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Unconventional Gas Mining
12/04/2016
Adequacy of Australia's legislative, regulatory and policy framework for unconventional gas mining

COTTEE, Mr Richard, Private capacity

DOMAN, Mr Matthew, Director, South Australia and Northern Territory, Australian Petroleum Production and Exploration Association

HICKS, Mr Armon, Group Executive Public Affairs, Santos Limited

WILKINSON, Mr Richard (Rick) John, Chief Technical Officer, Australian Petroleum Production and Exploration Association

CHAIR: Welcome. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. The committee has received submissions from APPEA and Santos, which the committee has numbered 121 and 57. I now invite you to make a short opening statement. After you have spoken I will invite members of the committee to put questions to you.

Mr Doman : APPEA thanks the committee for the invitation to appear before you today. The Australian Petroleum Production and Exploration Association is the peak national body representing Australia's oil and gas industry. APPEA seeks to increase community and government understanding of the upstream petroleum industry by providing and promoting information about the sector's activities, impacts and benefits. There are, unfortunately, a number of myths pedalled about our industry that have no basis in fact. Our submission addresses a number of those myths directly and also provides extensive reference to the findings of leading scientists and institutions that are independent of the industry.

I draw specific attention to the following key points in our submission. Firstly, it is vital that there is a genuine, fact based examination into how onshore unconventional gas production operates. The findings of multiple Australian and international reviews by eminent individuals and institutions are clear. The risks associated with unconventional gas can be managed effectively through the creation of a robust regulatory regime underpinned by effective monitoring and compliance. A balanced inquiry should give due weight to the views of these groups.

The industry and governments actively promote coexistence. In all states and territories where we operate we support fair and transparent land access arrangements that ensure benefits flow to landholders and any impact on their existing land use is minimised. The Queensland natural gas industry has negotiated more than 5,000 landholder agreements. This would not have been possible without the constructive engagement between industry, landowners, agricultural representatives and government. Compensation paid under these agreements is estimated by Gasfields Commission Queensland to have totalled $238 million as of June last year. From 2015 to 2020, it is estimated, a further $189 million will be paid in compensation to these landholders.

The science of hydraulic fracturing is well understood and, as Australia's Chief Scientist, Dr Alan Finkel, has stated, is completely safe if properly regulated. As the recent report by Dr Allan Hawke into fracking in the Northern Territory stated, this technique has been used here since 1967, mainly in the Amadeus basin, west of Alice Springs. Over 30 wells have been fracked since then, with no negative impact on the region's precious groundwater resources. All activities undertaken by the natural gas industry are subject to comprehensive regulatory processes. An onshore gas company operating nationally needs to comply with over 70 pieces of state and federal legislation, numerous additional regulations, associated operational policies and local council regulations.

There has been considerable discussion around water and the impact on farmers. In Queensland, 97 per cent of the water produced by CSG activity is put to beneficial use. Treated CSG water provided to farmers is reducing dependence on shallow groundwater resources and reducing the overall demand on critical aquifers. Farmers throughout Queensland have emphasised the importance of natural gas operations in providing passive income and treated water at no cost. Treated CSG water is aiding drought proofing and substantially boosting productivity on farms right across the state. The Queensland industry is a success story that shows what can be achieved when people work together on the basis of mutual respect. The benefit to that state and regional communities will be seen for decades to come.

The industry continues to work closely with landholders and a range of other stakeholders. Pleasingly, research from CSIRO confirms that there is growing community acceptance and support for coal-seam gas in the regions where the activity is actually occurring. The economic and social benefits have been welcomed. Many communities right across Australia have felt the full force of the global financial crisis, drought, the decline in Australian manufacturing and the downturn in employment. In contrast the CSG industry at its peak in Queensland employed over 40,000 people and paid royalties which have supported programs which have invested more than $495 million over the last four years in new community infrastructure, roads and flood mitigation. Here in the Territory, a study by Deloitte Access Economics found that a successful shale industry has the potential to deliver up to 6,300 new jobs and increase Northern Territory government revenues by almost $1 billion by 2040. That is a lot of money for roads, schools, hospitals and other community benefits. This is an industry that is committed to continuous improvement, a long-term industry that is focused on stability and public benefit. We think the committee for the opportunity to appear today and look forward to your questions.

