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Tuesday, 31 October 1967


Mr FAIRBAIRN (Farrer) (Minister for National Development) - I thank the honourable member for Evans (Dr Mackay) for his contribution to this debate. As honourable members know, he is Chairman of the Government Members Mining Committee which has worked so hard and with great effect. I thank him also for his reference to the officers of my Department. I should like to be associated with that reference and also with his remarks about officers of the Attorney-General's Department who have done a fantastic job over a long period in bringing this agreement into being. I realise that the Opposition has said that there was a paucity of time to study this matter. I would be the first to recognise that this is a tremendously difficult, complicated and complex Bill. It is not easy to understand it quickly. For that reason I have, throughout the time in which we have been negotiating with the States, done my utmost to try to keep the Parliament informed of action that we were taking. Two years ago I, and every State Minister, made a statement in which we outlined the policy that we were going to adopt. Since then, whenever we have met, we have issued Press statements so that people could follow the thought behind the Bill. Let me refer to the thought behind the Bill, because I think it is essential in understanding the action that we have taken.

The Bill is, of course, quite unique in the history of the federal system. It is epoch making. We looked at our various powers and at what was happening in other parts of the world to decide what sort of scheme would be in the best interests of Australia as a whole. If a test case went to the courts it is likely that it would be held - this is only my view, because it cannot be proved until such time as the courts issue a ruling - that outside the 3-mile limit the Commonwealth had the power to legislate for offshore oil and gas development.


Mr Duthie - Did not the United Nations clear that up?


Mr FAIRBAIRN - No, it has not done that at all. All that it said was that a particular state - by 'state' I mean a particular nation - has the right to develop offshore areas on the continental shelf. It did not say whether it should be a state or a federal authority. It is my view that inside the 3- mile limit the States would probably be given the power. There were three things we could have done. We could have legislated to cover the whole lot and waited for the inevitable litigation that would have occurred when the States challenged our power in regard to inshore areas. We could have legislated to cover just from the 3- mile limit out. In either of those cases, if we had been left with just that area from the 3-mile limit out to the edge of the continental shelf, we would have faced all the problems that have faced development in the United States and under other federal systems. In other words, we would have had two codes operating. We already have one strike off Gippsland which straddles the 3-mile limit. We would have had State law applying inside and Federal law applying outside the limit. The third alternative, and the one which eventually commended itself to the Government was to say: 'Let us engage in consultation with the States and see whether they are prepared to make an agreement under which we each decide we will not test the other's rights. We will have a joint agreement signed between the Commonwealth and the States. We will have a joint common code under which offshore mining companies will know that anywhere on the Australian continental shelf the same mining rules and regulations apply. But naturally there are certain things that the Commonwealth requires. Unless we can obtain these we will not sign the agreement.'

This was what led to a very long period of 3i years of bargaining, which was finally concluded successfully and, I think, to the advantage of Australia as a whole. Some people have said that we could have gone to the courts and got a ruling on who was entitled to legislate in certain areas. This is not the only problem, of course. The greatest problem in the United States was not this particular problem; it was the problem of delineating boundaries. It is 22 years since Truman made his announcement about the continental shelf of America being reserved to the United States for development. Since that time there has been very considerable litigation. Litigation in the United States is occurring fairly frequently. In Louisiana alone there is an amount of $800m held in escrow - frozen money - because it is not known who owns it. This is starting to occur in relation to the offshore areas of California. The Canadians are now initiating litigation. A case has been prepared by the province of British Columbia, and I believe that other provinces are now joining it to attack the Federal Government to see who has this right. It is my view - and I think it is a correct one - that it is doubtful whether any of us in this Mouse will see the end of litigation on offshore oil in the United States.


Mr Connor - That will go for Australia too.


Mr FAIRBAIRN - It will not if this legislation passes through the chamber as I expect and believe it will. We have an agreement under which we have come together and agreed not to contest one another's right. I mentioned that had we gone it alone it would not have been a case of operating from the 3-mile limit out; it would have been a case of the Commonwealth Government setting up a completely new organisation to run the offshore areas. This could have been done, of course, but again it would have been at a cost. It would have been duplicating and making more difficult the administration that already exists.

