This chapter examines the Beetaloo Cooperative Drilling Program (the BCD Program), with a focus on the Industry Research and Development (Beetaloo Cooperative Drilling Program) Instrument 2021 (the Instrument) and the BCD Program grants awarded to date.
Overview of the BCD Program
The BCD Program is a component of the Beetaloo Strategic Basin Plan (the Strategic Plan), which is part of the Australian Government's Gas-fired recovery plan. The program has two key objectives:
to accelerate exploration and appraisal activities for prospective petroleum resources in the Beetaloo; and
to incentivise drilling in the Beetaloo to deliver approximately 10 additional wells to build a comprehensive understanding of the resources.
The BCD Program is intentionally designed to operate on a first-come-first-served basis as opposed to a competitive or merit-based process. The Department of Industry, Science, Energy and Resources (DISER) explained:
The limited pool of funding is expected to drive competition among petroleum permit or licence holders in the Beetaloo, operating in conjunction with the eligibility criteria to establish a de facto competitive process. The design also ensures the grants avoid duplicating existing industry activity or activity that might have occurred without support from the grant.
Applications for the BCD Program opened on 18 March 2021, with relevant material—including the Grant Opportunity Guidelines (the Guidelines)—published online. The Guidelines establish a framework for administration of the program, including eligibility and application assessment criteria.
General views on the BCD Program
Submitters and witnesses had differing views on the BCD Program, with many questioning the Australian Government's funding support for the shale gas industry in the Beetaloo. The Australian Youth Climate Coalition, for example, submitted:
We are alarmed and disappointed to see the Federal Government rolling out a suite of actions to prop up expensive and dangerous gas expansion across Australia, including $50 million dollars for fracking corporations to operate in the Northern Territory… Public money should be used for public good, not given to some of Australia's biggest and well-resourced corporations.
The Central Australian Frack Free Alliance commented:
The Morrison government's response to climate change pressures appears to be fast tracking fracking so as much gas as possible can be extracted before the fossil fuel industry collapses. Beyond the high risks that this approach is leading the Australian taxpayer to invest in soon to be stranded assets, we worry the [Morrison] government and the gas lobby are putting pressure on the NT government to rush through baseline testing and application processes for exploration wells without sufficient regulatory scrutiny to ensure community and ecological safety. This 'instrument' appears to be yet another example of the government favouring speed over safety when it comes to fracking.
The Environment Centre NT and Dr Timothy Neale submitted that, with less than half of the Pepper Inquiry recommendations implemented (see Chapter 5):
Federal Government funding of both the gas industry (including through the Fracking Instrument) and the Northern Territory Government (for gas‑related infrastructure) may increase the risk that the Pepper Inquiry recommendations will not be implemented in full.
In contrast, the Australian Petroleum Exploration and Production Association (APPEA) welcomed the Australian Government's investment:
The grants under the Beetaloo Cooperative Drilling Program (capped at $50 million) are expected to deliver several additional exploration wells by 2022 and bring forward at least $150 million in private investment to the basin.
Both APPEA and its member, Empire Energy Group Ltd (Empire Energy) noted that this is not a unique program, with governments having previously provided financial assistance to encourage exploration and development of natural resources.
Chapter 3 explores some of the concerns raised about the Australian and NT Governments' economic rationale for a shale gas industry in the Beetaloo. That chapter also discusses some of the opposition to the investment of taxpayer funds for this purpose.
To be eligible for the BCD Program, applicants must have an Australian Business Number, be an entity incorporated in Australia and be a trading corporation. In addition, applicants' trading activities must:
form a sufficiently significant proportion of the corporation's overall activities as to merit it being described as a trading corporation; or
be a substantial and not merely peripheral activity of the corporation.
The Guidelines also clearly state how grant money can be used. For example, a condition in respect of the location of the project proposed for grant funding states:
Your project must be delivered in the following location:
an area within the Strategic Regional Environmental and Baseline Assessment (SREBA) boundary for the Beetaloo sub-basin, as defined by the Northern Territory Government.
GrantConnect, a repository of current and forecast Government grant opportunities, outlines three criteria for eligible applications. These include that applicants will need to hold a petroleum exploration permit (EP) or retention licence from the NT Government and have commenced all necessary approval processes to undertake onshore petroleum exploration.
In addition to these BCD Program criteria, DISER explained during a Senate Estimates hearing that companies that undertake onshore petroleum exploration in the NT must comply with territory-based regulation, for example, the need for an approved Environment Management Plan.
The committee notes that departmental representatives emphasised the key objective of the BCD Program: to accelerate development in the Beetaloo, before the commencement of the wet season which would further delay exploration of the sub-basin, rather than comparing the merits of applicants' projects. For example, General Manager of the Resources Strategy Branch, Mr Dan Quinn stated:
The time limited nature of the grants and the fact we require companies to bring forward their activities as part of the application or the eligibility process meant that we are looking to create new exploration activity as soon as possible.
The committee also notes that, due to the design of the BCD Program, the grant scheme favours applicants who were quick to lodge their funding applications.
