Program to support petroleum exploration and appraisal activities in the Beetaloo sub-basin

On 18 March 2021, the Commonwealth Minister for Resources, Water and Northern Australia, Keith Pitt, announced the opening of the $50 million Beetaloo Cooperative Drilling Program (Program) to accelerate petroleum exploration and appraisal activities in the Beetaloo sub-basin in the Northern Territory over the next two years.

Background to the Program

The Program is the first action in the Commonwealth Government’s Beetaloo Strategic Basin Plan (Strategic Plan), which was released in January of this year.[i] The Strategic Plan sets out the Commonwealth Government’s plan to support the development of the Beetaloo sub-basin, which is located in the Northern Territory approximately 500 kilometres south-east of Darwin and covers an area of approximately 28,000 square kilometres within the McArthur Basin.[ii] It has been estimated that the Beetaloo sub-basin contains over 200,000 petajoules of gas-in-place.[iii]

The Commonwealth Government first committed to supporting the development of the Beetaloo sub-basin in 2018, when the Commonwealth and Northern Territory Governments signed a memorandum of understanding in relation to expanding the Northern Territory’s onshore and offshore gas industries. The Strategic Plan notes that the Commonwealth Government is committed to refreshing that memorandum of understanding to reflect the Strategic Plan.

In the Strategic Plan, the Commonwealth Government commits to supporting the development of the Beetaloo sub-basin by encouraging industry to accelerate resource exploration in the sub-basin, creating an efficient and rigorous regulatory environment in the Northern Territory, investing in the critical infrastructure required for the sub-basin’s development and collaborating with regional communities to ensure the benefits from the sub-basin’s development are widely shared.

One of the aims of the Strategic Plan is to accelerate exploration and appraisal activities within the Beetaloo sub-basin by one year and bring forward final investment decisions for development of projects in the sub-basin to 2025 or earlier. The Program supports that aim and is part of the Commonwealth Government’s broader gas-fired recovery plan announced by the Prime Minister Scott Morrison in 2020 in response to Australia’s COVID-19 recession. The Commonwealth Government has estimated that the Program will accelerate at least $150 million in private investment by petroleum exploration and production companies.

Operation of the Program

The Program’s objectives are to accelerate exploration and appraisal activities for prospective petroleum and gas resources in the Beetaloo sub-basin and incentivise the drilling of approximately 10 additional wells in the sub-basin so as to build a comprehensive understanding of the sub-basin’s resources. The Program is open (and applications may be made) until the earlier of 30 June 2022 or the $50 million in funding available under the Program is fully subscribed.

The Commonwealth Government has released the ‘Grant Opportunities Guideline: Beetaloo Cooperative Drilling Program – Grant opportunity’ (Guideline) to assist entities with applying for the grants available under the Program and understanding how applications will be determined.[iv]

Eligible entities

The Guideline sets out a range of requirements in respect of an applicant which need to be met in order for it to be eligible for a grant under the Program.[v] Income tax exempt entities, individuals, partnerships, unincorporated associations and certain other organisations are not eligible to obtain a grant under the Program. To be eligible for a grant, the applicant must:

• hold an onshore Northern Territory petroleum exploration permit or retention licence and must have commenced all necessary approval processes to undertake petroleum exploration;
• provide a letter from its board stating that the proposed exploration or appraisal project is supported and can commence within three months of entering into, and will be completed by the deadlines that may be set out in, the relevant grant agreement (see below), and that the project costs that are not covered by the grant funding can be met; and
• provide evidence of how it will provide its share of project costs (such as an accountant declaration that confirms it can fund its share of the project costs, including any ineligible expenditure).

Eligible projects

The Guideline also sets out a range of requirements in respect of the relevant exploration or appraisal project which need to be met in order for an applicant to be eligible for a grant under the Program.[vi] Those requirements include that the project must:

• be located in the Beetaloo sub-basin;
• be aligned with the Program’s objectives (see above);
• accelerate planned wells by at least 90 calendar days than would otherwise have occurred in the absence of the grant funding, or be in addition to the minimum work program for the applicant’s exploration permit or retention licence;
• commence within three months of execution of the relevant grant agreement, and the eligible exploration or appraisal activities must be completed by the end of 2022; and
• not receive funding from any other Commonwealth, State, Territory or local government grants.

The Guideline sets out examples of the exploration and appraisal activities that are eligible and ineligible to receive funding under the Program.[vii] Eligible activities include seismic surveying and interpretation, drilling, hydraulic fracturing and associated activities, and evaluation of data acquired from proposed exploration activities.

Grant amounts, reporting and compliance

The grants under the Program are made on a ‘per well’ basis and a proponent may only apply for, and receive, grants for a maximum of three wells.

The amount of the grant under the Program awarded to an applicant for a project may be up to 25% of the eligible expenditure for the project, with the minimum grant amount for a project being $750,000 and the maximum grant amount for a project being $7.5 million. The Guideline contains detailed provisions on what constitutes eligible and ineligible expenditure.[viii] Broadly speaking, expenditure is eligible if it is a direct cost of the project or is incurred for required project audit activities.

If an applicant is successful, it will be required to enter into a grant agreement with the Commonwealth Government.[ix] The grant agreement will, among other things, set out the grant funds to be paid by the Commonwealth Government and the schedule for such payments. The grant funds can only be spent on eligible expenditure incurred on the agreed project as defined in the grant agreement.

A successful applicant who enters into a grant agreement will need to provide progress reports, an end of project report, and such other ad hoc reports as may be requested. An applicant may also be asked to provide an independent audit report verifying that the grant funds have been spent in accordance with the grant agreement. Government representatives may also undertake compliance visits during the project period to ensure compliance with the grant agreement.

Applications by joint ventures

Joint applications are permitted under the Program. As such, joint ventures will be entitled to apply for a grant under the Program. To make a joint application, the joint venture participants will have to appoint one of them to be the lead organisation (which we expect would usually be the operator of the joint venture). The lead organisation will be responsible for submitting the application and, if the application is successful, entering into the grant agreement with the Commonwealth Government. The Guideline sets out several specific requirements for joint applications under the Program.[x]

One matter to be kept in mind by joint ventures that are considering making a joint application under the Program is that the three application per organisation limit mentioned above applies. Accordingly, if a participant in the joint venture has already submitted three applications under the Program (whether individually or jointly), then the joint venture will not be eligible to submit a joint application with that participant as an applicant.

Closing remarks

The Program is a clear indication that the Commonwealth Government is committed to supporting natural gas as a transition fuel as Australia moves to a greener economy and the penetration of renewable energy in Australia’s electricity supply mix increases. It remains to be seen, however, how effective the Program will be at accelerating the development of natural gas projects in the Beetaloo sub-basin, which will be hampered by the lack of existing infrastructure in the region. The infrastructure necessary to achieve the Commonwealth Government’s ambitious plans for the development of the Beetaloo sub-basin’s resources will likely require significant investment by not only private companies but also the Northern Territory and Commonwealth Governments.

The Program also highlights the Commonwealth Government’s concern about a looming shortage of gas on the east coast of Australia and represents an attempt at addressing that shortage. Of particular importance is that the Program will support the development of unconventional gas resources (such as shale gas), which until recent years have been the subject of various barriers in the Northern Territory including a moratorium.

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