We are told that there are a number of unsatisfactory features in this legislation. One criticism concerns the fact that the areas are too large. I do not think anyone believes - the honourable member for

Mackellar (Mr Wentworth) who spoke on this does not believe it - that we could immediately go in and divest these companies of the leases they had accepted in good faith, believing that the States at the time had the right to issue the leases. So, what we decided to do was the next best thing. We decided that these areas should be gradually reduced. This agreement in 6 years time makes provision for 50% of the continental shelf to return to the States and to the Commonwealth - to the designated authorities. In 6 years, which is not a long period, these areas will be available for distribution to the most suitable companies that are available. Of course, all of us want to see the greatest possible Australian equity. Why is there not a greater Australian equity? The honourable member for Mackellar spoke in our Party room last week and used the quotation from Shakespeare:

The fault, dear Brutus, is not in our stars, But in ourselves . . .

This applies to offshore oil. How many people and how many members in this House have put risk capital into assisting Australian companies? We have seen the tragic situation of companies with good prospective areas trying to raise a bit of capital on the Stock Exchange and then having to forfeit shares that were not taken up and could not be sold even for 3d. These were shares that ought to have been of value. Perhaps we are too much inclined to spend mosey on poker machines and the TAB and do not put enough into the development of this country.

It so happens that many of these leases for offshore oil were held by Australian companies. However, these companies had work requirements. They could not sit on the leases. They had to do this work just as the other companies have to do work to prove the areas. Since Australian companies could not do the work they sought overseas partners, and these partners of course earned an interest. We now find ourselves in a situation in which, I would be the first to admit, a higher proportion of our offshore areas is owned by overseas companies than I would like to see. If I could have a word with some of these companies I would say to them that they would be well advised - I think it was the honourable member for

Batman (Mr Benson) who made this point - to seek Australian participation because there is nothing that turns a country against overseas investment more than the fact that companies are 100% owned by overseas companies. I feel certain that some companies have sought Australian participation. I also feel certain that as time goes by many more will take this action when they feel that there are suitable Australian companies available with which to co-operate.

The plain fact of the matter is that when we started the search for offshore oil, people were not available in Australia with the knowledge, the technical knowhow and the resources to undertake this work. The honourable member for Mackellar, who complains that overseas domination of our offshore oil is too great, has a brother-in-law who is Chairman of Directors of Broken Hill Proprietary Co. Ltd. BHP produced a question and answer booklet in which the following appears:

How did the Broken Hill Pty Co. Ltd and Esso become involved?

On the basis of expert advice, BHP made a decision in 1960 to take up permits and licences to explore for petroleum in an area totalling 63,000 square miles of Bass Strait. BHP's initial survey work indicated that further exploration was justified. BHP did not have the specialised and highly technical knowledge or the resources to undertake the programme necessary.

Here is the greatest company in Australia, a most remarkable company, yet it is the first to admit that it did not have the resources or the technical knowhow necessary. So it sought and obtained an excellent overseas partner. If that company was not able to do it, bow could we expect some of the smaller companies to go in on the scale we would have liked to see? Now they are obtaining this knowhow. We are learning more and more every day and I am sure that in time we will see a greater Australian participation.

I stress that in relation to these areas there is, firstly, the relinquishment under which 50% will be relinquished after 6 years another 50% after another 5 years, and every 5 years thereafter 50% of these areas will be relinquished and made available by the designated authority, who in every case is an Australian, and who will look for the best possible person to take them on. In addition to that, of course, there is a work requirement and a rent. On the licence side there is the same relinquishment unless an override royalty is paid.

Let me make a point here because a number of people on both sides of the House have said that we should not have altered the original rule which provided that once a person obtained a licence five of the original nine blocks in the square into which areas were divided could be retained and the other four were to be sold by tender. We have altered that rule now so that the company concerned has the right either to relinquish the four, which are sold by the designated authority by tender, or else pay an override over the whole nine blocks. This means that instead of the royalty being 10% it could be 11% or between 11% and 12$%. We were told that we should not have done that. In actual fact, the assessment of my Department is that this will benefit considerably the Governments concerned. They will get more from an override than they would have got under the previous arrangement.