Application assessment criteria
The assessment criteria are a prescriptive list of requirements that applicants must meet to the satisfaction of an independent assessment committee. Applicants will only be considered if they can satisfactorily demonstrate that their proposed project meets all three criteria:
the extent to which the applicant's project contributes to understanding of petroleum resource prospects in the Beetaloo (Criterion 1);
the applicant's capacity, capability and resources to deliver the project (Criterion 2); and
the impact of the grant funding on the applicant's project (eg. the total additional investment the grant will create) (Criterion 3).
The committee notes from information provided by DISER that, in respect of the first three grants made under the BCD Program, one member of the independent assessment committee rated the applicant as 'unsatisfactory' against these assessment criteria, particularly in respect of Criterion 2.
In this regard the committee further notes the minutes of an officials meeting on 24 May 2021 at which the independent assessment committee reviewed the merits of six BCD Program grant applications, including three ultimately successful grants from Imperial Oil and Gas. That meeting noted:
Applications that were assessed as unsatisfactory against any of the assessment criteria would be not be [sic] considered for grant funding. Committee Members were also required to consider Sections 6 and 8 of the Guidelines, covering the assessment criteria, value for relevant money and program objectives and outcomes. The outcome is to recommend applications to Minister Pitt, who makes the final decision.
The committee observes that the independent assessment committee is required to consider each grant funding application on its own merits, in accordance with the Guidelines. However, the committee queries whether the assessment committee is truly independent, as it is comprised of two Australian Government representatives, one from DISER, and the other from Geoscience Australia, and an expert advisor with key industry and NT Government operational knowledge.
Further, the committee notes that, under the Commonwealth Grants Rules and Guidelines 2017, 'competitive, merit-based processes should be used to allocate grants based upon clearly defined criteria'. However, it is possible for other selection processes to be used, some of which are neither competitive nor merits-based such as the process employed by the BCD Program.
Finally, the committee notes that the independent assessment committee provides its advice to the decision-maker, the Minister for Resources and Water, the Hon Keith Pitt MP.
Despite these concerns, the Minister for Resources and Water subsequently approved the first three grant applications, worth a total of $21 million, to Imperial Oil and Gas.
Key title holders in the Beetaloo
According to Resourcing the Territory, a NT Government initiative to develop the territory's natural resources, there are currently 38 petroleum exploration titles granted for the NT.
However, due to the abovementioned project location requirement contained in the Guidelines, there are just seven entities that hold the necessary titles for grant funding:
Jacaranda Minerals and Minerals Australia, ultimately owned by Ms Gina Rinehart's private company, Hancock Prospecting;
Santos with Tamboran Resources Ltd;
Origin Energy with Falcon Oil and Gas;
Origin Energy, in joint venture (JV) with Falcon Oil and Gas Australia Ltd (a 98 per cent owned subsidiary of US-based Falcon Oil and Gas), has drilled the Kyalla 117 N2-1 well to test the liquids-rich shale gas in the Kyalla Formation. This JV plans to conduct an extended production test later in 2021. Plans to drill the Velkerri 76 well to test the wet gas resource and to perform an extended production test at the Amungee NW-1H well remain afoot.
Santos Ltd, in JV with US-based Tamboran Resources Ltd (now listed on the Australian Stock Exchange), has hydraulically stimulated the Tanumbirini-1 vertical well to test a dry gas discovery in the Middle Velkerri shale gas region. This JV has commenced drilling the Tanumbirini-2H horizontal well, with drilling of the Tanumbirini-3H horizontal well to follow shortly afterwards. Fracture stimulation and flow testing for these two wells is expected to occur in 2021.
Empire Energy, through its 100 per cent owned subsidiaries, Imperial Oil & Gas Pty Ltd and Imperial Oil & Gas A Pty Ltd, has drilled and fracked the Carpentaria-1 vertical well (in EP187) to test the liquids-rich gas within shales of the Velkerri Formation. Approvals are reportedly in train for the drilling and fracking of a horizontal well later in 2021.
Other key players in the Beetaloo are Pangaea Resources Pty Ltd (assets currently merging with Empire Energy), Sweetpea Petroleum Pty Ltd (100 per cent owned by Tamboran Resources Ltd), Minerals Australia, Jacaranda Minerals, Hancock Prospecting, Armour Energy and INPEX Australia (Figure 2.1).
Figure 2.1: Oil and gas company assets, NT
Source: Empire Energy Group Ltd, Submission 26, p. 9.
Figure 2.1 shows Empire Energy's holdings in the sub-basin, which it claims constitute 'the largest exploration acreage position in this highly prospective, potentially global-scale region where exploration and appraisal are in the early stages'.
First grants under the BCD Program
On 7 July 2021 the Australian Government announced the first grants under the BCD Program:
Minister for Resources and Water Keith Pitt has said the three grants to Imperial Oil and Gas would provide up to $21 million to support three new exploration wells in the company's EP187 exploration zone in the Basin's east.
Empire Energy's Managing Director Mr Alex Underwood told the committee that the company has not yet received any funding from the BCD Program, as the grant agreement has not yet been executed. According to the department's standard grant agreement, an agreement must be signed within 30 days of receipt of the written grant offer.
In examining the standard grant agreement, the committee notes that, although the agreement contains audit and repayment provisions, it does not contain provisions for the repayment of grant money should applicants discover and produce commercial quantities of shale gas in the Beetaloo.
