Moreton Resources Ltd and Innovation and Science Australia (Taxation)
[2018] AATA 3378
•10 September 2018
Moreton Resources Ltd and Innovation and Science Australia (Taxation) [2018] AATA 3378 (10 September 2018)
Division:General Division
File Number: 2016/0604
Re:Moreton Resources Ltd
APPLICANT
AndInnovation and Science Australia
RESPONDENT
Decision
Tribunal:Deputy President S A Forgie
Date:10 September 2018
Place:Melbourne
The Tribunal decides to:
affirm the decision of the respondent dated 21 December 2015 confirming its decision dated 21 August 2015 that activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of the Income Tax Assessment Act 1997.
.................[sgd].......................................................
Deputy President S A Forgie
TAXATION – RESEARCH AND DEVELOPMENT TAX INCENTIVE – underground coal gasification pilot project - whether R&D activities – decision affirmed
Legislation
A New Tax System (Goods and Services Tax) Act 1999
Acts Interpretation Act 1901 s 23(b)
Corporations Act 2001 s 249D
Environmental Protection Act 1994 (Qld) ss 7, 11, 146(1), 146(2), 147, 147(1), 147(2), 148, 148(1)(c), 148(3) 148(4), 149, 154(2), 155, 156, 187, 188, 193, 193(2), 193(3)(b), 194(2)(b), 358, 360(1)(c), 360(2), 361, 361(1), 361(2), 426, 430, 430(2) and 430(3)
Environmental Protection (Greentape Reduction) and Other Legislation Amendment Act 2012
Income Tax Assessment Act 1997 ss 355-5, 355-5(2), 355-20, 355-25, 355-25(1), 355‑25(1)(a), 355-25(1)(a )(i); 355-25(1)(a )(ii), 355-25(1)(b), 355-25(1)(f), 355-25(2), 355‑25(2)(f), 355-30, 355-30(2), 355-30(2)(a), 355-35(1)(a), 355-100(1), 355-100(2), 355‑205, 355-205(1) and 995-1(1)
Income Tax Assessment Act 1936 ss 73B, 73B(1), 73B(1)(a) and 73B(2C)
Industry Research and Development Act 1986 ss 3, 4(1), 27A, 27A(1), 27A(1)(a), 27A(1)(b), 27A(3)(a), 27A(3)(b), 27B, 27B(1), 27B(2), 27C, 27D, 27D(c), 27F, 27F(2), 27F(3), 27F(4), 27J, 27J(1), 27J(1)(a), 27J(1)(c), 27J(1)(c)(i) to (iv), 27J(1)(d), 27J(2), 27K(2), 27M, 27M(1), 28A, 28A(1), 32A, 32B, 32J and 39J
Industry Research and Development Decision‑making Principles 2011
Land Access Code 2010
Mineral Resources Act 1989 (Qld) ss 186 and 208(3)
Petroleum and Gas (Production and Safety) Act 2004
Petroleum and Gas (Production and Safety) Regulation 2004
Tax Laws Amendment (Research and Development) Bill 2010
Taxation Administration Act 1953 s 14ZZK(b)(i)
Taxation Laws Amendment Act (No 3) 1996 s 3
Tax Laws Amendment (Research and Development) Act 2011
Cases
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; 73 ATR 256
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1; (1983) 44 ALR 607; 70 FLR 447; 83 ATC 4015; 13 ATR 825
Blue Metal Industries Limited v Dilley (1969) 117 CLR 651; [1970] AC 827; [1969] 3 All ER 437; [1969] 3 WLR 357
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Cabell v Markham (1945) 148 F(2d) 737
CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384; (1997) 141 ALR 618
Cougar Energy Limited v Debbie Best, Chief Executive under the Environmental Protection Act 1994 [2011] QPEC 150; [2012] QPELR 370
Deal v Father Pius Kodakkathanath [2016] HCA 31; (2016) 258 CLR 281; 334 ALR 37
Industry Research and Development Board v Coal & Allied Operations Pty Ltd [2000] FCA 979; (2000) 101 FCR 405; 2000 ATC 4477; (2000) 44 ATR 541
Kia Australia Pty Limited v Chief Executive Officer of Customs (1998) 86 FCR 473
Krew v Federal Commissioner of Taxation (1971) 71 ATC 4213; 2 ATR 230
Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329; (2010) 76 ATR 19
McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 79 ATC 4111; 9 ATR 61
Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217; 79 ATC 4133; 9 ATR 638
Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85; 149 ALR 623
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355; (1998) 153 ALR 490
Re Applicant and Industry Research and Development Board [1999] AATA 468; (1999) 55 ALD 784; (1999) 99 ATC 179; (1999) 42 ATR 1116
Re Babinda Co-operative Sugar Milling Association Ltd and Australian Industrial Research and Development Incentives Board; [1980] AATA 38; (1980) 2 ALD 851
Re DBTL and Innovation Australia; [2013] AATA 573; (2013) 137 ALD 88
Re JLSP and Innovation Australia [2016] AATA 23
Re RACV Sales & Marketing Pty Ltd and Innovation Australia [2012] AATA 386; (2012) 129 ALD 32; (2012) 57 AAR 268; [2012] ATC ¶10-254
Residual Assco Group Ltd v Spalvins [2000] HCA 33; (2000) 202 CLR 629; 172 ALR 366
Sea Shepherd Australia Limited v Commissioner of Taxation [2013] FCAFC 68; (2013) 212 FCR 252; 92 ATR 836
Taylor v Owners-Strata Plan No 11564 [2014] HCA 9; (2014) 253 CLR 531; 306 ALR 547
Secondary Materials
Chambers 21st Century Dictionary, 1999, reprinted 2004 (Chambers)
Explanatory Memorandum to the IRD Amendment Bill
Explanatory Memorandum to the R&D Amendment Bill
Explanatory Memorandum to the Tax Laws Amendment (Research and Development) Bill 2010
Macquarie Dictionary; 5th edition, 2009, Macquarie Dictionary Publishers Pty Ltd, Sydney, Australia
Shorter Oxford English Dictionary, 5th Edition, 2002, Oxford University Press
Statutory Interpretation in Australia; 8th edition, DC Pearce and RS Geddes, LexisNexis Butterworths, Sydney 2014
Stroud’s Judicial Dictionary of Words and Phrases, Seventh Edition, 2006, Sweet & Maxwell, London
REASONS FOR DECISION
Deputy President S A Forgie
Subject to certain conditions, an R&D Tax Incentive is available to an entity if it is an “R&D entity” and conducts “R&D activities” in respect of which it is registered under the Industry Research and Development Act 1986 (IRD Act). The incentive takes the form of a refundable or non-refundable tax offset depending on the annual turnover of the entity. Innovation and Science Australia (ISA), which is also referred to as the “Board” under the IRD Act and was previously known as “Innovation Australia”,[1] is responsible for the registration of activities and for determining whether activities are R&D activities. The Commissioner of Taxation (Commissioner) is responsible for determining whether an entity is an R&D entity entitled to apply for an R&D Tax Incentive and for determining the expenditure incurred and claimed.
[1] Reference will be to the ISA or to the Board in these reasons for decision.
