The construction and operation of a treated water pipeline on a petroleum lease is an authorised activity under the Petroleum and Gas (Production and Safety) Act 2004 (P&G Act).  This was determined by the Queensland Supreme Court in a decision handed down on 23 December 2009.

Background

An Arrow Energy subsidiary, Arrow (Daandine), holds PL 230 near Dalby.  Arrow served an entry notice on the landowners and made a compensation agreement.  The entry notice and agreement related to a number of activities, details of which are found in the decision.

The landowners were then informed that Arrow intended to construct an additional pipeline to carry treated water from a reverse osmosis treatment plant (located on a different property).  The pipeline commences at the treatment plant, runs through the landowners’ property and terminates at another property owned by Arrow.  The treated water will be used to irrigate crops.

Arrow and the landowners were unable to agree on compensation for the treated water pipeline and subsequently filed proceedings in the Land Court.  The land was entered shortly thereafter to commence construction.  Importantly, Arrow relied upon the notice of entry already served on the landowners as the notice referred to “water pipelines”. The landowners filed proceedings in the Supreme Court and sought orders including:

• an order that Arrow be restrained from constructing the pipeline;
• a declaration that a valid entry notice was not provided and thus Arrow had no lawful entitlement to be on the land; and
• that the construction of the pipeline is not an authorised activity under the P&G Act.

Relevant law

S 110 of the P&G Act authorises a PL holder to construct and operate petroleum and water pipelines in the area of the PL.  However, under s 110(3), the pipeline may only be operated to transport water for the carrying out of an authorised activity for the PL.

S 185 of the P&G Act authorises holders to take or interfere with underground water if it happens during the course of, or results from, the carrying out of another authorised activity for the tenure.  An example provided by way of footnote is “underground water necessarily or unavoidably taken during petroleum production”.  This is known as associated water.

There is no doubt that the extraction of associated water is a necessary part of the CSG extraction process, and the construction of pipelines to transport associated water is an activity authorised under the P&G Act.  However, until yesterday’s judgment, it was not so clear whether the construction of a pipeline to carry associated water that has gone through a treatment process is also an authorised activity.

In order for the activity to be authorised, it was necessary to demonstrate that the transportation of treated water through the landowners’ property was necessary for the carrying out of an authorised activity.  That is, it is a necessary part of the petroleum production process under PL 230.

The decision

The hearing took place on 16 December 2009.  Arrow argued that the construction of a treated water pipeline was necessary and incidental to the activities carried out under authority of PL 230.  Arrow was required by its environmental authority to beneficially use the associated water extracted as a by-product of the CSG process.  It was argued that the only way to beneficially use the enormous quantities of water produced was to treat it, as untreated water (associated water) can only be beneficially used in very limited circumstances.   

The decision was handed down on 23 December 2009 by Justice Margaret Wilson of the Supreme Court.  She held inter alia:

• the construction of the reverse osmosis plant and treated water pipeline are reasonably necessary for and incidental to the production of CSG, and is therefore an authorised activity under the P&G Act; but
• the notice of entry was invalid insofar as it relates to the treated water pipeline.

As a result, the landowners’ request for a mandatory injunction (which would have necessitated the removal of the pipeline despite it already having been substantially constructed) was refused.

What this means for the CSG industry

This decision will be a welcome relief for the CSG industry.

The Queensland Government’s recent policy on management of associated water requires that the underground water no longer be put into evaporation ponds, but must be beneficially used.  Given that untreated water can be beneficially used in only a limited number of circumstances (such as feed lots and some industrial processes), it is likely that treatment plants and associated infrastructure (such as pipelines) will become more prevalent and necessary in order to beneficially dispose of the water.

This decision means that infrastructure related to the treatment of associated water (such as plants and pipelines) are authorised under the P&G Act.  This will apply regardless of the end use of the water.  For example, in Arrow’s case, the water was to be used for irrigation.  This is clearly not an authorised activity under the P&G Act and as a result, Arrow will be required to obtain further licences (eg a beneficial use licence or a water licence under the Water Act 2000).  However, the treatment and transportation of that water was deemed necessary and incidental to the CSG process (particularly given the requirement to beneficially use the water), regardless of the end use.

A decision to the contrary would have had dire consequence for the CSG industry.  It would have meant that any treated water pipelines and reverse osmosis plants currently operating on PLs would not have been validly constructed under the P&G Act.  As a result, the Court may have ordered their removal (or at least substantial damages to the landholder in lieu).  CSG producers would likely be required to obtain other approvals (such as a development permit under planning laws) in order to construct this infrastructure on PLs.

 There are two key things to take from this decision:

• First, infrastructure related to the treatment and subsequent transport of the treated associated water is an authorised activity under the P&G Act.  CSG producers will not be required to obtain other approvals for construction (although further licences may be required depending on the end use of that water).
• Secondly, it is vital to ensure that the notice of entry specifically refers to treated water infrastructure.  Although Arrow’s notice referred to “water pipelines” in general, this was not enough for it to encompass the treated water pipeline.  The Court determined that “water pipelines” only referred to the pipelines carrying the untreated associated water from the wells.  CSG producers must ensure that any infrastructure related to treated water be explicitly referenced in the notice of entry. 

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