Update on applications under the BCD program
Mr Paul Trotman, Head of Division (Resources Division) at DISER, told the committee that the BCD Program had been developed with reference to other programs of a similar nature and existing frameworks in other jurisdictions (namely, New South Wales and South Australia).
The department advised that, after considering cost contributions in those programs:
The Department arrived at the maximum grant size of $7.5 million based on the assessment that a 25 per cent contribution would act as an effective incentive and the Department's expectations regarding the upper bound for reasonable costs associated with well drilling activities. The upper bound for reasonable costs were assessed to be in the order of $30 million dollars. This assessment was informed by consultations with the Northern Territory Government regarding costs for activities undertaken in the Beetaloo prior to establishment of the Beetaloo Cooperative Drilling Program.
The committee notes that, although $21 million has already been granted to Empire Energy, four other applications totalling $30 million are still under consideration for funding grants under the BCD Program.
DISER has advised that, in addition to Imperial Oil and Gas, the department has received funding applications from Tamboran Resources Ltd (three wells), Sweetpea Petroleum Pty Ltd (three wells) and Santos (one well). The tax practices of these applicants are discussed below and in Chapter 3.
The committee also notes that, although the Guidelines were released (10 March) prior to registration of the Instrument (14 May), this is common practice:
As part of the development of the program and the broader policy suite, we are required to seek both a constitutional risk assessment and a legislative risk assessment to look at the way in which the program would be formulated. Typically, when those are low, it is not uncommon for the grant guidelines to be released and the program to be open while the instrument is being registered.
Transparency and accountability
Some submitters and witnesses expressed concerns about the transparency and accountability of the oil and gas sector in Australia. In particular, Publish What You Pay Australia (PWYPA) warned that there are specific risks or red flags, which are evident in the BCD Program.
Conflicts of interest
The Commonwealth Grants Rules and Guidelines 2017 establishes the Commonwealth grants policy framework, setting out the key legislative and policy requirements, and explaining the better practice principles of grants administration.
Specifically, the framework comments on the impact of actual or perceived conflicts and the type of situation in which such conflicts might arise:
Actual or perceived conflicts of interest can be damaging to government, granting entities and its officials, potential grantees and grantees. A conflict of interest where a person makes a decision or exercises a power in a way that may be, or may be perceived to be, influenced by either material personal interests (financial or nonfinancial) or material personal associations. A conflict of interest may arise:
where decision-makers or officials involved in grants administration have a direct or indirect interest, which may influence the selection of a particular grant activity;
where members of external committees have a direct or indirect interest in informing a decision about expenditure or providing advice on grant opportunities; and
where a potential grantee has a direct or indirect interest, which may influence the selection of their proposed grant activity during the application process.
Conflicts may also arise when undertaking the grant activity.
A number of witnesses and submitters contended that the BCD Program's first three funding grants have been made in circumstances that give rise to serious conflict of interest concerns. The committee examined two factors: political donations, and communications and meetings between Empire Energy and key government ministers.
Political donations and influence
The committee heard that Empire Energy, its Chair, Mr Paul Espie, and its largest shareholder, Tasmanian billionaire Mr Dale Elphinstone, have extensive connections into the Liberal Party, including but not limited to political donations. Some submitters and witnesses suggested that the company used these connections to influence or secure funding grants under the BCD Program.
Mr Clancy Moore, National Director of PWYPA, explained that political donations can buy access to those in positions of power:
Politicians and political parties often rely on big donations to fund their election campaigns, and sometimes this can be used to buy access to politicians from companies or other vested interests... The problem with donations is that they really weaken our system of democracy, whether it's pay to play or cash for access. This has a real impact on the public's faith in democratic processes.
PWYPA raised concerns about potential conflicts of interests and the integrity of the BCD Program, as several companies operating in the Beetaloo—including Empire Energy—have made significant political donations over the years. Mr Moore said:
…both Origin and Santos have, every year for the past 10 or 20 years, donated over $100,000 to major political parties, including last year before the Northern Territory election. I think donations were given to both Labor and the Liberal Party there as well. In relation to Empire Energy, it's been widely reported in the media that their chairman, Paul Espie, has made I think around 42 donations to political parties since 2002. This includes one donation of $75,000 and several of $50,000. These donations to political parties total almost $400,000, with the majority going to the Liberal Party. Furthermore, Empire Energy donated $25,000 to both the Country Liberal Party and the Territory Labor Party in the lead-up to the Territory election last year... The connections with the Liberal Party do raise cause for further inquiry, in particular given that Empire Energy has been the recipient of three grants under the program so far.
Mr Moore added that 'Dale Elphinstone and his company Elphinstone Holdings, which holds around 11.61 per cent of [Empire Energy]…[is] known to be a Liberal Party figure as well and a key backer of the company.'
Over the past 10 months, major shareholder disclosures by Empire Energy show that Mr Elphinstone has poured a significant amount of his money into the company, lifting his holdings from 18.6 million shares in October 2020 to 52 million shares by August 2021. This is a dramatic 180 per cent increase in the stockholding, meaning that Mr Elphinstone has a significant personal interest in the success of the project, which in turn depends on successful government seed funding from the BCD Program.
