Suspension of Metgasco coal seam gas (CSG) licence and referral to ICAC.
Dear Minister Roberts ,
The actions of the NSW State Government in the week ending 16th of May 2014 are up there with the most astonishing that have occurred in NSW Government in the last 50 years. The State of NSW is facing a gas crisis.
There is plenty of gas in Australia, but export demand will reduce the security of supply to domestic markets. Any state that cannot produce a meaningful supply of gas will expose its people’s wellbeing and its manufacturing base even further to that reduction in security of supply. In financial year 2010 NSW imported 95% of its gas requirement. NSW has enough gas reserves to supply all its gas requirements.
A State Government that legislates over a state industry does at least have an industry to influence. A State Government that is failing to develop sound policy and is also failing to nurture the practical benefits of such a policy by astoundingly poor execution and decision making is likely to have no such industry to influence in any substantial way.
The current NSW State Government came to power in March 2011. In the three years since then the NSW gas industry has been unable to make significant advance, principally because of changing Liberal State Government policy as follows:
• After election a 60-day stay was placed on the granting and the renewing of any petroleum or exploration licences. • A moratorium was announced on hydraulic fracking from May 2012, which was lifted in September 2012 and replaced by codes of practice. • In September 2012 a strategic regional land use policy was released with 27 measures to protect state agricultural land. At this point, the Industry thought NSW was open for business, only to be surprised by policy modifications within six months. • In February 2013 the Government decided to strengthen what was previously described as the nations toughest CSG regulations by, amongst other things, quarantining some land from CSG development. In addition, the NSW Chief Scientist was asked to prepare an independent review. At this point many companies ceased their CSG operations until the final independent review is prepared and the Government clears the air about its future policy settings related to CSG. • In March 2013 a freeze was placed on processing any new exploration licences and it was announced that all existing licences would be audited.
As a result of the policy announcements in February 2013 gas companies in NSW had to write off book values of assets as an impairment adjustment totalling at least $ 340 million.
I estimate that the market value of companies involved in the gas industry that were temporarily affected by the above changes in policy reduced by half a billion dollars. The transactions that reflected that change would have been made largely by index and super funds adversely affecting the indirect investments of millions of Australians from all walks of life.
Not only are changeable and poorly executed policies having these effects on gas companies balance sheets and market values, they are also likely to seriously put in jeopardy the viability of NSW manufacturing and create a great deal of insecurity for those who are employed by those industries. The vicious multiplier effect is staggering. The CEO of Boral has said that it is likely that in 10 years their plants will no longer operate in Australia. He is reported to have said, “I’m not saying anything different to most manufacturers in Australia.” Manufacturing Australia has estimated that if things remain as they are, gas prices will increase by 200% with a consequent loss of 200,000 jobs. The working population of NSW is around 5 million of which 200,000 is 4%. If the 200,000 jobs are lost across all Australia, then the 4% reduces to a 1% increase in unemployment. These numbers are hard to believe but they are numbers that are regularly quoted.
I concede that the Liberal Government has inherited consequences of the very poor policy framework of the previous Labour State Government where petroleum licences could be acquired by $100 shelf companies for $ 1,000 a piece.
Yes, it is palatable that the current Liberal Government has had to overhaul the gas policy framework with the consequence that for the last three years the NSW’s gas industry has suffered a degree of paralysis. Yes, the current Liberal Government should be on its guard against any modus operandi remotely resembling the alleged practices of Messrs Obeid and MacDonald – not to mention Hartcher and Gallacher. Yes, I concede that there are good reasons that the state Liberal Government has required a lot of time to put the house in order. However, the recent events concerning the manner of suspension of Metgasco’s petroleum exploration licence and the referral of Metgasco’s project to ICAC cannot be excused under any of the above defences.
In my view, the manner of suspension of Metgasco’s licence and the referral to ICAC cease to be an act of Government under the Westminster system. In my view, these events do not even have the pretence of Government. These events amount to the misuse and inconsistent use of power entrusted by the NSW electorate by individuals who have demonstrated that they have little understanding of the Westminster principles.
Under the Westminster system the executive, administrative and judicial systems are separated. No person, entity or organisation can be found guilty – except by the judicial element. This ensures that where a matter is referred to the judiciary, the independence of that organ from the executive and administrative organs should help ensure that the accused has a fair hearing. In addition, referral is made confidentially and prejudicial outcome protected by shutting out public pronouncements. Our system is built around the very decent principles that judge and jury should have no axe to grind or preconception in forming their conclusions. On Anzac day we celebrate those who have given their lives for these principles.