Moreton Resources Ltd (Moreton Resources) is an “R&D entity” as it is a body incorporated under an Australian law.[2] Until 16 February 2007, it had been known as Pinnacle VRB Limited and, until 11 October 2013 as Cougar Energy Ltd (Cougar). I will refer to it as “Moreton Resources” regardless of its precise name at the time. It applied to ISA to be registered under s 27A of the IRD Act in respect of some of its activities as R&D activities for each of the income years ending 30 June 2012, 2013 and 2014 (2012, 2013 and 2014 years). The ISA initially registered Moreton Resources. It subsequently decided that the activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of the Income Tax Assessment Act 1997 (ITAA97). ISA made that decision on 21 August 2015 and confirmed it on 21 December 2015.
[2] IRD Act; s 4(1) and Income Tax Assessment Act 1997 (ITAA97); s 355-35(1)(a)
I have decided to affirm the decision dated 21 December 2015 confirming the decision dated 21 August 2015 that activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of ITAA97.
LEGISLATIVE FRAMEWORK
Object of Division 355 of ITAA97: Research and Development
Division 355 of the ITAA97 is entitled “Research and Development”. Its object is set out in s 355-5:
“(1) The object of this Division is to encourage industry to conduct research and development activities that might otherwise not be conducted because of an uncertain return from the activities, in cases where the knowledge gained is likely to benefit the wider Australian economy.
(2)This object is to be achieved by providing a tax incentive for industry to conduct, in a scientific way, experimental activities for the purpose of generating new knowledge or information in either a general or applied form (including new knowledge in the form of new or improved materials, products, devices, processes or services).”
Tax incentive takes the form of a tax offset
The tax incentive, to which s 355-5(2) refers is provided in the form of a tax offset. Generally speaking,[3] provided notional deductions, which are the subject of s 355-205, are at least $20,000:
[3] An exception to the $20,000 threshold is provide for in s 355-100(2) of ITAA97.
“An *R&D entity is entitled to a *tax offset for an income year equal to the percentage, set out in the table, of the total of the amounts (if any) that the entity can deduct for the income year under any or all of the following provisions:
(a) section 355-205 (R&D expenditure);
(b) section 355-305 (decline in value of R&D assets);
(c) section 355-315 (balancing adjustment for R&D assets);
(d) section 355-480 (earlier year associate R&D expenditure);
(e) section 355-520 (decline in value of R&D partnership assets);
(f) section 355-525 (balancing adjustment for R&D partnership assets);
(g) section 355-580 (CRC contributions).
…”[4]
[4] ITAA97; s 355-100(1)
Section 355-205 sets out when notional deductions for R&D expenditure occurs. In particular, s 355-205(1) provides:
“An R&D entity can deduct for an income year (the present year) expenditure it incurs during that year to the extent that the expenditure:
(a) is incurred on one or more *R&D activities:
(i)for which the R&D entity is registered under section 27A of the Industry Research and Development Act 1986 for an income year; and
(ii)that are activities to which section 355-210 (conditions for R&D activities) applies; and
(b)if the expenditure is incurred to the R&D entity’s *associate – is paid to that associate during the present year.
…”
What are R&D activities?
The expression “R&D activities” is defined in s 355-20 of ITAA97.[5] It separates “core R&D activities” from “supporting R&D activities”.
[5] The definition was added by the Tax Laws Amendment (Research and Development) Act 2011; Act No. 93 of 2011 (IRD Amendment Act); s 3, Schedule 1, Item 1 with effect from 8 September 2011; s 2, Item 6. It replaced the definitions that had formerly been included in s 73B of the Income Tax Assessment Act 1936 (ITAA36), which was repealed with effect from the same day: IRD Amendment Act; s 3, Schedule 3, Item 44. I note in particular the definition of the expression “research and development activities” in ITAA36 to mean:
“(a) systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purpose of:
(i)acquiring new knowledge (whether or not that knowledge will have a specific practical application); or
(ii)creating new or improved materials, products, devices, processes or services; or
(b)other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a).”
A.Core R&D activities
Section 355-25(1) was introduced with effect from 8 September 2011 by the IRD Amendment Act.[6] It provides:
[6] IRD Amendment Act; s 3 and Schedule 1, Item 1
“Core R&D activities are experimental activities:
(a)whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
(i)is based on principles of established science; and
(ii)proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
(b)that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).”
Section 355-25(1) is qualified by s 355-25(2):
“However, none of the following activities are core R&D activities:
(a)market research, market testing or market development, or sales promotion (including consumer surveys);
(b)prospecting, exploring or drilling for minerals or *petroleum for the purposes of one or more of the following:
(i)discovering deposits;
(ii)determining more precisely the location of deposits;
(iii)determining the size or quality of deposits;
(c)management studies or efficiency surveys;
(d)research in social sciences, arts or humanities;
(e)commercial, legal and administrative aspects of patenting, licensing or other activities;
(f)activities associated with complying with statutory requirements or standards, including one or more of the following:
(i)maintaining national standards;
(ii)calibrating secondary standards;
(iii)routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things;
(g)any activity related to the reproduction of a commercial product or process:
(i)by a physical examination of an existing system; or
(ii)from plans, blueprints, detailed specifications or publically available information;
(h)developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions):
(i)the entity (the developer) for which software is developed, modified or customised;
(ii)the entity *connected with the developer;
(iii)an *affiliate of the developer, or an entity of which the developer is an affiliate.”
B. Supporting R&D activities
Section 355-30 provides:
“(1) Supporting R&D activities are activities directly related to *core R&D activities.
(2)However, if an activity:
(a)is an activity referred to in subsection 355-25(2); or
(b) produces goods or services; or
(c)is directly related to producing goods or services;
the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting *core R&D activities”.
Registration of an R&D entity in relation to R&D activities under the IRD Act
A. Application under s 27D to register under s 27A
The IRD Act provides for registration of an R&D entity in relation to R&D activities and for registration of R&D activities themselves. An R&D entity may apply to register activities in respect of an income year. It must do so in accordance with s 27D and the application must be made within ten months after the end of the income year or within such further period allowed by the Board in accordance with the decision-making principles.[7]
[7] IRD Act; s 27D(c). “Decision-making principles”, with which the Board must comply, may be made by the Minister under s 32A. They are set out in the Industry Research and Development Decision-making Principles 2011.