In regards to its third largest shareholder, Global Energy and Resources Development Limited, over the same 10-month period, its shareholding in Empire Energy significantly decreased, from 8.72 per cent to 5.39 per cent. The beneficial owner of Global Energy and Resources Development Limited is Mr Michael Tang, who has an outstanding arrest warrant and is facing charges of insider trading in Hong Kong.
In response to questions, Mr Underwood acknowledged these circumstances but said, 'I have no control over whether or not that company chooses to continue to hold shares in our company. We're a listed company and that is a matter for them'.
GetUp, Australian Youth Climate Coalition, Lock the Gate Alliance and 350.org Australia raised similar concerns about the potential for conflicts of interests, referencing donations to political parties from Santos, Origin Energy, Empire Energy and Mr Espie.
In its submission, Lock the Gate Alliance spoke to the bias and unfair advantage that can result from political donations and lobbying, noting that it calls into question whether proper process has been followed:
We are concerned that one company, Empire Energy, is set to access almost half the available grant money, heightened by the close links between the company and the Liberal party, and the fact they appear to have had insights into the grant scheme and eligibility criteria before the information was made publicly available… This is problematic on multiple grounds. Firstly, it is completely inappropriate that one private corporation would receive almost half the available funding through the Instrument. Second, a major shareholder of Empire is Macquarie Bank. This major financial institution does not need subsidies to boost their financial interests. Third, it is inappropriate for public subsidies to so blatantly favour a company with such strong links to the Liberal party.
Interactions between Empire Energy and key government ministers
The committee also heard that in the months preceding the awarding of the grants to Imperial Oil and Gas, representatives of its parent company, Empire Energy met in private with government ministers on two separate occasions.
The first meeting, on 15–16 October 2020, was at a political fundraising event in Darwin before Empire Energy chartered a private jet to fly from Darwin to the Beetaloo site. Empire Energy confirmed to the committee that in attendance on that flight was not just Minister Taylor and his adviser, but his chief fundraiser, Mr Ryan Arrold, who is Chair of the NSW Liberal fundraising entity, the 'Hume Forum'. It was the Hume Forum that first contacted Empire Energy to let them know about the fundraising dinner, for which the company paid attendance fees of $4500.
Also on the flight was Empire's Chair, Mr Espie, who is also Chair of the Liberal Party think tank, the Menzies Centre. The Executive Director of the Menzies Centre, Mr Nick Cater, was also flown on the private jet with the Director of gas industry lobbyists, APPEA and the NT Opposition Leader, Ms Lia Finocchiaro MLA.
That evening after the flight, Minister Taylor's diary recorded that he had 'dinner with Empire Energy' in Darwin. The Register of Members Interests shows that Minister Taylor declared a 'return charter flight and hospitality with Empire Energy'.
The second private meeting between Empire Energy and Minister Taylor occurred on 10 March 2021 in the Minister's Sydney office. Departmental officers confirmed to the committee that they were not present at this meeting.
The committee notes that Minister Pitt was not present at either the October 2020 or March 2021 meetings.
Eight days after this private meeting, on 18 March, the Guidelines were publicly launched and the BCD Program opened to applications.
Given that the structure of the BCD Program was not merit-based, but ‘first-in-first-served', these meetings and the close ministerial relationship appear to have provided Empire Energy with a crucial advantage in early lodgement of its application and as a result, its wholly owned subsidiary has been the only entity to have so far received approval for grant funding.
Ms Rhiannon Verschuer, Research Fellow with The Australia Institute, also queried the ministerial involvement with Empire Energy:
…the Beetaloo drilling program is a grants program that appears to see money allocated by ministers to politically connected recipients rather than via a transparent process based on merit. Recently, on 7 July , $20 million—quite a large portion of the total $50 million—was allocated to Empire Energy, a company with strong links and a history of political donations, despite their projects being less advanced than competitors' projects. Ministers Angus Taylor and Keith Pitt were in close contact with the company before the grant program was even announced, with [Freedom of Information (FOI)] documents showing that Minister Taylor's flights and associated hospitality were fully funded by Empire to visit their well in Beetaloo.
350.org Australia provided the FOI documents referred to by Ms Verschuer, whose contents were also noted in submissions from GetUp and Lock the Gate Alliance. These last two organisations questioned why Minister Taylor and not the responsible minister made the visit, with Lock the Gate Alliance further noting:
Other FOI documents show Minister Pitt [Minister for Resources and Water] was invited to the Empire Energy photo opportunity in the NT only after it was arranged with Minister Taylor. Minister Pitt did not attend. Following the demotion of Minister Pitt out of cabinet, Minister Taylor is now the Minister responsible for this portfolio area within Cabinet.
Mr Graeme Sawyer, Coordinator at Protect Country Alliance (PCA), also expressed concerns about the NT Minister for the Environment signing a letter of support based on an economic rationale:
…the minister for the environment has signed a statement to this inquiry [Submission 45] supporting the process on economic grounds. The Pepper inquiry specifically shifted the responsibility for fracking approval decisions from the mining minister to the environment minister because of conflict of interest. How is it conceivable that the minister responsible for the environmental aspects of the NT and approving of fracking proposals can write such a support letter on economic grounds when she is supposedly right now reviewing an application from Empire and Imperial in relation to their EMP [Environment Management Plan].