Mr Hicks : I will just take questions. I am not proposing to use the committee's time for a statement.

Mr Cottee : My submission is No. 124. I am actually making this in my private capacity because this committee originally started talking about CSG and shale gas but has now moved across to unconventional. As a result, Central Petroleum is not actively involved presently in any CSG extraction. Nonetheless, I am a person who bought a company called Queensland Gas Company, out of financial difficulties to become a company that within six years was taken over by BG for the CSG, so I have a long history in it.

Central owns and operates the three onshore producing gas fields in Central Australia—namely, Mereenie, in which we are joint ventured with Santos; Palm Valley; and Dingo. Since we took over that operatorship we have increased local employment there by 450 per cent and traditional owners' employment by 250 per cent. In fact, 25 per cent of our workforce are traditional owners.

Arguably, Central is commercially advantaged by a shale gas moratorium given the natural gas pipeline, NGP, going ahead and the resultant shortage and increase in price. As we have existing reserves, my shareholders will be somewhat advantaged, at least in the short term. I make that as a disclosure at the beginning, but the prime reason that I wish to make a submission to this inquiry is that I am really quite concerned about the health of my nation's economy and, in particular, the number of manufacturing jobs at risk—the collateral damage—if the natural gas shortage that the ACCC has identified after a long inquiry comes about. In fact, I have a copy of a speech by Rod Sims on 9 March, in which he states that the critical period is 2016 to 2018, and:

Second, without new gas supply from a range of basins and producers there will be significant implications for gas prices and possibly gas availability.

The New South Wales government has indicated that there are 300,000 direct jobs in manufacturing at risk if there is an insufficient gas supply.

The prime issue is that six new LNG export terminals are being built and one LNG train equals the whole of New South Wales's consumption. To go to the last normalised year, 2012, the New South Wales government is on public record to say only 26 per cent of the New South Wales gas consumption goes into electricity generation. So, 26 per cent can be replaced, possibly by renewables but that is another issue, but 48 per cent is consumed by 300 companies employing 300,000 people, in which electricity is no substitute. That ranges from fertiliser, building materials, such as coated steel et cetera—and that is pretty important when we are talking about Arrium at the present time—glass manufacturing and, indeed, the only known present way to dispose safely of highly infectious hospital waste. Electricity is no substitute for those particular processes. If you extrapolate across Australia, one million jobs are dependent on a stable gas supply, which obviously, according to AEMO in its recent announcement and the ACCC, in 2019 all developed gas resources will have been committed and there is no further developed gas resources coming through the pipeline. So fighting for manufacturing jobs for a million, out of our 12 million Australians employed, I think is a fight worth going for.

There is a radical departure in this debate from the age of reason, in which I grew up, to a degree of McCarthyist emotional unsubstantiated assertions which, if unchecked, will vest a known risk to the Australian economy of the number of manufacturing jobs that would really affect the weak, the unskilled, the infirmed. They are the collateral damage in this argument. They are the ones who need to be protected and they need natural gas as a stable energy and input source. Whether it is for tractors, whether it is fertiliser, whether it is for explosives, whether it is for glass manufacturing, whether it is for brickmaking or whether it is for coated steel for roofing, Australia should not be importing those when the science has been settled by the Australian Council of Learned Academies, the Royal Academy of Science, the National Academy of Science in America, the Chief Scientist of Australia, the Chief Scientist of New South Wales, the Hawke inquiry and many more. This is a time when we should not be scared of unsubstantiated risks to take on substantiated risks.

CHAIR: Thank you, Mr Cottee. Mr Wilkinson, do you have anything?

Mr Wilkinson : No, I am fine.

CHAIR: Senator Waters, do you have any questions?

Senator WATERS: No, not at this stage but I am happy for you to come back to me at the end.

