Reporting by extractive companies on government payments: EU Directive published in the official journal and us court suspends SEC rule

There have been developments in the US and the EU in relation to the implementation of requirements for reporting by extractive industries on government payments.

The new EU Directive (Directive 2013/34/EU) requiring the disclosure, on a project by project basis, of payments to governments by companies operating in the extractive (oil, gas and minerals) and logging industries has become effective by being published in the Official Journal of the European Union. Member States now have until 20 July 2015 to implement the Directive. There are no changes of substance to the Directive since the version published in April, but some reformatting means the relevant Article numbers have changed.

In the US, a summary judgment has been granted by the D.C. District Court in the case of American Petroleum Institute v. Securities and Exchange Commission, No. 12-1668 (D.D.C. 2013) suspending the SEC rule implementing new project by project reporting requirements for SEC registered companies. The decision was based on the SEC rule requiring public disclosure of all the information reported by companies and the fact that disclosure would be required even if it violated local law (the EU requirements also contain no exception from the disclosure requirement where to do so is prohibited by local law). 

The US decision is important to issuers who are listed in both the US and EU. Under the EU Directive, such issuers will be exempt from complying with the EU regime if they comply with an "equivalent", ie the US, regime. The US decision leaves the issue of whether the US regime will be determined to be equivalent, and even it is eventually determined to be equivalent, the timing of that decision, uncertain.

We have produced a briefing on the US court's decision following the challenge to the SEC's implementing rule and a briefing summarises the key aspects of the new EU requirements, when they come into force and how they compare with the US requirements. If you would like a copy of either or both publications, please contact: Greg Mulley or Carol Shutkever 

BCIPA – ‘construction work’ no longer applies to construction works on mining leases

The Queensland Supreme Court recently delivered a judgment indicating that the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA) does not apply to ‘construction work’ carried out on land subject to a mining lease. The case of Agripower Australia Ltd v J&D Rigging Pty Ltd & Ors, delivered on 25 June 2013 has significant implications for the mining and construction industries.

What happened?

The case concerned the Skardon River Mine at Cape York in Queensland. Land at the mine was subject to 2 mining leases. The Applicant, Agripower Australia Ltd (Agripower) owned the mining plant. The First Respondent, J&D Rigging Pty Ltd (J&D) was the operator of the mine.

Agripower contracted with J&D to dismantle and remove the mining plant. Approximately 5 months later, J&D delivered a BCIPA payment claim to Agripower for $3.1 million. Agripower resisted and contended it was not obliged to pay J&D’s payment claim because among other things, the contracted work was not ‘construction work’ for the purposes of BCIPA. As a result of the subsequent adjudication determination Agripower was ordered to pay J&D in excess of $2.5 million.

Agripower brought proceedings in the Queensland Supreme Court seeking a declaration that the adjudication decision was void because the contract work was not ‘construction work’ within the BCIPA meaning.

Decision

Justice Wilson determined that BCIPA payment claims only operate where ‘construction work’ is performed under a ‘construction contract’. The mining plant to be dismantled by J&D had to consist of structures or works forming part of land to fall within the scope of ‘construction work’.

Justice Wilson determined that the works agreed under the contract did not amount to ‘construction work’ because:

• mining leases create an entitlement for the leaseholder to extract minerals but  do not create an interest in land the subject of the mining lease;
• the mining plant did not form part of the land because there was a statutory removal obligation and the plant was put in place for temporary purposes; and
• the mining plant was not a fixture forming part of the land at common law.

The mining and construction industry has traditionally accepted that the BCIPA system applies to construction activities carried out at mine sites. The decision of Justice Wilson signals a clear departure from this approach.

2013 Budget – Changes affecting the mining sector

The Federal Government’s 2013-2014 Budget (the Budget) contains a number of changes to existing tax rules some of which are expected to have adverse implications on the mining sector.