When an R&D entity applies to the Board under s 27A of the IRD Act, the Board must decide whether to register, or refuse to register, it for either or both of two types of activities for an income year. One of the types comprises one or more activities specified as core R&D activities conducted during the income year. The other comprises one or more activities specified as supporting R&D activities conducted during the income year.[8]
[8] IRD Act; s 27A(1)(a) and (b)
Any finding that the Board makes must be consistent with any that are already in force under s 27B(1) in relation to an application for registration of an R&D entity for R&D activities and any finding under s 28A regarding advance findings about the nature of activities in relation to the R&D entity. Section 27B(1) relates to an activity, or part of an activity, conducted during the income year. The Board may make a finding as to whether or not all or part of an activity mentioned in the application was a core R&D activity conducted during the income year and, if not, whether or not it was a supporting R&D activity conducted during the income year in relation to one or more specified core R&D activities for which the entity has been or could be registered under s 27A for an income year. Those findings are made under s 27B(1) and the Board may specify in the finding, the time to which it relates.[9] Findings may not be inconsistent with earlier findings.[10]
[9] IRD Act; s 27B(2)
[10] IRD Act; s 32B. Section 32B refers not only to earlier findings made under s 32J but also to any advance findings that an R&D entity has requested under s 28A. Section 28A(1) is concerned with advanced findings that the Board may make about an activity on an application by an R&D entity. The Board may make a finding that all or part of the activity is a core R&D activity or a supporting R&D activity in relation to one or more specified core R&D activities for which the entity has been or could be registered under s 27A for an income year; a finding to the effect all or part of the activity is neither a core R&D activity or a supporting R&D activity; or, if justified in accordance with the decision-making processes, refuse to make a finding about all or part of the activity. The Board must not make a finding under 28A(1) about an activity unless it is satisfied that the activity:
For each activity that is registered as a supporting R&D activity for an R&D entity for an income year, the registration must also specify one or more activities as the corresponding core R&D activities.[11] If any of those activities specified under s 27A(1)(a) as a core R&D activity conducted during the income year, the registration must also specify each income year for which that core R&D activity was registered, or is proposed to be registered, for the R&D entity.[12]
[11] IRD Act; s 27A(3)(a)
[12] IRD Act; s 27A(3)(b)
Section 27B provides that the Board may make one or more findings when considering an R&D entity’s application for the purposes of s 27A(1) and give notice of its decision under s 27C in relation to the application. In practice, the Board adopts a “self-assessment” system whereby, in the first instance, it registers R&D entities under s 27D in respect of specified activities as a matter of course. It does not necessarily consider whether activities specified in an application satisfy the definition of “R&D activities”. Registration does not, of itself, render the activities described in the registration eligible as core or supporting R&D activities.[13]
[13] Respondent’s Written Opening Submissions at [33]
B.Examination of registration by the Board
Under s 27F of the IRD Act, the Board may conduct one or more examinations of all or part of the R&D entity’s registration under s 27A for an income year. It may do so on its own initiative,[14] at the request of the Commissioner or if the R&D entity has applied for one or more findings under s 27J(1).[15] If the examination is undertaken on the R&D entity’s application, the Board must make one or more of the findings under s 27J(1) about the registration or, if justified in accordance with the decision-making principles, refuse to make a finding under that provision.[16]
[14] IRD Act; s 27F(2)
[15] IRD Act; s 27F(3)
[16] IRD Act; s 27F(4)
Section 27J(1) provides:
“The Board may make one or more findings to the following effect about an R&D entity’s registration under section 27A for an income year (the registration year):
(a)that all or part of a registered activity was a core R&D activity conducted during the registration year;
(b)that all or part of a registered activity was not an activity of a kind covered by paragraph (a);
(c)that all or part of a registered activity was a supporting R&D activity conducted during the registration year and in relation to:
(i)one or more specified registered core R&D activities; or
(ii)one or more specified core R&D activities for which the entity has been registered in an earlier income year; or
(iii)one or more specified core R&D activities yet to be conducted for which the entity could be registered in the registration year if those activities were conducted during the registration year; or
(iv)several specified core R&D activities, each covered by subparagraph (i), (ii) or (iii);
(d)that all or part of a registered activity was not an activity of a kind covered by paragraph (c).
Note 1:A finding is reviewable (see Division 5).
Note 2:The Board may make a finding under paragraph (b) if, for example, the Board has sufficient information to make a finding under paragraph (a). Similarly, the Board could make a finding under paragraph (d) if it has sufficient information to make a finding under paragraph (c).”
If the Board makes a finding under s 27J(1) in relation to an R&D entity’s registration, it may specify in the finding the time to which that finding relates.[17] As s 27J is subject to s 32B, the findings that the Board makes cannot be inconsistent with earlier findings made by the Board.
[17] IRD Act; s 27J(2)
Under s 27M[18] the Board may, by notice in writing to the R&D entity, vary the entity’s registration under s 27A for an income year if that entity applies for the variation, the variation is consistent with any findings made by the Board under Part III of the IRD Act and making the variation is justified in accordance with decision-making principles.
[18] IRD Act; s 27M(1)
Reconciliation of Part III of IRD Act with previous system of registration of R&D activities
Part III of the IRD Act, including ss 27A and 27J, was introduced into that legislation by the IRD Amendment Act with effect from 8 September 2011.[19] Before their introduction, R&D activities were registered under s 39J, which was repealed with effect from 8 September 2011.[20] Item 16 of Schedule 4 of the IRD Amendment Act included transitional provisions so that references to registration under the current s 27A would include a reference to registration under the repealed s 39J in the following provisions:
“(a) subparagraph 27A(3)(b)(i);
(b) subparagraph 27B(1)(c)(ii);
(c) subparagraph 27J(1)(c)(ii);
(d) paragraph 28A(1)(b);
(e) paragraph 28D(2)(b).
Note: For each of these provisions, the R&D activity registered under former section 39J will need to be a core R&D activity within the meaning of the amendments made by this Act.”
[19] IRD Amendment Act; s 3, Schedule 2, Item 1 and s 2, Item 2
[20] IRD Amendment Act; Schedule 2, Item 34
The transitional provisions mean that, if a finding was made under former s 39J that an R&D activity was a core R&D activity within the meaning of s 355-25 of ITAA97, a finding may be made under s 27J that an activity conducted in a registration year is a supporting R&D activity to that core R&D activity.
THE REGISTERED ACTIVITIES
Moreton Resources applied to be registered for activities detailed under the project names shown in the table in each of the income years 2012, 2013 and 2014.
Income Year
Date of application
for registrationActivities for which application for registration made
Date of registration as R&D activities
2012
27 November 2012
Project 1: Kingaroy[21]
Project 2: Wandoan[22]
29 November 2012[23]
2013
1 October 2013
Project 1: Kingaroy[24]
Project 2: Wandoan[25]
3 October 2013[26]
2013
30 April 2014
(revised application to replace 2013 application[27])Project 1: Kingaroy[28]
Project 2: Wandoan[29]
11 June 2014
(Notification of ISA’s approval under s 27M of request to amend registration)[30]2014
29 April 2015
Development of a conceptual water model and rehabilitation plan following UCG pilot plant experimentation[31]
8 May 2015[32]
[21] T documents; T85 at 1825-1828
[22] T documents; T85 at 1828-1830
[23] T documents; T86 at 1848
[24] T documents; T96 at 2195-2197
[25] T documents; T85 at 2198-2200
[26] T documents; T97 at 2204
[27] T documents; T111 at 2327
[28] T documents; T106 at 2279-2282
[29] T documents; T106 at 2282-2284
[30] T documents; T118
[31] T documents; T136 at 2663-2666
[32] T documents; T137 at 2670-2671
In each case, the letter written by ISA to Moreton Resources advising that it had approved the registration of R&D activities detailed in each application. The letter also advised that:
“Registration of activities does not, by itself, render the activities described in this registration as eligible core or supporting R&D activities, nor is it an indication of compliance with the requirements of the R&D Tax Incentive. Determining the eligibility of activities under the R&D Tax Incentive is the responsibility of the R&D entity, under self-assessment.”[33]
[33] T documents; T137 at 2670-2671 (example)
The issues in this case relate to the 2012, 2013 and 2014. It was conceded by Moreton Resources,[34] and agreed by Innovation Australia, that the following activities had either been conducted in an earlier year or there had been insufficient evidence to demonstrate that it had been conducted during the 2012 year. They are:
[34] Applicant’s Written Submissions at [46] and Annexure B and see also Respondent’s Amended Statement of Facts, Issues and Contentions at [39] and [53]
Year
Activity
Reason
2012
Investigation of the cause of the blockage in the P4 extraction well
Conducted prior to the 2012 year.