CHAIR: Santos, your submission states that a distinction between 'conventional' and 'unconventional' gas is largely irrelevant, as all of the gas is predominately methane, which is natural gas, and the activities undertaken are fundamentally the same. Do you accept, though, that the new way of unconventional gas drilling across Australia is requiring thousands of more wells? For example, Santos was recently approved by the Queensland government to drill 6,100 new CSG wells, which is more wells than are typical of a conventional gas field. Is this correct?

Mr Hicks : That is correct. It is the case that you drill more wells to produce CSG. You do not drill them as deeply—they are a much shallower depth than you do with conventional gas. Conventional gas wells can be up to four to five kilometres deep. Yes, that is a correct statement.

CHAIR: Have you experienced issues with the integrity of waste drilling ponds?

Mr Hicks : Sorry, I am not sure I understand what the question is. What do you mean by 'waste drilling ponds'?

CHAIR: Have you experienced issues with the integrity of the holding dams and ponds of the water that you have used?

Mr Hicks : I understand what you are referring to, yes. You are referring to the leak that we reported to the New South Wales EPA in regard to the Bibblewindi Pond 3, which had a small leak that saw some produced water leak from the pond. That was reported, we then emptied the pond, in compliance with an agreement we had with the EPA and New South Wales government, and we were fined, I think, $1,500.

CHAIR: You were fined $1,500.

Mr Hicks : Yes, the New South Wales government said and the EPA said, at the time, and I am quoting from February 2014:

The fine imposed on Santos reflected the small environmental impact of the incident, the fact that the company self-reported the incident, cooperated in the investigation and is implementing measures to minimise the impact.

It is important to note, for example, the water that leaked was many kilometres from either the aquifers that are used by agriculture or for human consumption. As they said, it was small, localised and contained. It was found to be no risk to livestock or drinking water sources.

CHAIR: You state in your submission:

NSW is facing a significant gas supply challenge.

Is that right?

Mr Hicks : Yes; that is, indeed, the case. It has been supported by the ACCC, as Mr Cottee has just explained, and also by the New South Wales government. The New South Wales Minister for Industry, Resources and Energy is, I believe, on the public record stating the importance of a domestic gas supply to be developed, for New South Wales, to protect jobs and manufacturing businesses.

CHAIR: The 2016 Gas Statement of Opportunities report, by the Australian Energy Market Operator, states:

Despite the projected rising demand and limited local production, no supply shortfalls are forecast for New South Wales under the medium scenario.

The medium scenario does not include gas being required from the Northern Territory. If there are no shortages expected, why does Santos mention a supply challenge for New South Wales?

Mr Hicks : Can I say, for the record, it is important to note that that assumption is based on a destruction of demand. The AEMO, in their Gas Statement of Opportunities, the last report they published, made it very clear that that scenario is based on large, manufacturing users of gas going out of business, taking their business offshore and putting Australians out of work.

CHAIR: I note in Queensland media, last week, it was said:

Santos has been embroiled in a $6 million dispute over allegedly unpaid work on its central Queensland LNG pipeline.

Liquidators claim that Santos owes the pipeline contractor an estimated $6.3 million. What is the economic impact on contractors and subcontractors caught up in the boom-bust nature of the unconventional gas industry?

Mr Hicks : Can I say for the record that we have made very clear to the administrators that reported that we dispute their claim that we owe any money for any unpaid work that has occurred. There is a legal process underway at the moment, and I fundamentally dispute that claim that was reported in the media last week. I would also state that the impact of the industry has been entirely beneficial for the communities in which we operate and for the state governments that take royalties from the industry. Santos Development pays royalties. So I dispute fundamentally the basis of the argument.

CHAIR: I would like to know how you deal with landholders who approach you about issues with CSG mining on their properties in Queensland.

Mr Hicks : I am not sure I understand the basis of your question. We have a great relationship with our landholders. It is based on mutual benefit and a transparent and open process so that people can understand the compensation that they get paid.