Similarly, the Lock the Gate Alliance submitted:
The NT Government has chosen not to fully separate the environmental approval powers for fracking well operations from the Department responsible for promoting the industry. One critical document for the assessment and approval process for fracking operations (the Well Operations Management Plan, or WOMP) is not able to be assessed by the Environment Minister, only by the Department of Industry, Trade and Tourism [DITT], which is the Department responsible for promoting the industry. It is absolutely unacceptable that the assessment and approval of this document, which outlines how a fracking well will hold its integrity through multiple groundwater aquifers, sits with the DITT and not with the Environment Minister. This is in direct contravention to the clear recommendation in the Pepper Inquiry. The WOMP is also not available to the public to be able to make submissions.
The committee notes that the Pepper Inquiry recommended that prior to the grant of any further exploration approvals, in order to ensure independence and accountability, there must be a clear separation between the agency with responsibility for regulating the environmental impacts and risks associated with any onshore shale gas industry and the agency responsible for promoting that industry.
Empire Energy response
Empire Energy submitted that 'any assistance we seek from government for our activity in the Beetaloo Basin is commensurate with the benefits the activity will deliver to taxpayers and the broader community'.
The company's submission went on to describe how grant funding would generate economic activity of four times the grant amount in 2021–22, with investment directly benefiting local businesses and Traditional Owners.
In addition, Empire Energy submitted:
The grant funding may generate further economic benefits because, in the technical success case, it may facilitate commencement of commercial production by Empire Energy at least 12 months earlier than currently planned. This would generate increased gas supply for Australians, jobs, and royalties for the Northern Territory Government and traditional owners.
Mr Underwood emphatically rejected that Mr Espie had any role in the awarding of the grants: '[Mr Espie's connections] played no role whatsoever in our applications for these grants. We followed due and proper process at all times, and we applied for these grants in accordance with their terms'.
Mr Underwood acknowledged that the Minister for Energy and Emissions, the Hon Angus Taylor MP, had visited onsite in the Beetaloo in October 2020, however, he rejected suggestions that the minister had been lobbied in respect of the BCD Program:
We did not [lobby him]… We wanted to show him the activities we were carrying out in the Beetaloo... It's on public record that the government is following this gas fired recovery strategy, and we wanted to show that we are working hard to lead the development of this basin.
Mr Underwood also acknowledged a meeting with Minister Taylor in March 2021, however he again advised the committee that the purpose of that meeting was to discuss existing work programs and issues around regulatory efficiency, not to discuss the BCD Program:
I may have told the minister that I believed it was a good policy and that it may incentivise an acceleration of activity, but I can assure you there was no mention of seeking any kind of influence over the process.
The committee also notes that, while the Guidelines contain conflict of interest requirements for applicants and members of the independent assessment committee, DISER stated:
The Department did not advise the Minister for Resources and Water of any conflict of interest concerns as no grant applicants or advisory committee members declared any actual or perceived conflicts of interests.
In light of the direct financial interests that will accrue to Empire Energy and its major shareholder from the grants, and the close financial and personal relationships held with the Liberal Party and Government Ministers, this committee is of the view that DISER should ensure that there are no conflicts of interest that contravene the Guidelines. No evidence provided to the committee shows that DISER has undertaken any serious effort to assure the Australian people that the BCD Program is being run independently and fairly.
Finally, the committee notes, in relation to benefits to the taxpayer, the one company which has been awarded grant funding has not yet paid any company tax in Australia (see Chapter 3).
Independence of the Gas Industry Social and Environmental Research Alliance
Dr Peter Mayfield, Executive Director of Environment, Energy and Resources at the Commonwealth Scientific and Industrial Research Organisation (CSIRO), assured the committee of the impartiality of the organisation and explained the role of the Gas Industry Social and Environmental Research Alliance (GISERA), as follows:
GISERA is a collaboration between the Commonwealth and state governments, industry and CSIRO, and was established to undertake publicly reported independent research. GISERA's role is to provide quality-assured scientific research and information to the communities living in the gas development regions, focusing on social and environmental topics.
Dr Mayfield went on to explain that GISERA has:
…strict governance arrangements that enable the independence of all researchers and the integrity of all the research projects undertaken. These arrangements also guarantee input from community and independent representatives that participate in GISERA's research advisory committees. These committees, which approve research proposals and funding, have a hardwired majority representation of independent and community members. All the scientific results are independent of industry and government. All GISERA research advisory committee meeting minutes, communiques, project proposals, reports and fact sheets are made available for public scrutiny on the GISERA website.
Like all research published by CSIRO, GISERA publications must clear CSIRO's peer review process and be published online on the GISERA website.
Dr Damian Barrett, Research Director of CSIRO Energy Resources, who manages the alliance arrangement, broke down the sources of funding for GISERA:
The funding for GISERA comes from a range of sources. To date, we have received $54.5 million in funding, of which 45 per cent is from the Commonwealth government, 22 per cent is from CSIRO and 33 per cent is from industry…
In the Northern Territory, it breaks down a little differently—48 per cent of the $5 million in funds that has gone into the Northern Territory has come from the Commonwealth government, 13 per cent has come from the Northern Territory government, 22 per cent has from CSIRO and 15 per cent has come from the industry partners.
