Update on Victorian petroleum moratorium

Mirboo Ridge Pty Ltd v Minister for Resources [2019] VSCA 304

In 2017, the Petroleum Act 1998 (Vic) (the Act) was amended to:

• ban permanently hydraulic fracturing (ie ‘fracking’), and
• impose a moratorium on petroleum exploration and petroleum production in the onshore areas of Victoria until 30 June 2020 (the moratorium period).

The Supreme Court of Victoria Court of Appeal recently decided Mirboo Ridge Pty Ltd v Minister for Resources [2019] VSCA 304, a case about the interpretation of the moratorium in section 17A of the Act.

Two companies that held petroleum authorities under the Act, and their parent company, Lakes Oil NL (the authority-holders) brought judicial review proceedings against the Minister for Resources. They sought declarations and other orders to prevent the Minister from relying on the statutory moratorium to prevent them from undertaking petroleum exploration under their petroleum authorities.

It was a condition of each petroleum authority that the authority-holders ‘shall carry out minimum petroleum exploration in the permit area in accordance with the work program’. The conditions then specified minimum work requirements (eg ‘drill two exploration wells’) to be undertaken for each year of the petroleum authority.

Section 17A

The new section 17A(1) of the Act provides in part that the ‘carrying out of any petroleum exploration or petroleum production during the moratorium period is not authorised under that authority.’ The parties were in agreement that each of the authority-holders’ petroleum authorities had been ‘de-authorised’ by section 17A(1).

However, the authority-holders contended that the statutory moratorium did not apply to the minimum work requirements under their petroleum authorities. This was because section 17A(2) — the critical provision in the proceeding — provides that section 17A(1) ‘does not affect any requirement or obligation imposed on the holder of a relevant authority by or under this Act or under a condition of the authority during the moratorium period.’

The authority-holders contended that the phrase ‘requirement or obligation’ in sub-section 17A(2) included the requirement to conduct petroleum exploration imposed by the minimum work condition in their petroleum authorities.

The authority-holders emphasised the qualified text of section 17A(1), which is prefaced with the words ‘Subject to this section, despite anything to the contrary in this Act or any condition of a relevant authority’.

Decision of the Court of Appeal

The Court of Appeal rejected the authority-holders’ ground of appeal. It held that while the authority-holders’ interpretation had an ‘attractive simplicity’, the ‘apparently plain words’ of section 17A(2) ‘wear a very different appearance’ when the relevant context was considered: in particular, the state of the law and the ‘mischief’ which the statute was intended to remedy. The relevant context included:

• The nature of a minimum work condition suggested that once the authority to do exploration work is withdrawn, the minimum condition is necessarily inoperative.
• That if the legislature’s intention had been to enable particular petroleum exploration to continue during the moratorium, it would be expected to have said so specifically. The general terms of sub-section 17A(2) were not sufficient, especially as the qualification to the moratorium would depend on the variable content of particular work conditions attached to authorities.
• Sub-section 17A(3) specifically exempted particular petroleum authorities from the moratorium. The Court held that a similar specific provision would be expected if the legislature had intended to exempt particular exploration activities from the scope of the moratorium.
• The explanatory memorandum said that section 17A(2) ‘clarifies’: this supported the view that sub-section (2) is a provision included for the avoidance of doubt. That is, to explain that the moratorium does not relieve the holder of an authority from complying with obligations with respect to an area covered by the authority, such as to obtain and maintain insurance.

The Court therefore dismissed the appeal.

What happens after 30 June 2020?

The Court of Appeal’s decision confirmed the Minister’s interpretation of the statutory moratorium. However, that statutory moratorium in section 17A is set to expire on 30 June this year. During the statutory moratorium, the Victorian government has been undertaking a program of scientific research and related activities to assess the potential for further discovery of conventional gas (ie gas that can be extracted without hydraulic fracturing) in Victoria. These studies are on-going, and the Government is yet to announce whether or not conventional petroleum exploration will be permitted after 30 June.

What does this mean for hydraulic fracturing?

Hydraulic fracturing is the pressurised injection of a substance into a bore to stimulate a geological formation. It was permanently banned by section 16A of the Act, which makes it an offence to carry out hydraulic fracturing. The Mirboo Ridge proceeding did not seek to challenge the ban on hydraulic fracturing.