CHAIR: So what is your reaction to the hundreds, if not thousands, of people who have come to me and said that they do not want it, that their bores have dried up and that they are experiencing health issues?

Mr Hicks : I will first go back to the first principle that we said have said many times and have put on the public record: Santos does not go onto landholders' properties where we are not invited. We have always taken the position that it is a long-term relationship that has to work to the mutual benefit of everybody—and that, I think, is reflected by the very high scores that our independent surveys find of landholders' attitudes towards us.

As to the claims about health impacts and so forth, those claims are made about operators many kilometres from where we operate. I am not aware of any such claims being made about Santos. In reference to that, I would also say that we have been operating and producing natural gas for some 60 years and we are very conscious of our workforce and our workforces over those decades have never shown any of the symptoms to which you might be referring. I think that is more of a question for APPEA to address.

CHAIR: We will get to APPEA in a minute. In Narrabri in New South Wales, Santos decided to write down the value of the operations around the Narrabri area to zero. Is that right?

Mr Hicks : Yes, you are correct: the value has been written down to zero. That reflects the engineer accounting rules with regard to reserves. Because we have been focused on getting all the necessary approvals rather than proceeding to drill holes or do further exploration appraisal work, under the ASX rules and the engineer rules around that stuff, we had to write the value down. That does not mean that we are not committed to the project and we do not believe there is a valuable resource of gas that should be developed for the benefit of New South Wales and Australia.

CHAIR: Do you take notice of all those landholders who have been protesting in that area who do not want it?

Mr Hicks : We are always concerned to know what the community are saying about our activities. In Narrabri or Roma or Fairview or even in the Cooper Basin, we are confident that we have local community support. We believe that is justified by the number of land access agreements that we have been able to sign over the years across Australia. In Queensland, we have over 900 with about 320 landholders and in New South Wales we have all the access agreements required to proceed to the next phase of appraisal and development. With respect to the landholders who have expressed concerns or opposition to our projects, the vast majority of those are not locals and are not within the project area.

CHAIR: Senator Waters, do you have any questions?

Senator WATERS: No. I think as previously canvassed with APPEA and a number of the other CSG operators we are on radically different perspectives and I have not found it particularly useful in the past. So I am actually happy to leave it.

CHAIR: Mr Hicks, how many jobs are going to be created if the project at Narrabri goes ahead?

Mr Hicks : We believe that between 200 and 300 jobs will be created during the construction phase and that somewhere between 16 and 20 operators will be required in production.

CHAIR: Will those jobs be local?

Mr Hicks : Yes, they will. We have a very firm policy of supporting local employment and working with the communities in which we operate. That is certainly the case today. The team based in Narrabri who operate the fields, conduct the current appraisal work and operate the pilot and so forth are all locals.

CHAIR: And all these employees are going to be trained and ready to go once the project is up and running?

Mr Hicks : Yes, they will. But I would point out that we have indicated that we expect it to be a number of years before the project is complete, as we comply with all the planning and approval requirements of the extensive and stringent regulatory regime we have in New South Wales and then we proceed to further appraisal work.

CHAIR: Is it true that, when this goes ahead, no royalties will be paid in the first five years of production?

Mr Hicks : No. I think you are misinformed. That used to be the case. Certainly Nick Greiner, as I understand it—it was well before my time—instituted a royalties holiday to enable the development of a gas industry in New South Wales. But former Deputy Premier Andrew Stoner abolished the royalties holiday to create a fund, a form of royalties for the regions, to help pay for and support the communities that host the gas industry so that not only do the landholders get a benefit but also the communities get a benefit and compensation for hosting the gas industry.

CHAIR: What is the process when a landholder does not want you to come onto their property? Do you just abide by their rights or do you take it to another level?

Mr Hicks : As far as I am aware, no means no. As I have said, Santos has had many land access agreements; for example, over 900 in Queensland. We have never been to the Land Court; it is not our intention to go to the Land Court. We want to build a relationship based on mutual respect. But I would also state, for the record: if no means no, then yes should definitely mean yes. I think it is appalling the way that some landholders—who have considered all the risks and benefits for them, their families and their farms—have been targeted by activists.

