CSG Companies expect farmers to donate / volunteer their time for bigger company profits.

In a recent news article, Bruce Robertson from Energy Economics and Financial Analysis (IEEFA) described how Australians are being short-changed when it comes to royalties and tax for its oil and gas, with one expert saying “we’re giving away our natural resources”. He went on to  recommend the royalty and tax system covering oil and gas in Australia be overhauled, pointing out that Telstra paid 20 times as much corporate tax as all of the country’s oil and gas companies.

The article went on to describe how the industry in general, in exploiting gas reserves, did not always benefit the public, and that any ‘benefits’ are often exaggerated, and the costs minimized or ignored.

One particular area where the costs of the coal seam gas (CSG) industry exploiting gas reserves is minimized or ignored is in relation to the unaccounted for time and costs imposed on those required to host the industry in order to extract the raw product that make the Gas Co’s untaxed profits.

Many would understand that farmers and landholders are required by the government to grant access to their properties, homes, recreational areas and their businesses to multinational companies.  It is heavily professed by the industry that those hosts are ‘compensated’ for the intrusion.  However, what is not clearly understood is that until now, the costs of the time required to be invested by the hosts in order to understand the statutorily required access and its implications for them, their homes and their business are not accounted for.

Infact, the hosts (farmers and landholders) effectively volunteer hundreds of their productive business and family hours to the process of researching and understanding the incredibly complex situation that results in an enduring and progressively more vaguely prepared contract.  By volunteering this time and failing to pass this cost to them onto the gas companies, they are effectively facilitating more profit for the industry and the industry is failing to account for another significantly minimised and ignored cost.

In my business in consulting to landholders impacted by this industry, I have calculated the average time invested by a landholder in just the initial engagement with the industry prior to any formal CCA negotiation, as a minimum cost of $6000.  I have also started a further study relating to the ongoing costs on the landholder’s time to monitor and manage the day to day relationship which may last upwards of 20 years.

While gas companies may argue that often in CCA contracts they provide a nominal amount relating to ‘landholders costs’, the truth of the matter is they often attempt to firstly cap this amount and then further, roll that cost into other fees associated with the preparation of the contract.  This fails to acknowledge the many, many hours spent by the individual farmer and landholder in considering and preparing to deal with the Goliath.

Effectively at any CCA negotiation, and at the many many times the farmer or landholder are required to engage with the gas companies leading up to the signing of the CCA and then managing their day to day impacts, the farmer or landholder are infact the only people at the table who are not getting paid.

In researching this issue, I was able to identify that the State Government and the Gas industry had considered this issue, via the Land access Implementation Committee Report  30 August 2013 but the State Government bowed to the Gas Industry who insisted that if the government legislated that landholders time was to be paid for, the landholders would infact RORT the system.  Further the state government decided to let the relationship between the gas companies and the landholders to evolve in their own way.  This only acknowledgement since then has been in the Gas Fields Commission producing a small footnote in their “Gas Guide” that if necessary, landholders can value their time at $40/hr.  Another not so subtle attempt to cap the expenses for the gas companies and ignore the real costs to the landholder.  This rate in no way represents the value of a single farmer’s time, let alone the value of the time for what is often a partnership or family business.

CSG wells across farmer land parcels close to Chinchilla

From Qld Globe, this image shows the red dots (CSG Wells) and blue lines (CSG pipelines) across the yellow outlined parcels of farming land. Imagine the number of productive hours that each farmer dedicates to understanding the impact and then the day to day management of the industry on their property.

I have been working with several farmers recently in advocating on their behalf with gas companies to engage with the landholders on a month to month business to business basis.  The overwhelming response from the gas companies has been to firstly ignore the farmer’s request, then to ultimately assert their legal right to access the resource and that there was no statutory requirement for them to meet this cost (mind you, there is no statutory requirement for them not to, and by the way, why shouldn’t they?).

In addition, the companies tried to suggest that once a CCA had been negotiated, this cost could be negotiated into the settlement and paid at that time.  Of course this position as usual fails to consider the drain on the already stretched resources of the landholders and farmers, uses payment of their time as an inducement to sign a contract and to do so more promptly, leaves the recognition of the farmer’s time as a non starting issue, makes the farmer less likely to be able to invest the time necessary to ensure that all of the implications are considered and they are in the best position possible in the future when there is a dispute (which of course will cost the farmer and landholder even more time and resources to identify, communicate, prove and follow up, not just with the company but the many state government departments  necessary in order to get anything that remotely looks like enforcement).

As I have identified in my recently published paper, there is a massive gap between the farmers required to host unconventional gas and the lawyer they need to negotiate a contract with.  Farmers need to not be told who they can consult and they need to be able to access other experts who can help them identify the long term needs of their business when it is required to host another. If the government will not expand the statutory obligation for the companies to pay for reasonable and necessary costs to additional experts then at least extend the courtesy of paying for the farmer’s time so there is some cash flow to consult the experts they choose.