Australian Gas Explorer May Sue State Over Fracking Ban

August 31, 2016, 7:07 AM UTC
Workers change out a pipe on The Bellarine 1 drilling rig west of Geelong. The
(AUSTRALIA & NEW ZEALAND OUT) Workers change out a pipe on The Bellarine 1 drilling rig west of Geelong. The project is a joint venture with Lakes Oil Jupiter and Petroleum, 28 July 2005. AFR Picture by JAMES DAVIES (Photo by Fairfax Media via Getty Images)
JAMES DAVIES/Fairfax Media via Getty Images/File

Lakes Oil, a junior oil and gas explorer in Australia, is considering the grounds it may have for suing Victoria state, after the government there permanently banned fracking and extended a halt on onshore conventional gas drilling to 2020.

Lakes Oil shares sank 50% on Wednesday in their first trading since the fracking ban was announced, and the stock was the second most active on the Australian exchange.

The moves by the southeastern state mean Lakes will not be able to go ahead with two tentative deals lined up in 2014 to supply gas from its Wombat onshore conventional gas field to U.S. giant Dow Chemical (DOW) and Australian food manufacturer Simplot.

“What the government’s done is just unbelievable. It’s unprecedented,” Lakes Oil Chief Executive Roland Sleeman told Reuters in an interview.

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Sleeman would not say whether his company would seek compensation from Victoria, but said it was a “really relevant question.”

“I invite you to have a look at what has happened elsewhere. The key example is Metgasco in New South Wales – not exactly the same situation – but ultimately it was compensated by government,” he said.

New South Wales agreed last year to pay Metgasco A$25 million ($19 million) to buy back three exploration licenses after suspending approval for drilling at a promising coal seam gas site due to public protests.

A lawyer, however, said it would be difficult to win compensation from the Victorian government, because, mining and petroleum licenses are not property rights. They are administrative entitlements, which a government can terminate with legislation.

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“As a general rule, when governments take away entitlements under mining and petroleum legislation, then there’s not a right to compensation,” said Jeff Lynn, a partner at law firm Ashurst.

Victoria-focused Lakes was also considering a range of commercial options, Sleeman said, including expanding into South Australia state, which is eager to promote gas development.

Lakes could merge with another company, buy assets that larger players are spinning off, or in an extreme case, fold, he also said.

Lakes Oil has spent at least A$80 million to prove up gas resources on its Victorian acreage, Sleeman said.