Now, let us examine the actions and their background that were displayed by Minister Roberts on the 15th of May 2014.
On October 2nd 2013 Metgasco announced that it would recommence exploration of the Rosella conventional gas prospect. The Office of Coal Seam Gas (OCSG) was created in February 2013. Undoubtedly, there would have been a number of Government agencies that Metgasco was required to liaise with before the creation of the OCSG. On 16th May 2014 Metgasco announced that it had liaised regularly with OCSG. Between Metgasco’s announcement that they would recommence exploration at Rosella and 15th of May 2014, more than six months had passed. Between the commencement of OCSG and 15th of May 2014, more than a year had passed.
In March 2013 Metgasco submitted a 400 page “Review of environmental factors” to regulatory authorities. This was prepared by a “Senior Environmental Planner” by consultants Kleinfelder Australia who are external to Metgasco and reviewed and approved by Metgasco’s own Regulatory Compliance Officer and Drilling and Production Manager. The detail and breadth of coverage in this document is impressive. It is available on the internet.
The reason the Minister has claimed that Metgasco’s licence was suspended has been reported to be that “Metgasco misled the public over its drilling operation in northern NSW by saying it was seeking a less controversial type of gas.” It is reported that the claim is also that Metgasco has “not undertaken genuine community consultation.”
Metgasco has made their own points in their own defence. I am a Metgasco shareholder who acts independently of Metgasco and as an investor, voter and resident of New South Wales I ask the following questions:
• As detailed above, there was ample time between Metgasco’s announcement of its intention to explore the Rosella prospect for the regulatory authorities to contest the type of drilling to be performed by Metgasco. I realistically anticipate that there would have been hours of liaison between the regulatory bodies and Metgasco in the six months up to 15th May 2014 in which to conclude whether Metgasco was incorrectly characterising the type of gas it intended to drill for. If indeed this is a material point of contention, why wasn’t it contested sooner? Why was this point made so late in the day when Metgasco had incurred substantial mobilisation costs? It would be easy for me to cynically contrast the expertise that the title “Office of Coal Seam Gas” conveys with this glaring anomaly, but I will keep my questions civil. • In a separate but similar matter, The Minister for Resources and Energy’s announcement on March 26th 2014 states that “the NSW Government will also issue a “show cause” notice to Leichardt Resources as to why its three PELs……should not be cancelled.” Leichardt Resources was given 21 days to respond. In Metgasco’s case only one licence was in question and only a suspension was in question. Despite being a less severe form of action than delivered to Leichardt Resources, Metgasco was given no opportunity to “show cause” and was given no time in which to prepare a “show cause” defence. Metgasco’s licence was suspended without reference to any judicial branch of Government or without any distance from the administrative branch of Government. As I understand it, the notification of suspension was made to Metgasco’s Chief Executive Officer at around 4 pm on Wednesday 14th of May by e-mail and then announced on the steps of Parliament on the morning of the 15th of May. As I understand it, owing to the method of delivery of notification of suspension by e-mail, the CEO of Metgasco was not aware of it until he opened the e-mail at 7 pm that evening. Before any sensible reflection or enquiry could be made of these events, Metgasco’s name was being adversely sensationalised by all forms of State and National media. Does the Minister understand how the circumstances and delivery of this message could cause extensive damage to the brand name of an organisation? This is an organisation that the state needs to develop its resources and it is now being hailed as some kind of pariah by the media. My question is, why did the Minister not follow precedent and give Metgasco time to show cause before the suspension of its licence? • I am no lawyer and have a layman’s understanding of NSW state law, but from a cursory reading of the Petroleum (Onshore) Act 1991 No 84, I draw the Minister’s attention to paragraph b) of subsection 6 of section 22 of the Act.
Before cancelling a title on a ground referred to in subsection (1), or suspending operations under a title, the Minister:
a) must cause written notice of the proposed cancellation or suspension, and of the grounds of the proposed cancellation or suspension, to be served on the holder of the title, and b) must give the holder of the title reasonable opportunity to make representations with respect to the proposed cancellation or suspension, and c) must take any such representations into consideration.
I ask the Minister whether, as I understand it, sending an e-mail at around 4pm on the day before the morning of his announcement outside Parliament, where there was no guarantee of it being read before close of business, constitutes serving written notice? I ask the Minister whether the holder of the title had reasonable opportunity to make representations? If the holder of the title did not have a reasonable opportunity to make representations, how could the Minister take such representations into consideration?
