The prime title for exploration under the State codes is the Exploration Permit. Permits are made available through a periodic release of vacant acreage for a work program based competitive bid process. The exception to the periodic release process, are applications for Special Prospecting Authorities and Access Authorities
Exploration Permit Overview
Exploration Permits are awarded to those applicants who will undertake the fullest assessment of an area’s petroleum or geothermal energy potential in accordance with sound resource management principles and having regard to safety and the environment.
Following discovery of a petroleum or geothermal energy resource, the successful explorer will apply for rights, such as the right to produce the resource and to construct pipelines or other infrastructure. Should an explorer require a particular offshore area to be made available, an approach to the Petroleum Division of DMP may be made giving broad details of the general area of interest. It should be appreciated, however, that such an approach does not necessarily convey a preferential right to that party if the area is ultimately released.
While the maximum area that can be held under a single petroleum permit is 400 graticular blocks and a single geothermal permit is 160 graticular blocks, the number of blocks contained in releases will usually be far less than the maximum. There are no restrictions on applying for more than one of the areas released, but in view of the competitive nature of the system it is advisable to nominate preferences. A ‘rolling bid’ for example, is one where an applicant applies for several permits but wants only one – and nominates their order of preference, thus enhancing their chances of winning an area. As previously mentioned, the formal release of areas is by way of a notice in the Government Gazette. Each individual area is identified by map sheet block numbers illustrated in an accompanying plan. Applications need to be made in respect to an entire area.
The State Minister nominates the date by which applications need to be submitted, with a six month period being usual. All bids are regarded as strictly confidential. However, following the grant or refusal of an application, certain information (other than details of the financial/technical abilities of the applicant or any interpretive data) may be made publicly available. An applicant is required to supply details of the proposed work program on a year-by-year basis for the six year term of the permit.
The work proposal should be described in concise terms and an indicative cost of such work, in Australian dollars, should be quoted. It is expected that some drilling work will occur early in the program, but this will depend upon the extent of prior exploration work in the area. Justification of the program nominated should be in terms of the geological and geophysical information available. The estimate of the expenditure is required only as an indication of the level of the work and does not form part of the commitment. Details of the financial/technical ability of the applicant are to be submitted. It is important that this information is as comprehensive as possible and particularly addresses the capacity/strategy for financing the proposed program.
Many applications for Exploration Permits have been unsuccessful simply because the applicants have failed to demonstrate their financial and technical ability to undertake the proposed program. Where an applicant does not have sufficient funding in its own right to conduct the proposed work, a guarantee from the party underwriting the applicant’s involvement in the venture is likely to be required.
An important point to note is that the legislation recognises only individuals or corporate bodies. Permits or other titles cannot be granted to a business name. Where an application for an Exploration Permit is made by a consortium it is usually a requirement to provide a positive indication, such as a heads of agreement, that a joint operating agreement will be forthcoming as soon as possible after grant.
Permits are granted on the basis of a firm commitment to complete the first two years work without variation. This is also known as the dry hole system and means that the permit holder is required to fulfill the nominated commitment for those initial years, regardless of the circumstances, excepting force majeure. Force majeure refers to any uncontrollable event that interrupts the expected course of events. At the end of the firm period a decision may be made to continue or not. If the latter is decided, the permit may be surrendered in good standing providing all the conditions have been met to that date. The second phase of the program may be negotiated on the basis of exploration results on a year by year basis and the permittee may apply at any time for a surrender in this second phase.
However, if agreement with the Minister, cannot be reached as to the extent of the program, then the work proposed for those years at the time the applications was initially made will prevail.
While the extent, timing and appropriateness of the work program are the main considerations for the award of a permit, there are other important criteria, particularly the financial and technical ability of the applicant. Where work program bids are very close, consideration may also be given to an applicant’s previous performance (both in exploration and native title negotiations), the Australian equity in the venture and the use of local goods, service and labour.
The best possible application is selected giving due consideration to all the assessment criteria. The initial term of the permit is six years. Exploration Permits can only be renewed for two further periods of five years, with 50% relinquishment of the area at the end of each term (for a total of 16 years).