CHAIR: Does Santos have a full understanding of the environmental implications from drilling and fracking?

Mr Hicks : As an organisation which has been producing gas in Australia onshore since the 1960s, I would argue that we have a very strong history of knowledge and expertise on how to drill, explore, develop and produce gas safely without harm to environments or to water resources.

Senator LUDWIG: My question is more of a broader one, I guess, that anyone from the panel may wish to comment on. From this hearing and others that I have participated in around coal seam gas and shale gas, there is an extraordinary amount of community angst about it, which you face continuously. In Queensland, it first began around the land use agreements and then migrated when AgForce and the like came on board, if I can use that phrase—correct me if I am wrong—and, ultimately, has reached Narrabri and the Northern Territory. What do you think you can do more of to try to mitigate some of the community concerns that exist around this industry? The literature that you produce, the literature that is produced worldwide and the independent research all point to, more broadly, the idea that this can be managed safely for the community benefit and for the broader economic benefits that flow from it.

It seems that the jury is not out. The jury has already come in with a verdict world wide about the industry, more broadly, on the proviso that you manage the resource in an environmentally sensitive way, which, from all intents and purposes, you appear to be doing. But why do we still continue to have this? Is it the mistakes you make? Is it the approach you have taken? I am happy for you to provide your own comment about why.

Mr Doman : In the first instance, it is important to note that the perception of community opposition to our industry is a false perception. One piece of work I can refer to, mentioned in our APPEA submission to this inquiry, is the work that the CSIRO did on community attitudes towards coal seam gas in Queensland. It found that only 10 per cent—only one in 10—of people in those communities opposed the industry. Ninety per cent of the community either tolerated, accepted, supported or embraced it. That is borne out also by the record of land-access agreements that the industry has been able to negotiate and agree. There are landholders who do not want our industry on their land, but they are in a very small minority.

That is not to say that there are not genuine questions and concerns held throughout the community, particularly when we move into new areas—as we are proposing to do in the Northern Territory—and to areas unfamiliar with our industry's practices and its track record. Those people are entitled to raise their concerns, to ask questions and to expect frank and immediate answers from our industry and from the government that regulates our activity.

I would say we do need to do more, in terms of informing the public discussion, but it would be greatly assisted if some of the extreme, false, exaggerated claims that are repeatedly made are not made and that all comments made, in relation to our industry, are based on fact and verified by science. At the end of the day—

Senator LUDWIG: Sorry to interrupt you, but you are a realist. I am a politician. You are always going to have that.

Mr Cottee : I am an old man, and I have seen a lot in my long tenure on this earth. The prime issue we have is to show, overtly, the economic benefit that we are contributing to the community. The advent of FIFO, for example, has disconnected, to a large extent, the benefits for that community. When I was in Chinchilla, in the early days, they complained, primarily, of what they called the doughnutting of their community. Their children, when they turned 20, had to leave for Brisbane to get a job, because there were no jobs in that local community.

I sincerely and honestly believe that Australia, America or wherever has always been able to decentralise and create regional development through the agriculture and resources sector. That is a historical fact: 'Go west, young man,'—goldmining, gold rushes et cetera. The advent of FIFO has blunted that obvious economic benefit. I also note that absolutely everyone, including my children, is always change resistant, so any change is always hard to manage. When I look back and see that the Chinchilla region was worried, when I first went there, about the closing of the last bank to, now, worrying about whether McDonald's come in, I think it is a job well done. You have given people an economic choice as to their future.

I would say in the areas where we operate, with the traditional owners—on whose land I wish to acknowledge I am presently speaking and I apologise for not making it at the outset—we need to ensure that both the direct and indirect economic benefits are seen for regional development in Australia. In the resources sector, since about the eighties, FIFO has not been able to see that. We need to make sure that this impact is felt so that parents have a chance of allowing their children to stay in the region in which they were born.