Changes to accelerated tax depreciation arrangements

The Federal Government announced immediate changes to Australian tax laws which impact income tax deductions available to mining companies. The changes defer deductions for the cost of acquiring mining rights (e.g. exploration permits or mining leases) and information which is first used in exploration, from an immediate deduction to a deduction spread over:

• 15 years; or
• the life of the mine, whichever is shorter.

Although full details are yet to be released, the following expenditure will continue to be immediately deductable:

• costs of acquiring mining rights and information from government authorities;
• costs incurred in generating new information or improving existing information; and
• mining rights acquired under a recognised “farm-in, farm-out’ arrangement.

The changes apply to taxpayers who start to hold the mining right or information after 14 May 2013.

These changes may significantly impact the acquisition prices of exploration assets and also have the potential to inhibit junior mining companies ability to obtain investment through the sale of prospective interests to investors on a full or partial cash basis.

Practically, there are also a number of issues surrounding the 15 year or life of mine deduction mechanisms which are yet to be clarified.

Reduction in funding for mining and energy initiatives

Funding has also been significantly reduced to the following mining and energy initiatives in the Budget with:

• $500 million withdrawn over three years from the Carbon Capture and Storage Flagships Program;
• $370 million deferred over three years from the Australian Renewable Energy Agency;
• $274 million withdrawn over two years from the Coal Sector Jobs package;
• $88 million withdrawn over two years from the National Low Emissions Coal Initiative; and
• $29 million withdrawn over two years from the Coal Mining Abatement Technology Support package.

For further details, please visit the Federal Government Budget website. 

Environment Protection and Biodiversity Conservation Amendment Bill 2013

The Environment Protection and Biodiversity Conservation Amendment Bill 2013 (the Bill) was introduced into Parliament on 13 March 2013 and proposes to amend the Environment Protection and Biodiversity Conservation Act 1999 (EPBC). The purpose of the Bill is to establish a new matter of national environmental significance (NES) in relation to the impacts coal seam gas and large coal mining development (together, the Developments) have on water resources.

According to the explanatory memorandum, the Bill proposed two major changes by:

• Implementing civil penalties and offence provisions (similar to those that already existing the EPBC for existing NES) for taking an action involving the Developments that has, will have or is likely to have a significant impact on a water resource, without obtaining an approval or an exemption from approval under the EPBC; and
• ensuring the impacts that the Developments have on water resources are assessed at a national level, in accordance with the assessment process under Part 8 of the EPBC.

The type of Developments that will be affected by the Bill are those that include “activities involving extraction”. Consequently, any part of the Developments that do not form part of the extraction process will not fall within the ambit of the Bill. For example, the definition of Coal Seam Gas Development would not generally include infrastructure used to transport coal seam gas, as this does not form part of the extraction process.

A ‘Water Resource’ includes surface water, ground water, a watercourse, lake, wetland or aquifer (whether or not it currently has water in it). A Water Resources includes all aspects of the water resource, including water and organisms.

Should the Bill be passed by Parliament and receive Royal Assent, the new provisions may apply to projects where development assessment or EPBC approval has already commenced. However as much as possible, the transition provisions are designed to minimise disruption to the assessment of existing projects.

The Department of Sustainability, Environment, Water, Population and Communities also intends to develop guidelines which set out the criteria to assist decision makers assessing whether a proposed action will have a significant impact on a matter of national environmental significant and subsequently require assessment and approval under the EPBC. The proposed guidelines will not be legally binding.