Dr Barrett stated that industry members of the alliance agreement include Australia Pacific Liquefied Natural Gas (APLNG), Origin Energy and Santos. He also noted that Empire Energy is not currently an industry member. Dr Barrett explained the rationale for industry involvement:
GISERA goes to the notion that those who benefit from the operation of the industry should make some contribution towards the potential environmental and social impacts of that industry, whether they be positive or negative. The basis on which the funding into GISERA happens is that those who have an interest or get some form of benefit should make a contribution towards understanding what those issues are and how those issues might be mitigated.
Several witnesses and submitters questioned the independence of GISERA.
Mr Mark Ogge, Principal Adviser at The Australia Institute, put forward an analogy to emphasise the perceived conflict of interest of having the involvement of the gas industry in GISERA:
…it's a real worry that the work on fugitive emissions is being done by GISERA, who obviously have a huge vested interest in not finding much there. It's a bit like if we had the tobacco industry overseeing research on the health impacts of tobacco or the asbestos industry overseeing the research on the health impacts of asbestos.
Mr Ogge went on to explain:
GISERA is based on an alliance agreement between Origin; the [APLNG], which includes Origin, Sinopec and ConocoPhillips; QGC, which is owned by Shell; Santos; and the CSIRO. It's 80 per cent gas companies and 20 per cent CSIRO. CSIRO scientists undertake the research, but the research is overseen by research management committees that include executives from those various gas companies. Gas executives make up half the national research management committee.
Mr Roderick Campbell, Research Director at The Australia Institute, gave evidence that:
While publicly available information suggests that it's the CSIRO that is running this program, The Australia Institute understands and has seen emails that show that it's actually being run by GISERA, specifically the head of GISERA, Damian Barrett.
Climate Change Balmain-Rozelle questioned GISERA's ability to produce independent research:
The industry even dominates scientific research into Australian gas mining: the 5 biggest companies, including Beetaloo investor Origin, provide over half the funding of [GISERA]… So independent scientific assessment of projects such as Beetaloo is hard to come by.
Save Westernport similarly raised concerns about GISERA's independence:
GISERA, the Government-Industry body, is known for cherry-picking from CSIRO's research only the information and findings that favour its aims. Accordingly it is likely that their [the CSIRO's] independence and voracity will have been compromised by the association… In short—the Gas Industry supplies GISERA with the money, while the CSIRO provides the Logo, and presumably their credibility as well.
The Australia Institute submitted:
Contrary to the Pepper Inquiry's call for an independent third party to implement an information program for Aboriginal people, this role is being filled by [GISERA]… GISERA's research has often been flawed, resulting in headlines favourable to the gas industry.
The Australia Institute was here specifically referring to GISERA's 2020 study into the potential impacts of hydraulic fracturing in the Surat Basin in Queensland. Minister Pitt claimed that the study shows fracking is safe for the environment, however, the institute reported that the study cannot be relied upon:
Australia Institute analysis found that while the GISERA research may be able to provide data about fracking activities at the six Origin Energy wells examined in the research over a six month period, it says nothing about the wider population (99.97%) of Coal Seam Gas (CSG) wells in [Queensland] or even about those six wells before or after that period.
When asked whether GISERA supports the Pepper Inquiry report and final recommendations, Ms Judi Zielke, Chief Operating Officer at the CSIRO, replied 'I don't think that question has ever been put to GISERA, so the alliance hasn't considered that question'. Dr Barrett added:
The work that we do is cognisant of the recommendations. We look to addressing scientific issues and providing scientific advice with an eye on those recommendations in order to be able to inform the recommendations as they're rolled out. The information that we provide is a response of a type. We provide that to the Northern Territory government, who are responsible for responding to those recommendations in full.
The committee notes that the Pepper Inquiry specifically recommended that an independent, third-party design and implement an information program to ensure that reliable, accessible, trusted and accurate information is effectively communicated to all First Nations People who would be affected by any onshore shale gas industry. Further, that this program be funded by the gas industry.
Independence of the University of Queensland’s Centre for Natural Gas
According to its website, the University of Queensland's Centre for Natural Gas (UQ Centre for Natural Gas) 'is funded through a membership model, where organisations can contribute a minimum of $500 000 for five years to fund multi-party (core project) research and educational activities'. Its members include Arrow Energy, Santos and APLNG. However, the UQ Centre for Natural Gas:
…adheres to UQ policies and procedures designed to ensure the integrity of research… Members can provide input into potential research projects, however, they cannot prevent a project from going ahead, nor do they have editorial control on research outcomes.
The University of Queensland's conflict of interest policy acknowledges conflicts of interest encompass perceived, potential and actual conflicts:
Conflicts of interest are a normal part of employment relations in a large complex organisation like the University. What is important is how conflicts are efficiently and effectively disclosed and appropriately managed… [The policy] is consistent with principles of the Public Sector Ethics Act 1994 [Qld] and The University of Queensland Code of Conduct, which require staff to acknowledge the primacy of the public interest and ensure that any conflict of interest is avoided, or resolved or appropriately managed.
Similar to arguments in the preceding section titled 'Conflicts of interest', there has been commentary around perceived conflicts of interest in relation to the NT Government awarding a contract worth $325 000 to the UQ Centre for Natural Gas, without a tender, to do baseline research into the social, cultural and economic impacts of fracking, including due to its connections with the oil and gas industry.
