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Who owns coal seam gas in New South Wales (and who can stop it being mined)?

Earlier this week, Marrickville City Council in suburban Sydney blocked an attempt to mine coal seam gas on privately owned land in the inner-city area of St Peters. The Council imposed a condition on…

There’s a lot of opposition to CSG mining in NSW. Will Marrickville’s moves to stop it encourage other councils? AAP

Earlier this week, Marrickville City Council in suburban Sydney blocked an attempt to mine coal seam gas on privately owned land in the inner-city area of St Peters. The Council imposed a condition on the development application order for the land, purporting to ban the land being used for coal seam gas mining. This ban raises a number of important issues: who owns the CSG under private land, and what does the decision mean for other NSW councils opposed to CSG mining?

Dart Energy holds numerous exploration licences across Sydney (including at this St Peters site, where the land is owned by Dial-a-Dump). These licences have been granted in accordance with Part 3 of the Mining Act 1992 (NSW). The validity of the exploration licence and the power to carry out exploratory drills for coal seam gas is, in turn, premised on the notion that coal seam gas is a mineral that comes within the scope of this Act.

The development application and the subsequent condition was imposed by Marrickville City Council because of the power it has under Part 3 of the Environmental Planning and Assessment Act 1979 (NSW)(EPAA). This act authorises a council to issue development applications in accordance with local environment plans. But there are a number of reasons why a condition attached to a development application which purports to ban mining would be ineffective.

This condition is arguably outside the scope of the EPAA and the relevant local environment plan. Any such condition would be inconsistent with rights already conferred upon Dart Energy as part of its exploration licence (issued under the Mining Act 1992 (NSW)). And the condition would, if valid, only apply to the landowner and not the the licence holder, Dart Energy.

The condition may result in the landowner, Dial-A-Dump, having limited powers to enter into a land access agreement with Dart Energy. But it could not in itself stop Dart Energy from exercising rights provided by its exploration licence.

The prominence of this dispute indicates the strong level of community concern regarding the proliferation of coal seam gas mining throughout New South Wales. It also raises more fundamental questions concerning the ownership of coal seam gas in New South Wales. These issues are not entirely straightforward.

The starting point for assessing ownership issues lies in the basic common law principle that ownership of private land extends up to the heavens and down to the centre of the earth (cuius est solum eius est usque ad coelom et usque ad inferos). This principle means that the private landowner has complete ownership over the physical land and the minerals contained within that land as well as the space above that land. The breadth of this concept is, however, subject to three qualifications.

First, the private owner has never owned what are known as the “royal minerals” of gold and silver. These are owned by the Crown.

Second, many states have introduced specific legislative provisions to give the state ownership of sub-surface minerals. This has occurred, for example, in Victoria, where legislation (s9 of the Minerals Resource (Sustainable Development) Act 1990), confers ownership of all minerals, other than exempt minerals, upon the State of Victoria. A similar vesting provision used to exist in New South Wales (s5 of the Coal Acquisition Act 1981 (NSW)). It also exists in section 6 of the Petroleum (Onshore) Act 1991 (NSW), a provision which also expressly sets out that no compensation is payable by the Crown for the effect of that vesting.

The Coal Acquisition Act 1981 (NSW) was introduced by the New South Wales Government at the time so that lucrative coal royalties could be collected from private landowners. Over the life of the scheme, these royalties amounted to approximately $10.5 billion.

Private land-owners affected by these vesting provisions could apply for compensation, and a Coal Compensation Board was set up to administer these payments. Over the life of the scheme the board paid millions of dollars in compensation. In 2007, these acts were repealed and any minerals which belonged to private landowners prior to the statutory re-vesting reverted back to those owners. The effect of this repeal was that any minerals which belonged to private landowners prior to the statutory re-vesting reverted back to those owners. No similar compensation regime was set up with respect to the Petroleum (Onshore) Act 1991.

The third qualification is that many land grants issued by the Crown in New South Wales are subject to reservations that prevent minerals in the land from passing with that land. Minerals which have been reserved by the Crown will never pass to the landowner. These are defined in the Mining Act 1992 (NSW) as “public minerals”. Any sale, lease or other disposal of Crown land does not include any minerals contained in the lands.

The combined effect of the first and third qualification means that in New South Wales, most minerals may now be regarded as owned by the Crown. However, minerals which are not royal minerals or which have not been reserved by the Crown will continue to be owned by the landowner. To this extent, the common law right of a freeholder to minerals in his or her land has not been impaired.

The difficulty with coal seam gas is is one of characterisation. The general assumption is that the Petroleum (Onshore) Act 1991(NSW) applies to vest ownership of csg in the Crown. Arguably, however, if csg is regarded as a constituent of the coal and if the absence of any explicit reference to csg in the definition of petroleum under the Petroleum (Onshore) Act 1991 supports this argument, it is possible that some landowners may retain ownership of csg in NSW. This is because the Mining Act 1992 (NSW) does not vest ownership of coal in the Crown and, in the absence of a mineral reservation in the title, the landowner may rely upon the common law rule.

Cases in the United States have taken differing approaches to the characterisation of coal seam gas. Some have argued that coal seam gas is an inherent part of the coal, because it is absorbed onto the coal and the bond is so close that the two cannot be separated. Others have argued that the chemical composition of coal seam gas is nearly identical to that of natural gas, and therefore coal seam gas retains its independent identity as a gas rather than a solid mineral.

