to our earlier article "Compensation under the new petroleum legislation".

Additional issues for pipeline licences

An additional issue that applicants for and holders of pipeline licences must address is that the land on which the pipeline is to be constructed must be "pipeline land".

"Pipeline land" is land:

• that the licence holder owns;
• over which the licence holder holds an appropriate easement
• in relation to which the landowner has provided written permission to construct and operate the pipeline; or
• for which the licence holder is authorised under the PAG Act (by way of a Part 5 permission) to enter to construct and operate the pipeline.

If land is not already pipeline land, the pipeline licence holder will need to engage with the landowner to secure the land as pipeline land, whether that is through negotiation or through the PAG Act process to obtain a Part 5 permission.

For further detail about pipeline land, please see our previous article "Pipeline licences - getting onto the land and getting on with the job".

Summary

For petroleum companies, landowner dealings form an ongoing part of any project development.

While a great many of the obligations to consult with landowners occur during the application process for a petroleum tenement, notice obligations and compensation obligations potentially arise as each new set of authorised activities (such as a new drilling program) are rolled out during the life of the tenement.

This ongoing aspect of landowner dealings makes establishing good landowner relationships a virtually essential aspect of petroleum operations.

For further information, please contact James Minchinton.