Senator LUDWIG: Mr Doman, I did cut you off, so I do apologise. Did you want to finish?

Mr Doman : The point is that we always have to be responsive to community concerns, and that includes here in the Northern Territory or wherever else we operate. The perception gleaned from media coverage of overt hostility between communities and our industry is not the reality that we face every day. Richard would vouch for that in Central Australia. I joined APPEA recently, after eight years at Santos. I believe that in the areas in which the company operates, and where the industry operates, we enjoy strong support. Not unanimous support—quite clearly there are people who have concerns that they are not satisfied about or who oppose our industry for a range of reasons. We will never achieve 100 per cent support, but we are very comfortable with the relationships we do have with the communities who host our activities, and we are determined to maintain it in that manner.

Senator LUDWIG: In the Australian Petroleum Production and Exploration Association submission, you also talk about a range of ancillary benefits that you say you bring, such as additional medical support and the like. Is it only confined to that? Or is it broader in terms of the contribution made by, for argument's sake, Santos—from Mr Hicks's organisation—and the others that you represent to those regional communities, contributions that otherwise would not be there?

Mr Doman : Again, Queensland is a good example. It is not my role to speak for the companies who have operated in that region, including Santos and Origin, who are closest to the community of Roma. We have seen the industry contribute to improvements to the airport and the hospital, and develop new housing stock in those communities. There is a wide range of initiatives that have been supported by our industry. We believe that is an important part of contributing back to the communities that support our activities. Of course, our industry, when it does bring significant workforces into a community, does place a demand upon that community's social infrastructure. We have accepted and demonstrably exhibited in Queensland a willingness to contribute to that social infrastructure, to enable that process to be a smooth and satisfactory one for those communities.

Senator LUDWIG: Are there a couple of concrete examples you can give?

Mr Doman : Several of them are detailed here in APPEA's submission, but the Roma airport is one example that comes immediately to mind. There is the Roma hospital. Santos has contributed to initiatives in New South Wales that Mr Hicks could speak more authoritatively to. In South Australia, the industry has supported—

Senator LUDWIG: [Inaudible] Mr Hicks, if you want to.

Mr Hicks : I will speak specifically about our GLNG project. It was first sanctioned in 2011; we have been through the construction phase; we are now up to final commissioning. During that time we purchased about $15 billion worth of services and materials from Australian businesses. We also spent about $1 billion in regional areas through that process. So that is the direct payment of cash, influx of cash and investment into businesses and jobs. At the same time, we paid across the company last year, in 2015, about $183 million in taxes and royalties. That is on top of another $18.5 million in community investments. Last year, Santos alone spent $12 million on roads in the Maranoa and Gladstone shires.

CHAIR: I have been to Chinchilla, Mr Doman, and they have not received any benefit from having CSG mining around their area. Why would you suggest that CSG mining is really good for all of these country towns?

Mr Wilkinson : CSIRO looked specifically at Chinchilla. I am not talking about the people you have interviewed, Senator, but CSIRO looked specifically at Chinchilla and over the recent period, during this build-up for the CSG, the proportion of families living below the poverty line has decreased from 23.4 per cent to 8.3 per cent.

CHAIR: That is because they have left; there is no work there.

Mr Wilkinson : No, that is not true, because the number of young people—and that is very important to local communities—has increased by 46 per cent in that area. If you look at unemployment, it is down to three per cent. These are very low figures. They have got jobs, young people are moving back to the regions and the poverty line has gone down.

CHAIR: I do not know where you are getting those stats from.

Mr Wilkinson : The CSIRO.

CHAIR: How many thousands of gas wells would need to be drilled and hydraulically fractured in order to extract the 200 trillion cubic feet of gas that is outlined by the Northern Territory government and APPEA commissioned report by Deloitte—the ballpark figure for 200 trillion cubic feet? How many fractured gas wells did it take for other shoal areas to get that much gas out?

