Key takeaways
Buyers must rigorously verify title, tenure, and regulatory compliance to avoid hidden legal, environmental, and operational risks.
Key red flags span tenure expiry, native title and cultural heritage obligations, environmental approvals, joint venture arrangements and landholder relations.
Ministerial consents, FIRB approval for foreign investors, and careful transaction structuring are vital steps to ensure compliance and avoid delays, penalties, or unenforceable deals.
Acquiring onshore oil and gas assets in Australia can present valuable opportunities for domestic and international investors. However, these transactions often involve complex legal, regulatory, and operational risks. Effective legal due diligence is essential to assess the true value of the asset and to identify any material red flags that could affect the transaction or future operations.
This article outlines some key red flags to watch for when looking to acquire an onshore oil and gas asset, with a specific focus on Western Australia and Queensland tenure.
Title and tenure issues
The most fundamental due diligence enquiry should be verifying that the seller is the registered holder of, and has a legal right to, the asset and has the right to transfer or otherwise deal with the asset. It’s also important to investigate the term of the tenure, and if the term is capable of renewal.
In Queensland, most petroleum tenure is now governed by the Petroleum and Gas (Production and Safety) Act 2004 (Qld), although some are still governed by the Petroleum Act 1923 (Qld). Queensland authorities to prospect can be granted for up to 12 years after a competitive bid process (although this can be extended if the tenure is subject to a potential commercial area declaration) and petroleum leases can be granted for up to 30 years.
In Western Australia, tenure is issued under the Petroleum and Geothermal Energy Resources Act 1967 (WA). Under this Act, exploration permits are awarded for up to 6 years after a confidential bidding process. Permits can be renewed for two further periods of 5 years with a 50% relinquishment of the area at the end of each term. If a commercial discovery is made, there is a statutory right to the grant of a production licence (which are granted on an indefinite basis). However, production licences are subject to termination if operations to recover the discovered resource have not been undertaken for a continuous 5-year period.
Red flags to consider:
Native title and cultural heritage risks
Native title claims and determinations exist over large areas of land, especially in Western Australia and Queensland. It is vital to consider if there is any overlap with native title claims or determinations and the heritage protection obligations that apply.
Red flags to consider:
Environmental and regulatory compliance
Onshore oil and gas projects have significant environmental obligations and breaches of these obligations can lead to penalties, operational delays, or remediation orders.
Red flags to consider:
Joint venture and commercial arrangements
Most oil and gas assets in Australia are operated via unincorporated joint ventures, governed by commercial agreements commonly known as a Joint Operating Agreement (JOA). Understanding the structure and commercial obligations of these arrangements is essential.
Red flags to consider:
Land access and stakeholder relations
Landholder engagement is a core component of onshore oil and gas operations, particularly in Queensland where land access is governed under a detailed statutory framework.
Red flags to consider:
Approvals and transaction structuring
In addition to tenure and contract reviews, buyers must be mindful of broader regulatory approvals and structuring risks. In particular, foreign investors looking to acquire interests in Australian oil and gas assets must carefully assess their obligations under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), which is administered by the Foreign Investment Review Board (FIRB). FIRB approval is mandatory for certain transactions involving foreign persons and failure to obtain it can result in significant penalties and the transaction being declared void.
Red flags to consider:
Implications
Acquiring an onshore oil and gas asset presents unique legal and commercial risks. Conducting comprehensive legal due diligence is critical to uncover any red flags that could affect valuation, compliance, or long-term viability of an oil and gas asset. At every stage of the process, from verification of title, environmental compliance through to joint venture review and stakeholder engagement; legal input is crucial to identifying risk and shaping strategy. A proactive approach to due diligence will ensure that not only your investment protected, but you are able to unlock its full potential value.