Mr Sawyer stated that 'just as GISERA is not an independent scientific body, neither is the UQ Centre for Natural Gas. By receiving funding from gas companies, we're concerned that its scientific independence could be fatally compromised'.
Mr Sawyer provided some insight into the process that led to the contract being provided to the UQ Centre for Natural Gas and raised concerns about transparency and accountability:
The government had a false start on this stuff, where they previously went through a sort of tender process of some description, and they gave that contract to Circle Advisory. We had some meetings with them, and they were, in my view, really not capable of delivering on that process and were pretty obviously selected for their love of the gas industry. So the next part of that process was to go back. They got the tender taken away from them, and it has been given to UQ. I think this is just a really insidious example of how this process is being corrupted by the influence of vested interests and how the due process that—I mean, the Pepper inquiry is full of this stuff, talking about transparency and accountability for decision-makers and how important all those things are, and yet we've seen none of it.
Mr Sawyer explained the challenges he foresees in the limited timeframe announced for the UQ Centre for Natural Gas to conduct the work:
One of the things that's really important for people to understand is that the Pepper inquiry said it should take three to five years for the SREBA [Strategic Regional Environmental and Baseline Assessment] process to be conducted… The reality is that, in a purely scientific sense, three to five years probably isn't really long enough, but you could do a reasonable amount of that sort of work in that time frame.
But one of the really important elements of [the SREBA] is the social, cultural and economic component… There is no conceivable way that something as complex and as important as that can be done properly in the next 12 to 18 months. This is part of the problem: this process that was outlined as being really important and answering lots of questions in that final risk assessment has been short-circuited…
I really struggle to see how these people are going to manage to establish a genuine relationship with the Indigenous communities and the pastoralists that they need to talk to to do their job properly—that alone should take a fair period of time—and then turn around and think they're going to be able to do something as complex as this… It's never going to happen in 18 months.
Ms Hannah Ekin from the Central Australian Frack Free Alliance has also publicly raised concerns, stating:
The SREBA should have been complete before fracking rigs were allowed to roll out across the Territory. The decision by the Gunner Government to appoint a gas industry linked body to conduct this research is a clear example of why people are concerned the government might be scrambling and working to the bidding of the gas industry… We need to see evidence that the Gunner Government has any interest in delivering a properly independent, scientifically sound assessment of the fracking industry's potential social, cultural, and economic impact.
The use of shell companies and tax havens
PWYPA emphasised that 'any company that receives public money must adhere to the highest standards of transparency and accountability', including disclosing who are its ultimate beneficiaries and owners.
Specifically in relation to the BCD Program, PWYPA argued that public funds could be granted to companies which have subsidiaries that are incorporated in known tax havens or secrecy jurisdictions. Mr Moore identified two such companies involved in shale gas exploration in the Beetaloo, as well as raising questions about Empire Energy and its connections to the Australian Government (see above):
These are Falcon Oil & Gas, Sweetpea Petroleum and Empire Energy. In the case of Sweetpea Petroleum and Falcon Oil & Gas, these companies have both used shell companies, tax havens and other opaque ownership structures... Empire Energy also appears to have strong links with the Liberal Party. This raises further questions around the integrity of the grant program and the recent awarding of $21 million in grants to their subsidiary Imperial Oil & Gas.
Mr Moore elaborated on the example of Sweetpea Petroleum:
…in Australia it's a privately registered company. The Australian company is currently owned by Longview Petroleum, a limited liability company that is based in Texas. That company is a subsidiary of Longview Petroleum in Delaware, which is registered in the notorious Corporation Trust Centre in Wilmington, Delaware. Just to paint a picture, this two‑storey yellow brick building in downtown Wilmington, which is the capital of Delaware, is actually home to more than 285,000 companies... Sweetpea's ultimate owners are most likely US citizens... What's more, the Delaware company, which was only registered in June 2019, actually failed to pay any taxes in Delaware on time… A company whose parent company appears not to be able to pay the few hundred dollars of tax to remain in good standing in Delaware should not be receiving valuable government revenue under the [BCD] program at this stage.
Empire Energy's Mr Underwood provided the committee with further information on that company's ownership, advising that Empire Energy is publically listed on the Australian Stock Exchange and is 'majority Australian owned'.
PWYPA ultimately argued that the Australian Government should restrict grant funding under the BCD Program to applicants who do not use secrecy jurisdictions and offshore shell companies without sufficient explanation.
Standard of governance
Some submitters questioned the Australian and Northern Territory Governments' governance of the oil and gas industry. PCA, for example, submitted that the NT Government appears to go out of its way to facilitate the industry, rather than regulate it in accordance with community expectations.
The PCA noted specifically the dissolution of the Onshore Shale Gas Community Business Reference Group, a community consultative group that was intended to oversee implementation of the Pepper Inquiry recommendations.
The Environment Centre NT and Dr Neale summarised the effect of this dissolution: 'there is no transparent community and stakeholder mechanism to hold the Government and gas industry to account with respect to the implementation of the majority of the recommendations'.
PWYPA submitted that Australia's standard of governance lags behind other comparable Organisation for Economic Co-operation and Development countries and other countries in the Asia-Pacific region.
