Understanding Compensation
As a landholder, you may be entitled to compensation as part of a Conduct and Compensation Agreement (CCA) to mitigate the impacts resulting from petroleum and gas development activities on or under your property.
Queensland legislation (Mineral and Energy Resources (Common Provisions) Act 2014) provides the basis for determining any compensation entitlement and the amount is dependent on the impact the proposed resource company activities will have on your property and/or lifestyle.
Compensation is generally based on the following factors:
- The value of the land encumbered by the petroleum tenement;
- The intensity of the proposed works on the property;
- Loss in value due to construction and operation of the gas field on the property which is determined by market evidence; and
- Proximity of the residence to gas field infrastructure.
Compensation entitlements vary depending on whether you are the owner or an occupier of the property. Compensation can also include professional costs reasonably incurred by you in negotiating a CCA such as valuation, accounting, taxation, agronomist or legal fees.
Resource companies each have individual approaches to determining compensation amounts. The term of activity on a property will affect the compensation payable.
During negotiations with the resource company, it may be beneficial for you to seek professional advice when discussing the appropriate payment structure for compensation; for example the proportion of upfront and annual payment.
For an overview of what to expect/how best to approach compensation negotiations, download the GFCQ Gas Guide & Roadmap (see Chapter 5 – Land Access Agreements).
Compensation
The following information provides some guidance on what you should understand about your property and business operations in order to prepare for discussion[s]/negotiation[s] with the resource company. While resource companies each have individual approaches to determining compensation amounts, these are the key factors that are likely to be considered when discussing the compensation component of a CCA.
Proposed resource infrastructure
Compensation is determined by the value of the land and amount of infrastructure that the resource company proposes to construct on the property. The resource company will provide you with the details of proposed infrastructure, including number, construction timing and location of the following:
Wells
A gas well is constructed on a well pad which is generally 1 hectare in size. You may not be able to use some or all of this area of land for the term of the CCA.
Access Roads
The resource company will need access to well pads and any other infrastructure for construction and maintenance purposes. These roads may be constructed to enable all weather access, particularly during the construction phase. Consideration should be given to collocating access roads with gathering lines to minimise the area of disturbance and interference to your operations. These roads are generally shared with you and may remain for your use after the CCA ends.
Gathering Lines
Individual wells are connected to compression facilities via a network of low pressure polyethylene pipe lines. Compressed gas is then fed into high pressure pipelines for distribution via the national gas grid. Gathering lines are buried to a depth that should enable your normal grazing or irrigation operations to continue. Rehabilitation of the land can take time and can depend on seasonal influences such as rain and grazing pressure.
High Point Vents and Low Point Drains
High point vents (HPVs) and low point drains (LPDs) may be necessary to optimise the movement of gas and water through the gathering lines. HPVs are installed in water lines to allow any remaining gas dissolved in the water to escape. LPDs are installed in gas lines to allow for the removal of any condensed water. Both HPVs and LPDs occupy relatively small areas of land along the gathering lines. The company will need to access these for maintenance purposes. You may not be able to use this area of land for the term of the CCA
Dams
In some cases, the resource company may need to construct a dam on your property to store water produced during operations. You may not be able to use this area of land for the term of the CCA. A dam may be left for you to use after the CCA ends, subject to your agreement and government approval
Intensive Infrastructure
The resource company may need to construct key infrastructure on your property such as a compressor facility or water treatment plant. These are essential to producing gas and connect to the national gas grid. These types of infrastructure vary in size, as does the area of land that may be required. You may not be able to use this area of land for the term of the CCA.
Other Infrastructure
Associated structures that the resource company may need for construction. May include laydown areas, workers camps, gravel pits or telecommunications towers. These structures may be temporary (only in use during the construction phase) or for the term of the CCA.
Severed land
When negotiating with resource companies, you may need to consider land that can no longer be used for the same purpose as before gas field development on your property because it has been isolated fully or partially by gas infrastructure. Resource companies will usually avoid creating severed land by working with you to change the placement of infrastructure on the property.
Diminution in value of balance land and improvements
Compensation may also include any changes to the value of the remaining land on the property that is still covered by the petroleum tenure. This is known as the balance land. Compensation is estimated based on the following factors:
- The value of land encumbered by the petroleum tenement;
- The intensity and description of the proposed works on the property;
- Loss in value due to construction and operation of the gas field on the property which is determined by market evidence; and
- Proximity of the residence to gas field infrastructure.
Losses during construction
Construction of petroleum and gas development infrastructure can take anywhere from six months to two years, depending on the size of the property and the extent of the resource development. Potential losses during the construction phase that should be considered for an agribusiness property are:
- Grazing losses including loss of carrying capacity/productivity, agistment if required or rehabilitation of pastures on completion of construction works; and
- Cropping losses including loss of yield/crop, land levelling, contouring, rehabilitation of cropping areas on completion of construction works.
Resource companies will often take steps to avoid these sorts of losses during construction so you should have a conversation with the company about their plans before discussing it with your professional advisors.
To get an idea of what sort of activity you may expect during construction, you can watch a time-lapse video of a gas well being constructed.
Other considerations for discussion with resource companies
Loss of quiet enjoyment during construction
Loss of quiet enjoyment relates to disturbance of a previously quiet rural locality by activities associated with gas field development including noise and dust. It relates more to smaller area lifestyle properties rather than larger agribusiness properties, except when the occupation of the homestead is directly impacted.
As a guide, this compensation figure would be minimal if no-one lives on the property and rise with how often the property is visited, the number of people and dwellings on the property and the proximity of these to construction. You should discuss this with your professional advisors and with the resource company.
Landholder management time during construction
You can also consider landholder management time when discussion proposed development with the resource company. This refers to the time required on additional activities during construction such as mustering, checking fences, weed monitoring, consulting with company representatives/contractors, responding to requests, security and administrative tasks.
As a guide, the average Australian wage of approximately $40/hr can be multiplied by the number of hours required to manage these additional activities by employees. Owner/manager time would be at a higher rate.
The resource company will be able to describe the nature and location of the construction activities on your property to assist you in understanding their requirements for engagement with you.
Ongoing losses during operations
Petroleum and gas infrastructure requires regular monitoring, inspection and maintenance to ensure operational integrity and efficiency – which means there will be activities carried out on your property for the life of the resource tenure. This includes activities such as a ‘workover’ of gas wells and maintenance of access roads.
Compensation may include an ongoing allowance for relevant activities such as:
- Liaising with resource company representatives;
- Weed monitoring and management;
- Security;
- Construction and maintenance of firebreaks around gas field infrastructure;
- Additional property management; and
- Interruptions to other regular activities.
Landholders should ask their professional advisors and the resource company for detailed guidance on the relevance of these impacts when estimating any potential costs or losses to their existing rural businesses.
Further general information on ‘Your entitlements to compensation’ can be found via the Business Queensland website.
The Department of Environment and Science ‘Coal Seam Gas Information for Community and Landholders’ portal also contains ‘Landholder Compensation’ information.