Increasing media attention around fraccing has in part elevated stakeholder concerns

On 29 August 2012, the Petroleum and Geothermal Energy Resources (Environment) Regulations 2012 (WA) (Environment Regulations) commenced operation, codifying the existing requirement for all onshore petroleum activities to have an approved Environment Plan. To support the Environment Regulations, the Department of Mines and Petroleum (DMP) has also published Guidelines for the preparation of an Environment Plan (Guidelines) and an Information Sheet on chemical disclosure (Information Sheet).
The Environment Regulations were developed following Dr Tina Hunter’s report ‘Regulation of Shale, Coal Seam and Tight Gas Activities in Western Australia’ (Hunter Report). The Hunter Report found that while the DMP’s processes to protect the environment from onshore petroleum activities were adequate, the regime lacked legal enforceability. Dr Hunter recommended that the Environment Regulations be written to provide legal certainty and ensure enforceability.
Increasing media attention around onshore unconventional gas activities in WA, in particular fraccing, has in part elevated stakeholder concerns. This is recognised in the Hunter Report, with the use of chemicals in the fraccing process identified by Dr Hunter as a cause of ‘community distress’. Dr Hunter recommended that the DMP provide full, transparent disclosure of all chemicals used in WA fraccing operations and this requirement has been built into the Environment Regulations.
Complying with the new chemical disclosure requirements, particularly in respect to the protection of proprietary information, is a key concern arising from these reforms.

Read our WA Fraccing regulations article here.

Committee to oversee QLD’s land access reform ‘Action Plan’ announced

As promised after the state election in 2012, the Queensland Government has confirmed the details of the committee that will advise them on the issues identified in the Six Point Action Plan to reform the state’s land access laws.

The seven member committee will be chaired by Dr David Watson, and will provide a forum for resource and rural industry bodies to resolve issues relating to resource sector development.

Other members of the committee include Wayne Newton, President, AgForce Grain Ltd; John Cotter, chair, Queensland Gasfields Commission; Dan Galligan, CEO, Queensland Farmers’ Federation; Matt Paul, Queensland Director, Australian Petroleum Producers’ and Explorers’ Association; Bernie Hogan, Regional Manager, Queensland, Association of Mining and Exploration Companies; and Andrew Barger, Policy Director, Queensland Resources Council.

The announcement also confirmed that the committee will specifically advise on:

1. a review of heads of compensation to ensure no erosion of property rights and the expansion of Land Court jurisdiction to include matters of conduct;
2. the introduction of an alternative dispute resolution process;
3. the introduction of a requirement that any Conduct and Compensation Agreement (CCA) to be noted on land title;
4. an option for parties to “opt out” of a formal land access agreement at the election of the property owner;
5. the development of standard CCAs for mineral, coal and coal seam gas industries; and the creation of a single resource for property owners and resource companies.

Queensland lifts ban on shale oil mining

Yesterday the Newman Government announced a new oil shale policy that it will allow the development of a commercial shale industry in Queensland but leaves in place the existing 20 year moratorium suspending development of the McFarlane oil shale deposit near Proserpine. 

The policy will set rigorous environmental controls on the industry and will allow existing oil shale operator Queensland Energy Resources Ltd (QER) to progress its trial plant at Gladstone to commercial stage.

The rights to several large oil shale resources in Queensland are currently held by QER, who will now be able to proceed directly to commercial production given their pilot plant near Gladstone had successfully demonstrated the viability of its processing technology.

To date, there has been extremely limited commercial application of oil shale in Australia and overseas and for this reason all proposed oil shale developments and activities will be subject to detailed environmental assessments on a project-by-project basis. Under the new policy, proposals will be assessed on their merits and will require a trial stage to determine the feasibility and environmental performance of any unproven technologies.

The approval process for any oil shale development will require operators to adopt best practice environmental management techniques and comprehensive monitoring of the process, and its emissions, wastes and impact on the community and environment. Existing and new operators in the oil shale industry will need to prepare full Environmental Impact Statements for their projects.

In Australia the largest oil shale deposits are in Queensland with oil shale deposits totalling more than 20 billion barrels, with major deposits located in areas such as Yarwun and Proserpine.

The oil shale industry has the potential to create a large number of new jobs in Queensland, including thousands of jobs in the construction phase of oil shale projects alone, and provide royalties and other economic benefits for regional communities and the broader economy.