Gas production at the plant had ceased on 20 March 2010.
Investigations were carried out to determine whether the well could be rehabilitated or blocked off completely. It was determined that the P4 casing could not be replaced and the well was irretrievable. Research was required to determine the best way to seal the well to prevent future gas escape. A monitoring bore was drilled for that purpose.
Moreton Resources had not provided sufficient evidence to demonstrate that “research” was conducted during the 2012 year to determine the best way to seal P4 to prevent future gas escape.
Testing and evaluation of gas production and plant performance to test viability of the coal seam used.
Moreton Resources does not concede testing and evaluation of gas production and plant performance to ensure environmental standards can be met.
2013
Investigation of the cause of the blockages in the extraction well to understand how the process failed.
The investigation was undertaken before the 2013 year. It could not have occurred in the 2013 year as the plant never produced gas after June 2010.
Testing and evaluation of gas production and performance of the pilot plant to understand the success of the gasification process.
It could not have occurred in the 2013 year as the plant never produced gas after June 2010.
BACKGROUND
There was no disagreement between the parties as to the facts forming the background to the issues in dispute between the parties. I will set them out together with references to the material supporting them in this passage of my reasons.
Overseas development of UCG technology
Mr Len Walker, who was then the Managing Director of Linc Energy NL (Linc Energy), published a paper in the October 1999 edition of The Australian Coal Review entitled “Underground Coal Gasification: A Clean Coal Technology Ready for Development”. In that paper, Mr Walker outlined the process and referred to its being used on a commercial scale in Uzbekistan. It had not been adopted in the West due to a conjunction of factors, which he outlined. He thought that there was opportunity for the technology to be “rediscovered” and brought into commercial operation. UCG technology development had, Mr Walker wrote, been strongly advocated for in Australia by the late Professor Ian Stewart of the University of Newcastle. Professor Stewart had concluded that UCG was an established technology that could potentially provide Australia with the lowest cost of synthetic fuels. The South Australian Department of Mines and Energy had conducted a feasibility study at Leigh Creek in 1983 but had not pursued it. In Mr Walker’s view, the year 2000 and beyond would see a new set of industry factors that would suggest that it was time for taking the final step with the technology. Privatisation of the power industry and pricing were two of the factors and sources of coal another. At the time, Linc Energy was engaged in a commercialisation programme of what Mr Walker described as an “old technology” whose time for acceptance might have come.[35] Mr Walker published and delivered papers on the subject.[36]
[35] T documents; T4 at 64-66
[36] T documents; T5 at 67-92
Moreton Resource’s assessment of sites for UCG technology
In or about 2006, Moreton Resources started to access Australian coal deposits that might be suitable to exploit using underground coal gasification (UCG) technology. In very general terms, UCG is a process involving the in-situ conversion of coal into a gas by means of a combustion process. That is achieved by igniting a coal seam and injecting oxidants, gasifying the coal and bringing the gas to the surface through drilled production wells. The gas is then used as a fuel for power generation, industrial heating and the manufacture of petrochemical products and other chemicals. In or about March 2007, Moreton Resources announced that it had identified a coal resource near Kingaroy and some 160km northwest of Brisbane in Queensland (Kingaroy site) that it considered suitable to support a potential UCG project.
Moreton Resources went on to plan and develop a pilot UCG project to test the viability of using UCG technology at the Kingaroy site to produce UCG synthesis gas (syngas) that is then cleaned and stabilised for production of electricity using gas turbines. In order to carry out a pilot UCG project, Moreton Resources had to obtain a Mineral Development Licence (MDL) under the Mineral Resources Act 1989 (Qld) (MR Act) and an Environmental Authority (EA) under the Environmental Protection Act 1994 (Qld) (EP Act).
Planning and developing a pilot UCG project
A. Environmental Authority
Acting under s 193 of the EP Act as it was then drafted, the Environmental Protection Agency (EPA) issued an EA for a non-code compliant Level 1 Mining Project (Permit No. MIN100656507) to Moreton Resources as the Principal Holder and to SE Qld Energy Pty Ltd (SEQEPL) as the Joint Holder in respect of the Kingaroy site on 30 April 2008.[37] It took effect from the date on which the mining tenement, MDL385, was granted to Moreton Resources and SEQPL.
[37] Referred to when EA amended on 24 October 2008: T documents; T15 at 355
B.Kingaroy Pilot UCG Project Front End Engineering Definition: FEED Document
Moreton Resources released a document named the “Kingaroy Pilot UCG Project Front End Engineering Definition” on 27 May 2008 (FEED document). The primary purpose of the FEED document was to define its requirements of the Pilot Facility with the main focus being on hardware and as the prime reference for cost estimates.
The FEED document explained that:
“To date there are no UCG facilities of this scale in the world, and none utilising a gas turbine to make electricity from the UCG syngas. Once the pilot facility has achieved its aims, the process will be scaled up. Experience with the pilot scale plant and other factors will determine the size and configuration of the first commercial scale gas turbine installed. Options include a nominal 39MW open cycle turbine, a nominal 115MW open cycle turbine or a nominal 176MW combined cycle turbine. Further turbines would be subsequently added as confidence grows in the process.
This FEED document is for the Pilot Facility only.
Purpose of the Pilot Facility
The purpose of the pilot facility is to demonstrate:
·that the coal deposit selected produces a UCG gas that can be used to power a commercially available gas turbine
·that the UCG gas can be cleaned up to the requirements of the gas turbine
·that the process con [sic] be operated in a safe and environmentally responsible manner
As part of the operation of the pilot facility a series of trials with extensive monitoring will be carried out on all aspects of the technology associated with the process, particularly the environmental aspects.
Once the pilot facility objectives have been achieved and confidence in the UCG process has been gained, a larger scale plant can be built.”[38]
[38] T documents; T12 at 286
Two options had been considered for the pilot facility operating mode. One was to produce electricity using gas engines fed by UCG gas from the pilot scale facility. That option had been ruled out when Moreton Resource’s investigations and its discussions with Ergon Electricity (Ergon), which was the electricity distributor for the area, identified capital costs, delivery time and technical problems as issues. That left the second option, which was to flare the UCG gas produced at the pilot scale. Having chosen that option, Moreton Resources:
“… proposed to operate the pilot facility for twelve months collecting the operating data and carrying out technical trials necessary to be confident that a power plant could be successfully operated using UCG syngas as a feed. Following the twelve month period, a shutdown process (nominally six months) will be undertaken to halt the process and restore the site.
Preliminary Trial Program
There is a range of activities, trials and process monitoring required to achieve the pilot facility’s objectives. They include:
·operating and managing UCG process in standard production mode over a range of injection flows and system backpressures
·linking in new wells
·determining optimum well spacing
·measure the composition of syngas produced for a range of gasifier operating regimes
·measure the composition of the syngas after gas cleanup (to ensure it is suitable for a commercially available gas turbine) Potentially trialling different packing types, depths, tower diameters and liquor rates. Potentially trial different Venturi Scrubber designs and liquor rates.