PWYPA's submission referenced the Extractive Industries Transparency Initiative (EITI), which promotes a global standard for the open and accountable management of oil, gas and mineral resources. The standard requires:
…the disclosure of information along the extractive industry value chain from the point of extraction, to how revenues make their way through the government, and how they benefit the public. By doing so, the EITI seeks to strengthen public and corporate governance, promote understanding of natural resource management, and provide the data to inform reforms for greater transparency and accountability in the extractives sector.
PWYPA noted that Australia is not an EITI country:
The choice by the Commonwealth to not meet or progress these gold standards of extractive sector governance increases corruption risks, impacts the sector's social license and means policy makers, investors and communities are not informed as to the economic benefits and risks for specific projects. Additionally, Australia unlike the UK and Canada does not have laws requiring companies to disclose their ultimate owners and beneficiaries. The US has also introduced laws to outlaw the use of anonymous offshore shell companies.
The committee notes that the Pepper Inquiry specifically recommended the establishment of the Community and Onshore Shale Gas Industry and Business Reference Group to provide feedback to the NT Government on the development of an implementation framework, and its subsequent execution.
Australian Government response
In response to concerns about the BCD Program's design, departmental representative Mr Trotman said that the program is not intended to diminish the need for appropriate approvals:
We do have mechanisms in place through other departments like Treasury and others that go to the veracity of particular applicants, and we also have conflict-of-interest provisions in the guidelines which also point to the suitability of particular applicants.
Mr Quinn noted that one eligibility criterion—the ABN requirement—subjects grant recipients to a number of regulatory processes around tax. Also, the application assessment criterion regarding ability to conduct activities within the jurisdiction 'picks up' broader regulatory approaches from other agencies'.
With specific reference to the $21 million grant awarded to Empire Energy, DISER indicated that, in its view, there was no impropriety involved,
as everything has been done in accordance with the BCD Program criteria:
The advisory committee considered the application against the eligibility and assessment criteria established by the Grant Opportunity Guidelines, advised that the applications met established eligibility criteria and recommended that the applications be accepted.
The committee notes however, from information received from DISER, that one member of the independent assessment committee did not agree that Imperial Oil and Gas had satisfied the BCD Program criteria in respect of all three of its applications. The department did not provide the committee with any information regarding why two members of the assessment committee were satisfied with the grant applications and one was not, and how that disagreement was resolved.
Based on information provided to the committee, it is not clear that the independent assessment committee fully endorsed the $21 million in funding to Imperial Oil and Gas, as its applications did not satisfactorily meet the criteria. Yet, Minister Pitt approved the grant.
Information provided by DISER also seems to indicate consideration of the electorate in which the grant funding will be spent. However, this portion of the document provided by the department was blank. It is not clear whether there was ever any information in this portion of the document or whether it has been intentionally omitted. The committee may draw its own conclusions, including that the process may not have been run independently or fairly.
According to the Australian Government, its Gas-fired recovery plan aims to strengthen the Australian economy in the wake of the COVID-19 pandemic. While the committee strongly supports appropriate measures to strengthen the economy in the wake of the pandemic, the committee opposes Commonwealth grants to oil and gas companies where the grants process does not appear to have been fair and equitable, where companies are operating out of tax havens and their true ownership hidden within secrecy jurisdictions.
In particular, the committee heard that the first three grants under the finite BCD Program have been awarded to a single applicant with well-established connections to the Liberal Party, after apparent lobbying prior to the grant decisions. This is despite there having been additional grant applicants, whose projects might have been more advanced and meritorious, and where there is some question whether the independent assessment committee unanimously agreed that the successful applications satisfied the grant criteria.
In the committee's view, the selection process chosen for the BCD Program was a highly flawed decision and perceptions or actual impropriety associated with the grant funding could have been avoided had a merit-based and more transparent process been chosen.
The committee is deeply concerned by the clear perception that political connections and political donations have directly influenced the awarding of the first three grants under the BCD Program.
The committee recommends that the Department of Industry, Science, Energy and Resources immediately instigate a review of the Beetaloo Cooperative Drilling Program applicants' perceived conflicts of interests with the Liberal Party, the Minister for Energy and Emissions Reduction, and the Minister for Resources and Water.
In addition, as a matter of principle, the committee considers the provision of Australian taxpayer money to large and well-funded organisations with questionable corporate structures, and which contribute little or no company tax or royalties to government revenue (Chapter 3), to be poor and indefensible policy. At a minimum, the Australian Government should be looking to introduce enhanced financial reporting obligations to support higher standards of transparency and accountability throughout the oil and gas industry.
The committee recommends that the Australian Government explore options to institute higher standards of transparency and accountability in the oil and gas industry, including regular financial reporting obligations.
Finally, the committee notes that under DISER's standard grant agreement there is no obligation for grant recipients to repay grant funding should successful applicants discover and produce commercial quantities of shale gas. In the committee's view, in that circumstance, grants should be repayable to the Australian taxpayers.
The committee recommends that, if the Industry Research and Development (Beetaloo Cooperative Drilling Program) Instrument 2021 proceeds, the Australian Government require repayment of any grant funding if grant recipients discover and produce commercial quantities of shale gas in the Beetaloo.