Issue Brief 21 / 1997

Most of the public debate about the workability of the Native Title Act 1993 (NTA) for resource developers has focused on mining rather than on the petroleum industry. This is largely because the majority of petroleum industry exploration and production occurs offshore. There are other important differences between mining and the petroleum industry that appear to simplify potential negotiations with native title parties.

• Exploration techniques, such as seismic techniques, are relatively low impact compared to mineral exploration.
• Oil and gas production have relatively low social impacts, not requiring population concentrations similar to new mining towns.
• A disproportionately large share of petroleum industry expenditure is invested in exploration and development assets. Because decisions to undertake a seismic exploration program are often based on an estimate of potential size of a discovery, most regulatory regimes entitle exploration licence holders to a production lease. The industry requires certainty that successful exploration will result in production.

Petroleum industry concerns about the impacts of native title, articulated by Australian Petroleum Production and Exploration Association (APPEA) as the peak industry group, have escalated recently. This is partly because issues on-shore are not being resolved as quickly as may have been anticipated in 1993 when the NTA was enacted. Like other resource developers, the industry wants predictability in the negotiation framework so as to limit transactions costs, minimise risk of future invalidity, and ensure certainty of title.

The petroleum industry needs conjunctive exploration and production agreements because of high exploration costs. The right to negotiate (RTN) needs to be exercised by native title parties at the exploration rather than at the production stage implying that any rent sharing between a company and Indigenous interests will need to be agreed upfront.

The Tenneco pipeline agreement

An example of potential difficulties was the construction by Tenneco Gas International of a pipeline between Walumbilla and the Jackson Gas Field in southwest Queensland. This dispute indicated that:

• the NTA framework was inefficient;
• the dispute between sections of the Goolburri Land Council reflected the fact that this Native Title Representative Body (NTRB) was in an early establishment phase;
• there is a risk for the industry of dealing with NTRBs that do not have mandatory statutory functions to identify all potential native title claimants to a future act or to sign off an agreement;
• when the NTA was passed, the pivotal role of NTRBs was not clearly understood; and
• the Queensland State government would not compulsorily acquire the pipeline easement and risk bearing the cost of compensation to native title parties and pastoralists.

Amendments to the NTA

The Howard Government's 1996 proposed amendments to the NTA contain the following trade offs for outcomes that could balance perceived industry and Indigenous interests:

• eliminate the RTN at exploration but maintain it at the production stage, reducing the time frame for negotiation and arbitration thus potentially reducing transaction costs;
• maintain the once-only RTN for claimants and determined native title holders, but allow a longer time frame for lodgment of claims in response to a future act notification;
• automatic renewal of pre-1994 mining and production leases as intended in the NTA, removing uncertainty and providing predictability for industry; and
• establish a legal framework for NTRBs.

Outcomes

The important outcomes for the petroleum industry would be:

• more streamlined future act notification and negotiation procedures;
• assurance of a once-only RTN;
• more information about cost parameters through the provision for rent sharing with native title parties at the production stage; and
• a statutory framework with mandatory functions for NTRBs providing more certainty that industry interests are dealing with the correct native title parties.

Strategic choices

The petroleum industry should attempt to ensure that amendments to the NTA are the best possible for the industry as a whole, rather than for individual companies. The industry should consider that:

• It is important for industry associations like APPEA to facilitate the establishment of industry standards for negotiations within an amended NTA framework to which all industry members should adhere.
• It is important that proposals to strengthen the statutory framework for NTRBs are supported by industry because statutory authorities provide industry with the greatest certainty. Earlier opposition to establishment of these bodies with mandatory functions has led to some of the problems currently being experienced.
• Appropriate rent sharing parameters would provide incentives for native title parties to be pro-development. This should not extend to exploration because no mineral rent is generated at this stage. A negotiated royalty of between 1 and 3 per cent ad valorem could be incorporated in the statute or regulations.
• A strong case can be made that the Commonwealth also needs to share rent with Indigenous interests as in the Northern Territory and South Australia as an incentive for native title parties to support industry activity.

Conclusion

Proposed amendments to the NTA framework are likely to deliver important outcomes for the petroleum industry. The industry needs to provide strong incentives to Indigenous groups to actively participate in the reform process. Peak bodies such as APPEA must take a leadership role in strategically representing industry participants for the benefit of the industry as a whole. The industry could facilitate the reform process by building alliances with both Indigenous interests and the Commonwealth Government in the attempt to develop a cohesive and comprehensive package that makes the NTA more workable for all parties.

This issue brief summarised CAEPR Discussion Paper No. 125, 'Native title and the petroleum industry: recent developments, options, risks, and strategic choices' by J.C. Altman in 1996. It was prepared by Hilary Bek and Lynette Liddle.