I think we made a mistake in the original proposal. We had said that when the four blocks were put up for tender the person who held the licence on the other five had only to match the tender of the highest bidder. That put him in a too satisfactory position because there were no competitors. We have altered that now and said that if that person wants to buy the other four blocks he must submit a tender just as everyone else does.


Mr Buchanan - But the Government could have had 12-}% overall.


Mr FAIRBAIRN - Of course we could have made the royalty any amount but we had to devise a scheme which would encourage people to come in. We did not want to make the royalty too high and perhaps force them to go elsewhere because they have only a certain amount to spend on exploration and they go wherever they think the best prospects lie. As the Opposition has mentioned, only two countries in the world - the United Kingdom and the United States - pay a higher royalty than does Australia. The vast majority of countries are either on our level or below our level.

The 10% is the royalty which runs through most of the States. In some cases in the States it is even lower than that. So I believe that on the question of royalty we have got to a stage at which there will be a considerable return to governments while at the same time we will not discourage the companies from carrying out the programme which is so necessary if we are to discover oil in Australia. It. is essential to encourage drilling and discovery, but some people do not realise this. They seem to think it is better to have undiscovered oil in the ground rather than to get it out, although of course we get 50% of the proceeds and so have a great interest in getting it out, even if it is extracted by a completely overseas-owned company.

I do not want to speak at too great length. I could have followed through a great many, of the matters that were raised. The honourable member for Batman, for example, referred to the need to control pollution of the sea. This is dealt with in clause 97 (2.) which requires a title holder to prevent the waste or escape of petroleum in his title atea. The honourable member for Wilmot said - I do not know where he got hold of this - something to the effect that Mr Fagan and Mr Dunstan, the two Labor people, signed under duress. 1 can assure him that this is completely untrue. In fact I would like to pay a tribute to both these people, particularly Mr Fagan who, I believe, played a very great part in having this agreement concluded. On one occasion when things looked a little sticky he gave me considerable help. I admire his technical skill and the ability with which he and ail the Ministers for Mines and AttorneysGeneral approached this agreement, lt is not just an agreement that was thrown up on the spur of the moment. We had the opportunity to get together the top mining engineers and officials in Australia, and they looked very closely at every aspect of offshore oil drilling. We have sent our own Department of National Development officers overseas to study various kinds of legislation, and they have brought back much helpful information. Similar steps have been taken by the States.

There are many other matters that I should mention, but I will try to be as brief as possible. Mention has been made of the price paid for natural gas and of the belief that Victoria has paid too much for it. Of course this is the kind of statement that can always be made. Some people say that it is too much; others, particularly those who are gelling the product, have said that it is not enough. It is true that in the United States and Canada at the present time, because those countries are so much further ahead than we are, the price is less than the price that has been negotiated here. Of course, the first development involves an enormous initial expense that has to be amortised. In every country one finds that the first price is the highest. Afterwards sales are made at lower prices. I know that in the United States and Canada the well-head price is 1.4c and 1.5c per therm. But in France it is 4c; in Holland it is 4c when sold within Holland and 3c to other countries. In England the price after the first discovery was 5.2c. These prices are all above the price for Australian gas which varies between 2.5c-


Mr Connor - That is not the average English price, and the Minister well knows it.


Mr FAIRBAIRN - I said that was the price after the first discovery, but they are negotiating-


Mr Connor - Do not mislead the House.


Mr FAIRBAIRN - I am not misleading the House. If the honourable member had been awake and listening he would have heard me say that this was the price for original sale. At the present time negotiations are being carried on. The companies are still seeking 4.16c and the Gas Council is offering 3.12c. Both of these prices are above the Gippsland price. I do not think the Australian price is unreasonable by any manner of means, and it is on the basis that the more sold the lower the price will be.


Mr Connor - What about the price in New South Wales?







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