·establish vapour liquid equilibrium data for contaminants to be scrubbed from the syngas
·establish height of a cooling transfer unit for the scrubber packing
·trial different scrubber cooling rates to establish the optimum condensable vapour removal rate
·measure the composition of the co-product taroil produced and monitor how its composition changes with production rate
·measure the composition of the water produced and monitor how its composition changes with production rate
·trial alternate water treatment technologies
·monitor the impact on air quality of the flared gases
·monitor the impact on groundwater quality
·monitor the impact on groundwater level
·monitor for ground subsidence
·assess process controllability of the UCG wells and gas separation operation
·assess materials of construction for larger plant design
·monitor pipework and equipment fouling
· assess instrumentation in the respective services.”[39]
[39] T documents; T12 at 294-295
C. Kingaroy Pilot Gasification Plant Project Execution Plan
On 25 September 2008, Moreton Resources issued a document entitled “Kingaroy Pilot Gasification Plant Project Execution Plan” (PEP). The document outlined the project noting that the planned development of the Kingaroy site had resulted from the company’s experience gained from the pilot burn and project plan proposed at a site at Chinchilla in Queensland. It noted that synthetic gas produced from UCG can be utilised for a range of uses just as surface gasification processes can be. They include the manufacture of transport fuels, petrochemicals and use in a high efficiency combined cycled gas turbines. Moreton Resources rejected any proposition that it should produce UCG for purposes such as these on the basis that:
“… Whilst all of these processes are technical[ly] feasible, the technical and financial risks associated with the manufacture of transport fuels and petrochemicals from synthesis gas are high. They require sophisticated gas clean up and conversion technology which is highly capital intensive and would require major process development.
Conditioning UCG gas to the extent required for feeding to a gas turbine is more straightforward. Major gas turbine suppliers have vast experience of running turbines on gas from surface gasifiers. Solids need to be removed from the gas along with some of the condensable vapours and water. This is well established technology and can be done at modest capital cost.
Before investment in electrical generating export capability is made, a pilot facility is recommended. Operation of the facility would demonstrate:
·that the coal deposit selected produces a UCG gas that can be used to power a commercially available gas turbine
·that the UCG gas can be cleaned up to the requirements of the gas turbine
·that the process can be operated in a safe and environmentally responsible manner
This UCG gas produced at the pilot scale could be flared or used to produce electricity in gas engines. Producing electricity using gas engines fed by UCG gas from the pilot scale facility has been ruled out. Investigations highlighted capital cost and delivery time as issues. On this basis, the gas produced at the pilot scale will be flared.”[40]
[40] Statement of Mr Melik; Exhibit E; Annexure VM-3 at 104
D. Geological and Geotechnical Aspects of the UCG process
Existing research had demonstrated the importance of the proper location of wells and inclination, underreaming, reservoir management as some of the methods that had been found to exist to reduce the occurrence of casing shear. Casing shear usually arises because of displacement of the rock strata along bedding planes or more steeply inclined fault planes. Displacement is a rock shear. Rock shear is triggered by stress concentrations generated by volume changes resulting from production or injection activity. Volume changes may arise from pressure changes, temperature changes or solids movement. Changes in stress and pressure may be induced by typical petroleum-recovery activities such as depletion, injection and heating. Rock shears are a cause of casing impairment, which itself leads to a loss of pressure integrity, pinching of production tubing or, when the distortion of the wellbore is large, an inability to lower workover tools.[41]
[41] Statement of Mr Melik; Exhibit E; Annexure VM-25 at 517
Case shearing and rock shearing were explained in a paper entitled “Casing Shear: Causes, Cases, Cures” written by Maurice B Dussault et al and published in June 2001 in SPE Drilling & Completion at 98. The authors concluded:
“ Reducing the incidence and rate of casing impairment through shear can be achieved through a number of tactics. Favored ones include avoidance of the most troublesome regions, increasing the compliance of the casing-wellbore system through susceptible horizons, and altering the process to reduce the magnitude of shear slip. In some cases, stronger casing may help, but only in those cases where the strata are exceptionally weak and tend to deform by general plastic flow. Geomechanical modeling is necessary to quantify all of these approaches.
Finally, the vital role of monitoring in the design process and reservoir stress management must be revisited. Monitoring of data allows location of slip zones as well as assessment of direction of movement, rate, and magnitude of slip. … Deformation data allow models to be calibrated, increasing their utility as management tools.”[42]
[42] Statement of Mr Melik; Exhibit E; Annexure VM-25 at 525
E.Amendment of the Environmental Authority
The EA was subsequently amended on 24 October 2008 (2008 Amended EA) and again took effect from the date on which MDL385 was granted.[43] The 2008 Amended EA set out the scope of Approved Activities. Under that scope, the gas production area associated with the pilot UCG plant was, among other restrictions, limited to one hectare, activities had to be located and designed in such a way that the environmental authority holder was able to comply with the conditions of the 2008 Amended EA and the duration of the UCG trial could not exceed three years.[44]
[43] T documents; T15 at 355 and see also T18 at 386
[44] Amended EA at (A8-1) to (A8-3) and see T documents; T15 at 357
The 2008 Amended EA went on to set out a number of other conditions under broad headings representing the EPA’s particular interests. Of relevance in this case are those relating to:
(1)Schedule A: General
“(A1-1) In carrying out the activities to which this approval relates, you must take all reasonable and practicable measures to prevent and/or to minimise the likelihood of environmental harm being caused. Any activity that, if carried out incompetently or negligently may cause environmental harm, in a manner that could have been prevented, shall be carried out in a proper manner in accordance with the conditions of this approval.
…
(A8-2)Activities must be located and designed such that the environmental authority holder is able to comply with the conditions of this environmental authority.
(A8-3)The duration of the underground coal gasification trial (excluding activities associated with rehabilitation or ongoing monitoring) must not exceed three years.
(A8-4)The authority holder is authorised to gasify up to 20,000 tonnes of coal under this approval.
(A8-5)The coal source for underground coal gasification must be located at a minimum depth of 100 metres below the ground level.”[45]
[45] T documents; T15 at 357
(2) Schedule B: Air
“(B1-1) The release of dust or particulate matter or both resulting from the approved activities must not cause an environmental nuisance at any nuisance sensitive place.
…
(B2-1)Notwithstanding any other condition of this approval, the release of noxious or offensive odour(s) or any other noxious or offensive airborne contaminant(s) resulting from the approved activities must not cause an environmental nuisance at any nuisance sensitive place.
…
(B4-1)Except where it is being trialled for use in a small (less than 200kW) reciprocating generator, all Syngas produced by the underground coal gasification process must be flared following treatment through a gas/liquid separation plant, or be otherwise treated or contained, to ensure compliance with the conditions of this authority.”[46]
[46] T documents; T15 at 359
…
(B5)Monitoring to Characterise Air Emissions
(B6)Concentration of Contaminants Released to the Atmosphere
(3)Schedule C: Water
(C1-1)“With the exception of releases of stormwater in accordance with Condition (C4-1), contaminants must not be released to any waters (including groundwater outside the underground coal gasification working cavity) or the bed and banks of any waters.”
(C2-1)“The holder of this authority must implement a Water Management System to ensure compliance with Condition (C1-1) and other relevant conditions of this authority.
The Water Management System must include, but may not be limited to, measures to:
a)prevent incident stormwater and stormwater run-off from contacting general refuse and regulated wastes at the site; and
b)divert upstream run-off from disturbed areas, or areas containing wastes or contaminants; and
c)capture and manage run-off from disturbed areas.