• In the Minister’s statement of 16th April 2014 he states, with reference to the well that Metgasco intended to drill in Bentley that “The well that is being drilled is not dissimilar to the nearly 5,000 wells, including some 440 irrigation bores and more than 4,300 stock and domestic bores, that currently exist in the Northern Rivers”. As we know, the well was only an exploration well, not a production well. The extent of damage that would be caused, if any would be caused at all, would not be substantial. Given this to be so, if there were some doubts about the nature of the gas being drilled for or the integrity of community consultation, couldn’t these matters have been addressed after the drilling had taken place? What was so desperately dangerous about the drilling that it was necessary to prevent it at such short notice, at such adverse impact to Metgasco’s brand name, after substantial cost had been committed to by Metgasco in their mobilisation? Now, if the Minister had stood on the steps of Parliament and announced that drilling had been suspended because there was fear that there would have been loss of life or serious injury by a Bentley protestor or a policeman or a Metgasco employee then I would understand and support that decision. My question is, why did the Minister consider that the damage caused by exploratory drilling was greater than the damage caused by preventing the exploratory drilling when there would have been ample time to prevent the greater damage of hitherto unapproved later phases of drilling and this exploratory drill was also “not dissimilar” to other drilling in the region? • The grounds for suspension are reported to have been that Metgasco said it was seeking a less controversial type of gas than it was actually seeking. This is a technical argument contrasting the difference between “coal seam gas” and “tight sands gas”. I have no expertise in the question of what is the difference. Indeed, The Office of Coal Seam Gas will understand this better than most. However, if it is a technical issue whether Metgasco was actually drilling for one or the other then it is likely to be a matter that should be contested in the appropriate venue. If there are doubts, I do not see why OCSG should be the sole arbiter? If there are doubts, why weren’t these raised earlier? If there are doubts, why couldn’t suspension be invoked after proper technical debate? Why was the difference between the two types of targeted gas so substantial as to cause stoppage if this one exploratory well would be unlikely to have caused grave environmental damage? My fundamental question is that when so much is at stake and at such a late stage in the process when there are alternative reasonable courses of action, why should OCSG be the final arbiter? Indeed, why should it be the sole arbiter when it has failed to show the competence to have discovered this issue sooner? I found it interesting that when the Minister made his announcement outside Parliament that he rested his case on the advice of his department saying “ from what I am told by my department.” Um….Yes, Minister!
If it wasn’t so serious, the Minister’s performance on the steps of Parliament and the media reporting would be absolutely hilarious seen in its full context. I quote the Minister outside Parliament- “ all I can say is what the Baird Government has put in place, what I have put in place are open, they are transparent and quite frankly they are there to ensure that there are no deals done in back rooms anymore”. Note that, in one of the television station’s representation of events, before then crossing to Bentley the entirely separate audio of the applause at Bentley is overlaid on the tail of the closing shot of the Minister as if to be applause in the immediate vicinity of Parliament. Then a reporter uses the glorious phrase “a week of people power”- as if everything ended happily ever after! How cringe-worthy was it to see Channel7’s internet reporting with the headline “7News investigation sparks major CSG mining enquiry”. If that’s the accuracy of media investigation, if the quality of our media can convince us of that kind of vanity and superficiality then, Australia, we have got problems. Please, those in the media, you have a vital responsibility to report objectively without inference and innuendo, without a nudge and a wink and to keep those in Government accountable by asking appropriate and incisive questions. We have some excellent journalists in Australia but also some hacks.
I have finally to deal with the referral of Metgasco’s project to ICAC. You might have thought that, as Minister Roberts’ name had already been raised at ICAC for enjoying a weekend Whitsunday cruise together with Hartcher courtesy of property developer Nabil Gazal that he would be sensitive to the damage such referrals can cause to public reputation. It is reported that there are e-mails from his colleagues suggesting that Roberts was in favour of this sojourn being an annual event. My questions here are:
• Why does the personal life of the executive of a corporate shareholder of Metgasco warrant the publication of referral of Metgasco’s project to ICAC? If there was a genuine reason for referral, why wasn’t this done confidentially so that the matter could be investigated without damaging reputations or brand names? The Minister’s behaviour takes my breath away. Yes, corruption is cancerous and must be stopped. But this! This causes more harm than good. When it comes to making inferences about relationships, I suggest that Wikipedia’s account of Mr. Roberts’ early life as a political advisor and his liaison role with Alan Jones, who has strong views about CSG, is a fertile ground for the imagination. • Will the NSW State Government publicly apologise to ERM, to the senior Executives in ERM, and to Metgasco for the damage to reputation caused by publicly announcing referral to ICAC? Will the State Government compensate all parties affected by the damages caused from the manner in which it has suspended exploration licences and for the damage it has caused to brand names and people’s reputations?
