Greens expose Santos’ multimillion dollar CSG royalty loophole

MEDIA RELEASE: 1 August 2015

The Greens NSW water spokesman Jeremy Buckingham today accused the NSW Government of creating a loophole which has allowed Santos to avoid paying $3.68 million in royalties on the 4,250,938 gigajoules of gas supplied to Wilga Park Power Station in the four years to last month and millions more in the years ahead. The calculations to substantiate this assertion are below.

Last week Santos were granted approval to send all gas produced from 12 existing coal seam gas wells in the Pilliga to their Wilga Park Power Station for 1000 days under a ‘beneficial use’ exemption for gas exploration. The Greens refute Santos’ claim that this is genuine exploration.

Gladys Berejiklian needs to explain why her government has created a loophole which allows Santos, and Santos only, to avoid paying millions of dollars in royalties,” said Greens Energy Spokesperson Jeremy Buckingham.

Santos has clearly been given special treatment with a loophole in the regulations which allows them to avoid paying royalties when any similar new development would be required to.”

“The NSW Government and Santos should also drop the outrageous fiction that this is genuine gas exploration. Santos have been operating these wells for up to 8 years, they have submitted a detailed application for a commercial 850 well gas field and they have dodged the key question about how much more gas will be sent to the power station than would otherwise have been flared.”

“Santos were only seeking between one and three years to operate the Tintsfield and Dewhurst wells when they got approval in 2009 and 2013. They have now been operated these wells for between four and eight years and there is no justification for an additional 1000 days of testing. There was certainly no detail in the woefully inadequate development application from Santos that has just been approved. 

“This whole process stinks.  It is coal seam gas production by stealth and a multi-million dollar taxpayer subsidy to Santos.

“The Greens oppose coal seam gas as unnecessary, unwanted and unsafe.  We do not need a new fossil fuel in an age of climate change and competitive renewable energy technologies,” Mr Buckingham said.

Contact: Jack Gough 9230 2202 or 0427 713 101

Santos NSW CSG production and lost royalties

2014

(from 18 July)

2015 2016 2017 2018

(to 30 June)

Bibblewindi West (MSCF) 47,960 340,879 433,887 519,421
Bibblewindi East (MSCF) 233,194 844,192 755,588 572,383
Total (MSCF) 281,154 1,185,071 1,091,804 1,091,804
Converted to GJ (MSCF  = 1.0551 GJ) 296,646 1,250,368 1,151,962 1,151,962 400,000
East coast average wholesale gas price (ex. transmission costs) about $7 $7.60 $9.78 $9.19 $8.60
Estimate of well-head value $2,076,522 $9,502,796 $11,266,188 $10,586,530 $3,440,000
Total well-head value $36,872,036
Estimate of royalty (10% of well-head value) $207,652 $950,280 $1,126,619 $1,058,653 $344,000
Total lost royalties $3,687,205

 

  • Based on the previous Gas Price Trends Review 2015 report, the gas price for 2014 was about $7.
  • According to the ACCC Gas Inquiry 2017-2020 interim report from April this year the “range of producer prices for gas supply in 2018 under the more recent GSAs is between $8.60/GJ and $9.80/GJ”.

 

Under the exemption Section 28B of the Petroleum (Onshore) Act 1991, which allows the beneficial use of gas yielded through prospecting, it is left up to the regulations whether a royalty is payable.  The regulations were silent on this until 2016 and so no royalty was payable before then.  When the 2016 regulations brought in a 10% royalty for beneficial use (Section 16) the government put in a loophole which means that if the recovery and use is authorised by a relevant development consent granted under Part 3A, 4 or 5.1 of the Environmental Planning and Assessment Act 1979 before 18 December 2015 they don’t have to pay. Santos’ Wilga Park power station is the only project to which this loophole applies.

Timeline of Wilga Park development applications and modifications

  • On 18 July 2014 the Government approved an amendment to the Wilga Park Power station approval allowing the use of coal seam gas from existing or future wells within PAL 2 or PPL 3 at the Wilga Park Power Station.
  • Following concerns raised by the Wilderness Society, the Planning Department’s assessment report at the time specifically mentioned that Santos’ use of the gas from their test wells should not be open ended, saying:

“the Department is concerned to ensure that the resource appraisal period for carriage of gas from PAL 2 and its use at Wilga Park is not open-ended. It considers that a reasonable time period should be included in the modified approval to provide an upper limit for the use of gas gathered from wells within the PAL, before a modified approval for ‘petroleum production’ and a consequent PPL, is required for continued use.”

They then said that “Santos considered that an appropriate period for future resource appraisal was 3 years, from the date of any modification approval.”

And so, despite Santos seeking unlimited and open ended use of the gas in their application, the approval specifically restricted it to 3 years as so that it “is limited to a reasonable period”

1.4A Gas may only be received for use at the Wilga Park Power Station from wells located within Petroleum Assessment Lease 2:

a) for a period of 3 years from the date of approval of Modification 3, in the case of any existing well; and

b) for a period of 3 years from the date of commencement of such receipt, in the case of any well which is drilled following the date of approval of Modification 3.

Note: The purpose of this condition is to ensure that the supply of gas to the power station arising from gas flow appraisal at exploration and/or appraisal wells is limited to a reasonable period. Supply of such gas to the power station from wells located within a Petroleum Assessment lease for longer periods would require further modification to this approval.

  • Santos then applied in August 2016 to expand this ability to use gas at Wilga Park so that it applied to all their “existing or future wells within PEL 238” –  they subsequently dropped this application.
  • In May 2017 they applied to scrap the 3 year limitation on use of the gas and extend it for another 3 years “to enable the ongoing use of natural gas extracted from coal seams in the Wilga Park Power Station whilst continuing to assess and appraise the gas.” This was approved in July 2017.
  • Santos then applied for a further extension of their beneficial reuse, along the lines of the withdrawn 2016 application, for gas “from the Tintsfield and Dewhurst South 26-31 pilot wells located within PEL 238.” The justification given for this increased use is to “increase the supply of gas available to the power station”.  This will mean Santos is able to extract gas from an additional 12 coal seam gas wells in the Pilliga without any Environmental Approval – essentially production by stealth.  This was approved on 23 July 2018.

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