…
(C4-1)There must be no release of stormwater runoff that has been in contact with any contaminants at the site to any waters, roadside gutter or stormwater drain, unless it complies with the following quality characteristics:
(a)the pH value must not be less than 6.5 and not more than 9.0;
(b)the concentration of dissolved oxygen must not be less than 6 milligrams per litre;
(c)the concentration of suspended solids must not exceed 50 milligrams per litre if an overflow is caused by rainfall and 30 milligrams per litre at all other times;
(d)the concentration of total dissolved solids suspended solids must not exceed 1000 milligrams per litre; and
(e)the release must not produce any slick or other visible evidence of oil or grease, contain visible floating oil, grease, scum, litter or other objectionable matter nor contain other contaminants in concentrations that adversely affects the environmental values of the receiving environment.
…
(C5-1) If the underground coal gasification plant is established within 500 metres of a watercourse, the environmental authority holder must undertake surface water monitoring within that watercourse. This monitoring must include samples collected at the locations, for the parameters and at the frequency prescribed in Schedule C Table 1.
…
Protection of Ground Water
(C10-1)Before commencing underground coal gasification, a suitably qualified person must conduct sufficient hydrogeological investigations and studies to confirm that the selected site is suitable for the proposed use, and prepare and submit a report to the administering authority summarising the findings. This investigation must include:
·The collection of baseline data regarding groundwater quality, volume and connectivity with surrounding aquifers;
·Investigation of hydraulic pressures of groundwater within and surrounding the coal seam;
·Confirmation that the layers surrounding the coal seam are sufficiently impermeable to prevent contaminants from migrating beyond the void left by the gasified coal; and
·Consideration of existing bores located within the vicinity of the site, and a risk assessment of potential impacts on any existing bores within the vicinity of the underground coal gasification.
(C10-2)The report required by Condition (C10-1) must be accompanied by a statutory declaration from the report author. This statutory declaration must:
·State his or her qualifications and experience relevant to the site investigation;
·State that he or she not knowingly included any false, misleading or incomplete information in the report;
·State that he or she has not knowingly failed to reveal any relevant information to the administering authority;
·State whether the author considers that underground coal gasification can be managed at the site such that contamination of surrounding groundwater is prevented; and
·Certify that:
-the report addresses the relevant matters for the investigation and is factually correct; and
-the opinions expressed in it are honestly and reasonably held.
(C10-3)At least two months prior to commencement of underground coal gasification a groundwater monitoring program must be developed and implemented for the site. The program must:
(a)be developed by a person possessing appropriate qualifications and experience in hydrogeology and groundwater monitoring program design, to be able to competently make recommendations about these matters;
(b)include a sufficient number of ‘bore(s) of compliance’ in locations will provide early detection of contamination from potential sources of impact (including the underground gasifier); and
(c)provide the following:
(i)representative groundwater samples from the aquifer(s); and;
(ii)sufficient sampling to characterise background groundwater quality and levels within the immediate vicinity of the underground coal gasification plant prior to the plant being established; and
(iii)sufficient spatial and temporal replication of samples to make valid conclusions about the presence or absence of contamination or other impact on groundwater down gradient of any potential source of contamination including groundwater passing the relevant bore(s) of compliance; and
(iv)contaminant trigger levels for the detection of contaminant migration from the underground coal gasification or likely material failure of the waste water contaminant system(s); and
(v)sufficient monitoring of groundwater pressure within the coal seam being gasified and adjacent aquifers to ensure that groundwater pressure within the cavity is maintained such that groundwater does not migrate from areas where the gasification is occurring.
(d)be constructed and sampled in accordance with the requirements of Australian Standard ‘AS5667.11:1998 ‘Water Quality Sampling: Guidance on Sampling Groundwaters’; and
(e)be installed, sampled and maintained by a suitably trained and experienced person; and
(f)be reviewed annually by a person possessing appropriate qualifications and experience in hydrogeology and groundwater monitoring.
(C10-4)As a minimum, groundwater must be monitored for the parameters and at the frequency stipulated in Schedule C – Table 2.
Schedule C – Table 2 Groundwater Quality Characteristics to be monitored and monitoring frequency …
(C10-5) In the event that contaminant trigger levels (as identified in the groundwater monitoring program) are exceeded, or the groundwater monitoring program detects a likely material failure of the production water containment system or migration of contaminants from the coal seam that is being used or has been gasified, the authority holder shall promptly assess and report to the administering authority on potential environmental impacts, investigation of the causes and remedial measures to be implemented.
(C10-6)On any occasion that groundwater samples are obtained the standing water levels must be measured and recorded to an accuracy of 0.01 metres relative to Australian Height Datum (AHD).
(C10-7)Groundwater levels within the vicinity of the underground coal gasification plant must be monitored and groundwater draw down fluctuations in excess of 2m per year, not resulting from the pumping of licensed bores, must be notified within 14 days to the administering authority following the completion of monitoring.
(C10-8)Groundwater monitoring must continue in accordance with the groundwater monitoring program until at least six months after the underground coal gasification process has been shut down and only when monitoring results have demonstrated that there is no contamination of groundwater resulting from residual contaminants (eg. tars) remaining underground following completion of underground coal gasification.”[47]
[47] T documents; T15 at 365-369
…
(4)Schedule D: Noise
(5)Schedule E: Waste
(6)Schedule F: Land
“(F1-1) There must be no releases of contaminants to land that may cause the land to become contaminated land.
(F2-1)The environmental authority holder must implement a monitoring program to measure surface subsidence at monthly intervals from before the gasification commences until 12 months after the gasification process ceases.
This monitoring must include at least two perpendicular transects of the proposed gasification area (and possibly more depending on the size and shape of the area) measuring elevation of permanent survey markers that are established prior to the gasification. In addition to surveyed elevations, visual inspection should occur to locate any surface cracking and steps should be taken to ensure the cracks are not a danger to human activities or wildlife or likely to cause erosion.(F3-1)At least six months prior to cessation of the underground coal gasification trial the environmental authority holder must submit to the administering authority a shut down procedure for the underground coal gasification pilot plant. This procedure must:
·detail steps that will be taken to cease combustion/gasification of coal underground;
·detail tests that will be completed during and following the shutdown process to confirm that combustion and/or pyrolysis of coal has ceased; and
·ensure that on shutdown the cavity is flushed using proven processes to ensure removal of residual pollutants.”
(F3-2)In finalising the shutdown procedure, the environmental authority holder must have due regard to any comments made by the administering authority.
(F3-3)The procedure detailed in Condition (F3-1) must be implemented immediately on cessation of the underground coal gasification trial or if otherwise requested by the administering authority.
(F4-1)Prior to commencing activities authorised by this approval, the following surveys must be undertaken for any areas to be disturbed:
i)survey of topsoil to determine its suitability for use in rehabilitation;
ii)survey of land suitability;
iii)baseline ground level surveys;
iv)survey of flora, fauna and nature conservation values; and
v)survey of cultural heritage values.
(F4-2)All areas disturbed as a result of the approved activities must be rehabilitated to a stable, non-polluting landform with a self-sustaining vegetation cover in accordance with Schedule F – Table 1, and must comply with the maximum distance between erosion control structures specified in Schedule F – Table 2.
(F4-3)Progressive rehabilitation in accordance with the conditions of this schedule must commence as soon as areas become available within the operational land.”[48]
[48] T documents; T15 at 372-373
(7)Agency interest: Dams
“(H1-1) The holder of this environmental authority must ensure that each dam is designed, constructed, operated and maintained in accordance with accepted engineering standards and is fit for the purpose for which it is intended.