Mr Doman : That potential resource is a very large number, as we referred to. It is very, very unlikely that level of resource will be totally developed. The scenario in the report that Deloitte Access Economics has completed on the economic analysis of the potential of the shale gas industry in the Northern Territory identifies, as I said in my opening remarks, an industry that could create 6,000 jobs and deliver up to $1 billion in revenue to the Northern Territory government over the next 20 years. That is based on a scenario of a maximum of 2,300 wells, but on multi-well pads, so you would have between 200 and 300 well sites. The pace at which this industry will be developed will be gradual. We heard earlier on that five wells are likely to be drilled this year. Somewhere around 15 wells, I believe, were drilled last year. As the industry continues to explore the resource and identify the potential, there will be a gradual increase in the amount of drilling that occurs. But a large-scale development of our shale gas resources, as portrayed by Deloitte Access Economics, would see around 2,300 wells drilled.

CHAIR: APPEA put out a press release last month that states:

… there have been no proven cases of groundwater contamination directly linked to hydraulic [fracking] anywhere.

Is that still your position?

Mr Doman : That is correct.

CHAIR: So despite all of the fracking that has been going on, there has been no contamination?

Mr Doman : There has been no proven groundwater contamination from hydraulic fracturing anywhere. That is not to say there have not been environmental impacts from our industry more broadly, but opponents of this industry very specifically target the fracking process. We hear phrases such as 'Don't frack the Territory', 'Frack off', 'What the frack' et cetera. It is wordplay that might be effective in rallying emotion against the industry, but it specifically targets a practice that has a very strongly established track record of safe operations with no systemic impacts. That has been confirmed by repeated scientific studies. The US environmental planning authority, the Australian Council of Learned Academies—a long list of organisations that have looked into our industry and found that there are no direct linkages between the fracking process and groundwater contamination.

Senator PERIS: In your submission, with the Santos submission, you said you have signed close to 50 voluntary land agreements with traditional owners that are over and above the compliance requirements. Is that here in the Northern Territory?

Mr Hicks : It is my understanding that is nationally.

Senator PERIS: Do you have any in the Northern Territory?

Mr Hicks : I do not know the answer to that question. I will need to take it on notice and come back to you with an answer on that.

Senator PERIS: Okay. With the compliance requirements, who develops them? Is that an independent body, or is it Santos that develops it?

Mr Hicks : Once again, I am not aware of that level of detail about our agreements, so I would need to take that on notice and come back to you on that.

Senator PERIS: Okay. Are the voluntary land agreements with traditional owners being made in consultation with the land councils, with their assistance? Or are these agreements being made independently by the traditional owner groups themselves?

Mr Hicks : It varies according to the various areas in which we are operating. It is certainly in compliance with the Mabo legislation.

Mr Doman : Here in the Northern Territory activity can only occur on Aboriginal land with the express support and endorsement and informed consent of the traditional owners. The industry works with the land councils, who in turn represent the traditional owners in that negotiating process. There is, relatively speaking, a small area of operations in the Northern Territory at the moment. We are talking about the potential for a significant increase in that, and so going forward you will see more discussions with the land councils and traditional owners about the potential for this activity in their areas, on their land, but that activity will only go ahead with their informed consent.

Mr Cottee : If I may answer on behalf of Santos, because we are the operator of Mereenie: the answer is definitely they do have those agreements through the Central Land Council and certainly exploration agreements through the Central Land Council to the south of Mereenie. They have been entered into. It is traditional owner freehold title. Under the act, you negotiate through the CLC, with community consultations organised by the CLC, and there are terms and conditions upon which you agree. In addition to and above that, we do make additional payments to the landowners for such matters as netball uniforms or sorry leave or whatever. Where a traditional owner has a particular request, we have made and continue to make some other payments above and beyond those that are legally required under the CLC brokered agreements.

Senator PERIS: Mr Doman, I think you said that there were 15 wells last year.

Mr Doman : That is about right. It is somewhere between 15 and 20.

Senator PERIS: They are here in the Northern Territory?

Mr Doman : Yes.

Senator PERIS: Have any of those wells become abandoned?