Both arguments have been supported by cases in the United States. In Carbon County v. Union Reserve Coal Co, the Montana Supreme Court overturned an earlier decision and concluded that coalbed methane gas “is separate from coal and is not a constituent part of the coal estate". By contrast, in Vines v. McKenzie Methane Corp. (1993) 619 So.2d 1305, the court concluded that the production of CBM is ‘inextricably intertwined’ with coal mining and that the right of “all coal” signifies the ownership of the coalbed methane gas.

If coal seam gas is characterised as a constituent of coal, and if a land-owners title in New South Wales does not contain a mineral reservation, that landowner may claim ownership.

This article was updated in May 2012 to clarify the role the Petroleum (Onshore) Act 1991 (NSW) could have on the ownership of CSG in New South Wales.

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11 Comments sorted by

  1. Joseph Bernard

    Director

    Who owns the resources and what about water supply and health and safety?
    I am horrified by the CSG mining in our water catchment area which is a high risk, high consequence operation. From my understanding ie the potential to seriously pollute and compromise what is our source to life. Incidents like the following prove this type of accident has already occurred and I ask what would happen if this happen to our water catchment area.. Have we gone mad? http://www.theaustralian.com.au/national-affairs/new-spill-at-santos-csg-site/story-fnaxx2sv-1226246801889

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  2. Karen Hansen

    admin

    Actually, Private landholders in some instances do actually own the resources under the topsoil. If the land has been held by the same family since prior to federation (1901) then they, effectively, own the land to the centre of the earth. Lots of farmers out there have actually lost out because they sold their rights for a pittance without understanding this. Not to mention that in NSW they are NOT actually paying royalties since csg, as a new industry, is exempt for the first 5 years. So with most…

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  3. Jack Arnold

    Director

    What is the position of Torrens Title freehold? I understand that Torrens give title to the surface of the land rather than the earth & its minerals beneath? Am I correct, or mistaken? Old Systems Title gave proprietorship to the centre of the earth except for proscribed minerals & resources. But in NSW Old Systems has been converted to Torrens as a matter of course since the mid-80s.

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    1. Samantha Hepburn

      Professor, Faculty of Business and Law at Deakin University

      In reply to Jack Arnold

      Hi Jack,

      The common law position regarding ownership of land applies to both Torrens title and old title land. Hence, whether the land is comes within the application of the Torrens system or not, the common law principle is that ownership of land includes minerals in the soil. This, as outlined, has now been modified by the reservation of minerals in the Crown grant or pursuant to any statutory vesting provisions.

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  4. Brooke Wooldridge

    logged in via LinkedIn

    CSG is defined as petroleum for the purposes of NSW legislation, meaning ‘any naturally occurring hydrocarbon, whether in a gaseous, liquid or solid state. The definition explicitly excludes coal and ‘any substance prescribed to be a mineral for the purposes of the Mining Act 1992.’ This differentiation is important; in other jurisdictions (eg, QLD, earlier in the develpment of the CSG industry), there has been confusion as to the definition of coal seam gas – petroleum or mineral – and therefore the legislation regulating the product has been in conflict. Mineral leases and petroleum leases over the same land have given coal miners and gas producers conflicting rights in relation to the same resource.

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  5. Daryl Deal

    retired

    Ironically, given the complex process required for coal seam gas fracking, the company would require a number of EPA permits.

    The drilling, fracking and gas treatment process at well head, would require a plethora of EPA waste permits. These permits would effectively range from safe on site sealed waste water holding dams, transport of dangerous toxic waste and a permit to discharge toxic waste gases to the atmosphere from the gas treatment plant.

    In short, the short term material gain, is far out weighed by the toxic side future affects of exploiting this carbon pollutant resource.

    Gasland trailer: http://www.youtube.com/watch?v=dZe1AeH0Qz8

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  6. Samantha Hepburn

    Professor, Faculty of Business and Law at Deakin University

    Thanks Brooke. Yes section 3 of the Petroleum (Onshore) Act (1991) adopts a broad approach to the definition of petroleum. Whilst it does not explicitly incorporate coal seam gas, petroleum is defined as referring to any naturally occurring hydrocarbon, whether in a gas, liquid or solid state. If coal seam gas is treated as a gas which is separate from the coal in which it is located, then this legislation goes on to positively vest ownership in the Crown pursuant to section 6 and, unlike the Coal (Acquisition ) Act, explicitly sets out that no compensation is payable for that vesting. It then goes even further to actually deem all Crown titles, whether granted before the act commenced or after it, to contain a reservation of petroleum for the Crown: s6(2).

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  7. Jacinta Green

    President, Stop CSG Sydney

    Hi Samantha,

    Great article.

    It is our understanding, that has been touted by the government, that for an exploration licence under the mining act, the company must have an Landholder Access Agreement. Therefore until and unless the landholder has signed the landholder access agreement, the drilling cannot go ahead.

    It is only once a production licence has been sought (which comes under the planning act) do the landholders essentially lose the right to say no.

    So by making the DA approval…

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    1. Samantha Hepburn

      Professor, Faculty of Business and Law at Deakin University

      In reply to Jacinta Green

      Thanks Jacinta.

      Very interesting. As I understand it, according to s71 of the Petroleum (Onshore) Act 1991 (NSW) consent by the landholder needs to be given before any mining operations can commence pursuant to a production lease.

      On the other hand, section 72 sets out that the holder of a petroleum title (which includes an exploration licence) must not commence mining operations or erect works on land:

      (a) on which, or within 200 metres of which, is situated a dwelling-house that…

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