How will the AGL/Santos land access deal in NSW affect the pipeline industry?

The scenario

John Smith owns a farm in northern NSW.

A gas company holds an exploration licence and wants to explore for coal seam gas (CSG) on John’s property.

John says no.

The gas company refers the matter to an arbitrator who determines that the gas company may enter the land.

If that gas company were Santos or AGL, could John enforce the “˜Agreed Principles of Land Access’ to restrain the gas company from entering on the land?

The principles

The “˜Agreed Principles of Land Access’ (Principles) were signed by Santos and AGL and landholder peak industry bodies NSW Farmers, Cotton Australia and the NSW Irrigators Council on 28 March 2014.

Summarised, the Principles are:

  • Any landholder must be allowed to freely express their views on proposed operations on their land. Any landholder is at liberty to say “˜yes’ or “˜no’ to the conduct of operations on their land;
  • Gas companies will respect the landholder’s wishes and not enter onto a landholder’s property to conduct operations where that landholder has said “˜no’; and,
  • The parties will uphold the landholder’s decision to allow access for operations and do not support attempts by third party groups to interfere with any agreed operations.

How do the Principles sit with the existing law on land access?

Currently, under the Petroleum (Onshore) Act 1991 (NSW) (Act), an exploration licence holder must not carry out operations on private land except in accordance with an agreed access arrangement with the landholder.

If the licence holder cannot reach an agreement with the landholder, the licence holder may refer the matter to an arbitrator who will determine whether the licence holder has a right of access to the land.

Under the Act, the landholder does not have an automatic right to veto access to the land by the exploration licence holder.

Only the arbitrator has discretion to deny access.

This is clearly contrary to the intent of the Principles, where AGL and Santos respect a decision by the landholder not to allow access.

The key question, then, is whether the Principles are enforceable and so there is a contractual restriction on Santos and AGL’s legislative right of access.

Are the Principles enforceable?

The Principles confer rights and benefits on “˜landholders’ and obligations on AGL and Santos in respect of “˜landholders’.

However, individual landholders are not parties to the Principles; rather, it is the landholder peak bodies that have negotiated and entered into the Principles.

As a general rule, a person who is not a party to an agreement cannot enforce the agreement. This is known as the doctrine of privity of contract.

However, there are at least two arguments that a landholder could make to get around that doctrine:

1. The landholder peak bodies have acted as agent for the landholder in entering into the Principles. Whether an agency relationship exists between the landholder peak body and the landholder will depend on the terms of the document, and the nature of the membership contract between the peak body and its individual members; or

2. The landholder peak bodies hold the benefits and rights to the Principles on trust for the landholder. In such circumstances, the landholder peak body has an obligation to enforce the promises in the document on behalf of the landholder. Whether a trust exists will again turn on the language of the document.

A landholder has a reasonable chance of success with these arguments to enforce the Principles.

This means that in the event AGL and Santos did not follow the Principles, the landholder could argue the licence holder was in breach of them and seek an injunction from a court to restrain the licence holder from entering the land.

It is extremely unlikely that it would ever get to this point.

An underlying assumption of the Principles is that if the gas company cannot reach an agreement with the landholder, they will not refer the matter to arbitration under the Act.

There are also other good social reasons, aside from enforceability at law, as to why gas companies signing up to the Principles are likely to act as if the Principles are enforceable.

Other implications

Regardless of enforceability, the Principles are a good example of companies taking steps to secure a “˜social licence to operate’.

The Principles are clearly aimed at addressing community concern and winning community support.

This is particularly important in the sensitive CSG space.

Costs for access arrangements may well go up for CSG players.

The mere existence and public nature of the Principles will change the negotiation over land access in favour of the landholders, even if the companies seeking access are not AGL or Santos.

It may also take longer to get access, as landholders use their new-found leverage to negotiate the details of access arrangements, or put off access as long as they can.

What do the Principles mean for pipeliners?

This could have flow-on effects for pipeliners too.

Costs for easement payments could go up as a result of the Principles.

The time it takes to get access could also increase.

But generally, we think that the Principles are unlikely to impact too much on pipeliners.

The pipeline industry has traditionally enjoyed an easier relationship with landowners due to the legislative regime favouring the granting of easements for pipelines which are less intrusive on existing land uses.

Land over a buried pipeline can still be used for some limited activities.

What happens next?

At present, the Principles only apply to gas companies Santos and AGL.

Other gas companies could become party to the Principles.

Alternatively, concerns could be raised by industry that a precedent has been set for future dealings between CSG companies and landholders.

It also remains to be seen whether the Principles will usher in a new era of co-operation between farmers and CSG companies in NSW.

Dr Jonathan Fulcher is a Partner at HopgoodGanim specialising in resources and energy.
Eliza Eaton is a Solicitor at HopgoodGanim specialising in resources and energy.

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