Mr Doman : No. In the stages of exploration, a well is drilled and an analysis is taken of the results from that well. But if we are heading into a more technical question here, I might ask Mr Wilkinson to explain the processes in relation to exploration.

Mr Wilkinson : Senator, if the basis of your question is what is the technology used when a well is abandoned, it is a common term used but the well is far from abandoned. There is a full remediation process that goes on. When a well is drilled it is designed for its entire life, and that includes how it is going to be maintained through to its final remediation and rehabilitation. Typically, while it is an active well, you would be revisiting that well every two or three years with a rig, testing the well to make sure that it still has integrity and that it is operating in a way that you had planned. Often this involves changing out seals in glands and testing for gas that might be building up that you did not expect. When it comes to the end of the life of the well there is a process of abandonment which typically involves mechanical plugs that are lowered down on the ends of cables and used to jam off or close off the wells themselves. You also fill the voids, or a good part of them, with cement. When you have deep wells like you have in the Northern Territory, you probably do not fill the entire well with cement. That is expensive. What you would use instead would be a heavy clay, like bentonite. The advantage of a heavy clay like bentonite is: firstly, it is natural; and, secondly, if any movement or corrosion occurs, the bentonite swells and tends to self-heal any holes that you might have in those processes.

Just to summarise: mechanical plugs cement across the sensitive zones, and bentonite comes onto the top. All of that has to be signed off, generally by government auditors who come and inspect that that completion is correct. And then generally it is cut off beneath the ground so that you can take a plough over it and resume agricultural and other activities that might be there.

Senator PERIS: Has any of that happened over the last two to three years?

Mr Wilkinson : Most of the CSG wells are still fairly new. Typically, when you have a plug and abandonment you are looking at 20-plus years for that to go through, but it is a fairly standard process. For example, if you drill an exploration well and it looks like there will be a long period of time or it will be an unsuccessful well then certainly that well must be plugged and abandoned. It is not like you are filling a large mine area. It is basically filling a tube with cement and bentonite and putting the plugs in place. So it is fairly straightforward, and it saves you costs to finish it because you do not have to monitor it and continue to report on it.

Mr Doman : Senator Peris, a company called Statoil drilled, I think, five wells in an area called the Georgina Basin in the south-east of the Territory. Those wells were unsuccessful in terms of proving up a commercial gas discovery, so those wells were decommissioned by that company following the procedures Mr Wilkinson has described. That is one case that comes to mind of a company that decided not to continue with the exploration activity. But in all other cases, to my knowledge, the wells that have been drilled are still being assessed and developed for future near-term activity.

Senator PERIS: Have the ones that have been decommissioned, for which there is no longer a use, been filled in?

Mr Doman : They would have to follow the procedures that Mr Wilkinson outlined in terms of decommissioning a well. To my knowledge, they certainly did that.

Senator PERIS: Earlier on there was a question that I did not get around to asking the department. It was about the abandoned wells legacy fund. Have you heard of that? It was something that they were looking at establishing.

Mr Doman : There are a wide range of policy initiatives that the Northern Territory government has put forward in the last four or five months. That is one of the proposals that they outlined in November last year. In broad terms, yes, I am aware of that.

Senator PERIS: Do you think something like that should be in place before they start exploration?

Mr Doman : There are similar arrangements in place in terms of financial securities that must be lodged with our activity, and I think it is very important that the companies that undertake this activity have the experience, the expertise and also the financial wherewithal to see their commitments through. There are various ways in which jurisdictions around the country reassure the community of that, and the measures you are referring to are something that is being considered in the Northern Territory.

Mr Wilkinson : As a Queensland example, the amount of money that is held in either bank guarantees or company guarantees with regard to the oil and gas industry in Queensland is about $800 million, and there are no examples where the government has needed to tap into those funds because it could not locate the responsible company or person. Our track record—at least that which I can point to in Queensland—shows high commitment to financial insurance and very low utilisation of those funds.

Senator PERIS: Thank you, Chair. I do not have any more questions.

CHAIR: Thank you, gentlemen. Thank you for your time.