…
(H1-6)The holder of this environmental authority must not abandon any dam but must decommission each dam such that ongoing environmental harm is prevented.
(H1-7)As a minimum, decommissioning must be conducted such that each dam:
(a)either:
i.has become a stable landform, that no longer contains flowable substances, or
ii.has been approved or authorised under relevant legislation for a beneficial use and is subject to legally enforceable conditions of management, or
iii.is a void authorised the administering authority to remain after decommissioning subject to legally enforceable conditions of management; and,
(b)complies with the rehabilitation requirements of this environmental authority.
…
Regulated Dams – Annual Inspection and Report
(H4-1)The holder of this environmental authority must arrange for each regulated dam to be inspected annually by a suitably qualified and experienced person, in accordance with the following conditions.
…
(H4-6) For each annual inspection, two copies of a report certified by the suitably qualified and experienced person, including any recommended actions to be taken to ensure the integrity of each regulated dam, must be provided to the administering authority by 1 December.”[49]
[49] T documents; T15 at 375-378
The word “contamination” is explained in the EP Act when it provides that:
“‘Contamination’ of the environment is the release (whether by act or omission) of a contaminant into the environment.”
A “contaminant” can be a gas, liquid or solid, an odour, an organism (whether alive or dead) and including a virus, energy (including noise, heat, radioactivity and electromagnetic radiation) or a combination of contaminants.[50]
[50] EP Act; s 11
F. Moreton Resources licenced to use relevant intellectual knowledge
On 3 November 2008, Ergo Exergy Technologies Inc (Ergo) granted a general licence to Moreton Resources to certain intellectual knowledge it had, and offered services to assist Moreton Resources to undertake research and development required to develop the technical viability of its UCG plant at the Kingaroy site.[51] Ergo had some expertise with regard to the burn process but had no intellectual property in relation to the design, development and operation of the integrated UCG power generation facility incorporating a gas processing plant and power generation using gas turbines.
[51] Statement of Mr Melik; Exhibit E; Annexure VM-18 at 290
G. GWB Engineering Pty Ltd and above ground facilities
In a letter dated 3 November 2015, GWB Engineering Pty Ltd (GWB) wrote that it had been approached by Moreton Resources to assist in the concept and detailed design of the above ground facilities at its proposed pilot UCG plant outside Kingaroy. The above ground facilities were required to treat the hot syngas and remove moisture, ash, coal particles and coal tars.
H. Queensland Government’s UCG policy
On 18 February 2009, the State Government of Queensland issued an “Underground Coal Gasification Policy” (UCG policy). A key objective of that policy had been to provide an approach allowing serious consideration to be given to the technical, environmental and commercial viability of UCG technology. With that in mind, UCG pilot projects had been given the opportunity to demonstrate UCG technology’s potential. Three projects, of which Moreton Resources’ was one, were permitted to proceed but no others. That opportunity included demonstration activities related to syngas production and energy production. Subject to deliberations on the outcomes of the UCG pilot phase, the Queensland Government would apply the strictest environmental standards to any commercial development of UCG technology in its State.[52]
[52] Letter from Executive Director of the Department of Mines and Energy to Moreton Resources dated 31 May 2010: T documents; T174 at 2057-2058
I.Mineral Development Licence 385
On 22 February 2009 and acting under s 186 of the Mineral Resources Act 1989 (Qld) (MR Act), the Minister for Mines and Energy for the State of Queensland granted MDL No. 385 (MDL385) to Moreton Resources (51%) and SEQEPL (49%) over land located a little distance south of Kingaroy in Queensland. MDL385 commenced on 1 March 2009 and expired five years later on 28 February 2014. It was subject to General Conditions, Native Title Special Conditions and, although none was specified, to Special Conditions.[53] Subsequently, on 20 October 2009, SEQPL subsequently transferred its interest in MDL 385 to Moreton Resources leaving it as the sole owner.[54]
[53] T documents; T18 at 386-406
[54] T documents; T18 at 393
The activity undertaken at this time, in what was the 2008-09 year, is described as:
“Environmental monitoring including: installation and monitoring of pressure sensors installed underground to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination, and sampling water from boreholes (performed approx. monthly) ensure water is not contaminated by UCG process.”[55]
[55] T documents; T68 at 898 and withdrawn, 16 March 2011: T documents; T59 at 880
MDL385 was issued in relation to activities allowable for the exploration of coal. With effect from 26 August 2009 and under s 208(3) of the MR Act, a delegate of the Minister for Natural Resources, Mines and Energy endorsed MDL385 to add “… a product that may be extracted or produced by an underground gasification process for coal or oil shale and another product that may result from carrying out of the process …”.[56] The Approved Work Program in Schedule 3 to MDL 385 was varied to include “Underground Coal Gasification (UCG) Demonstration Trial”.[57]
[56] T documents; T18 at 391
[57] T documents; T18 at 407
Among the activities registered in the 2009-10 year were:[58]
[58] T documents; T45 at 772-773
Activity
Start
End
Design of a gas processing plant including the piping connecting the wells, the gas processing facility and storage of liquid wastes.
July 2009
November 2009
Environmental monitoring including: installation and monitoring of pressure sensors installed underground to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination, and sampling water from boreholes (performed approx. monthly) to ensure water is not contaminated by the UCG process.
July 2009
May 2010
Construction and commissioning of gas processing pilot plant.
September 2009
February 2010
UCG gas pilot burn/ignition.
March 2009
March 2010
Ongoing testing and evaluation of gas production and plant performance to test the viability of the coal seam used and to ensure environmental standards are met.
January 2010
June 2010
J. Amendment of Amended EA: 2009 Amended EA
On 22 September 2009, the EPA further amended the Amended EA (2009 Amended EA).
K. Amendment of 2009 Amended EA: 2009 Further Amended EA
On 15 October 2009, the 2009 Amended EA was further amended to permit the UCG trial (2009 Further Amended EA). It again took effect from the date on which MDL385 would be granted. It was subject to conditions and the conditions I have set out at [36] above continued to apply. Moreton Resources was named as the Principal Holder and the Activity it authorised was described as:
“Mining activity – schedule 6, item 2 (mineral development) investigating the potential development of a mineral resource by large bulk sampling or constructing an exploratory shaft, adit or open pit”.[59]
[59] T documents; T27 at 455
Excluding activities associated with rehabilitation or ongoing monitoring, the duration of the coal gasification trial was not permitted to exceed three years.[60] As required by the 2008 Amended EA and referred to earlier in these reasons, at least six months before the cessation of the coal gasification trial, Moreton Resources was required to submit to the EPA a shutdown procedure for the UCG pilot plant. The procedure submitted had to detail steps that would be taken to cease combustion/gasification of coal underground, detail steps that will be completed during and following the shutdown process to confirm that combustion and/or pyrolysis of coal has ceased and ensure that on shutdown the cavity is flushed using proven processes to ensure the removal of residual pollutants. That procedure had to be implemented immediately on cessation of the trial or if otherwise requested by the EPA.[61]
[60] 2009 Further Amended EA at A8-3: T documents; T27 at 457
[61] Conditions F3-1 and F3-3: T documents; T27 at 471-472
I.Groundwater assessment and study
Golder Associates (Golder) prepared a Groundwater Assessment and Impact Study dated 4 March 2010 for Moreton Resources’ pilot UCG project. The preamble to the study notes that a geological and hydrological characterisation was required to assist in setting up the proposed pilot and to provide data necessary to satisfy the Department of Environmental and Resource Management’s (DERM’s) conditions for approval, particularly in relation to the protection of groundwater.[62] The Preamble in the Introduction to the Impact Study referred to Moreton Resources and continued:
“A geological and hydrogeological characterisation has been required to assist in setting up the proposed pilot trial stage of the UCG operation and to provide data necessary to satisfy the Queensland DERM conditions for approval of the pilot trial, particularly the conditions for approval of the pilot trial, particularly the conditions relating to the protection of groundwater.
The conditions require that an assessment of groundwater impacts associated with the pilot trial be carried out by ‘a suitably qualified person’. Cougar have engaged Golder Associates (Golder) to undertake the hydrogeological characterisation required to provide sufficient data to satisfy the DERM consent conditions. A Golder Principal Hydrogeologist has been involved since January 2008, providing advice to Cougar regarding water quality and water level assessments, aquifer parameter investigations including a program of test pumping, and groundwater model conceptualisation.”[63]
[62] Statement of Mr Melik: Exhibit E; Annexure VM-30 at 572
[63] Statement of Mr Melik; Exhibit E; Annexure VM-30 at 572
This was repeated in the statement of the Scope of Work when it was said:
“Comprehensive hydrogeological investigations and studies were undertaken to address the viability of the pilot UCG operation at the selected location, to confirm that the selected site is suitable for the proposed use as a pilot UCG trial site, to assess potential risks on nearby environmental values (EVs), primarily groundwater users, and to demonstrate compliance with the DERM conditions. The pilot burn trial has been and/or will be predated by groundwater monitoring and aquifer testing, comprising monitoring well water quality sampling, water level and piezometric head monitoring, packer testing, long term pumping and air injection testing. Data from all tests were collated and evaluated.”[64]
[64] Statement of Mr Melik; Exhibit E; Annexure VM-30 at 574
J. Report estimating likely strata behaviour and possible subsidence effects
Moreton Resources had approached Golder to provide an estimation of the likely strata behaviour and possible subsidence effects that may occur as a consequence of the pilot UCG project. Golder submitted its report dated 4 March 2010 and entitled “Overlying Rock Characterisation and the Impact of the Void on Overlying Strata, Kingaroy Gasification Trial” to Mr Andrew Brown, the Technology Manager at Moreton Resources.[65] Golder assessed what it had identified but concluded that:
“At this stage the shape of the void that will be created underground is largely unknown and for this reason several possible shapes have been assessed based on the gasification of 5000 tonnes of coal between wells. They include rectangular prisms, vertical cylinders and horizontally lying ellipsoids. The open spans likely to be made by each of these void shapes have been calculated using an assumed tonnage of coal that is planned to be gasified for the pilot trial and using the distance between wells and coal seam thickness as constraints.
…
Whether the void created by gasification at Kingaroy will close due to bulking or be arrested by a strong stratum in the overlying sediments can (and should) be estimated by examining the void after the gasification trial is complete. Alternatively, monitoring by extensometers during the trial may also be used to measure the upward progression of the void.”[66]
[65] Statement of Mr Melik; Exhibit E; Annexure VM-26 at 527
[66] Statement of Mr Melik; Exhibit E; Annexure VM-26 at 537-538
A meeting took place on 17 and 18 March 2010 among representatives of Golder, Moreton Resources and Ergo after a test burn. Moreton Resources noted that, by the end of the drilling programme, it would be likely to be in a position to develop more detailed and more reliable conceptual models of the geological environment. Discussions were held about the importance of monitoring rock subsistence and rock behaviour above the burn chamber and the shape of the void created. Future studies would need to focus on the development of wider spans of gasification that might potentially lead to deformation of the aquitard. A strong recommendation was made to install one or more extensometers as soon as practicable to monitor the upward progression of caving during the pilot trial burn. Another was to undertake investigations aimed at attempting to determine the final void shape and size but that those details should be determined further into the pilot burn at a stage when the behaviour of the system might be known. A third recommendation was to create numerical and empirical models of the overlying strata in order to determine the effects of rock fracturing and stress on ground water flows and to assess the deformation effects on the aquitard.[67]
[67] Statement of Mr Melik; Exhibit E; Annexure VM-156 at 4291
K. Ignition of UCG burn process
By early 2010, Moreton Resources had completed the design and construction of the well necessary for igniting the UCG process as well as the fabrication and construction of the syngas processing plant. The four underground coal gasification wells were connected to the gas processing plant. On 10 March 2010, Moreton Resources started injecting air into well P1 (P1) through its own 2” purge point and flow meter. As the desiccant system gave large flow and pressure fluctuations, it tried various means of achieving the flow consistency required. Those means included dropping the desiccant back-pressure valve set point and gagging in the discharge valves but to no avail. Removal of the desiccant led to fluctuation stabilisation. The desiccant dryer was reintroduced on 11 March 2010 in an attempt to even out the dips still injecting to P1 but no satisfactory result was achieved. Other measures followed over the ensuing days and air was then injected into well P4 (P4).[68]
[68] Statement of Mr Melik; Exhibit E; Annexure VM-56 at 3054 and following and see also T documents; T100 at 2215-2220
At or about 3:30pm on 15 March 2010,[69] the UCG burn process was ignited in P1 at the Kingaroy pilot plant for the first time for the purpose of testing both its above and below ground facilities. That involved burning newly ignited coal at the base of P1 and injecting high pressure air into the well to expand the fire front. The consequence was that the gas produced, be it called UCG gas or syngas,[70] was directed towards a second borehole or well, which was P4. That was a forward combustion process, which was later reversed so that the syngas was produced from P1. That was a process known as “reverse combustion linking”. It was a process that was followed in order to open up a more permeable link for gas within the coal seam and so reduce the operating pressure of the gasifier. The first syngas was detected within 30 minutes of ignition and was initially of a high quality with a calorific value in the range of 4.8 and 7.1MJ/m3 and a stable gas composition, temperature, pressure and flow rate.[71] The flow, pressure and temperature were recorded at each ten minute interval after flow started and so were the GC readings of the gas produced.[72]
[69] Statement of Mr Melik; Exhibit E; Annexure VM-56 at 3063 and see also T documents; T100 at 2225
[70] Statement of Mr Melik; Exhibit E at [19.1]
[71] T documents; T29 at 513
[72] T documents; T213 at 2417 and see also Statement of Mr Melik; Exhibit E; Annexure VM-56 at 3063 and following
Once a permeable link was established between P1 and P4, the injection and production wells were swapped back again to the forward production mode so that P4 was again the production well. That happened on 17 March 2010. On 18 March 2010, however, steam was seen emanating from the base, which was at ground level, of the casing strings of P4. The forward and reverse combustion processes continued until 20 March 2010, when the casing of P4 was momentarily moved by a few centimetres early one morning. That movement caused the well head gauge to shatter. The air injection was stopped and the associated surface pipework at well P4 was dismantled. Subsequent investigations revealed that there was a solid blockage within P1 at a depth of approximately 132 metres and a casing break in P4 at a depth of approximately 62 metres. Both the blockage and the casing break were believed to have been caused by thermal expansion and poor cementing between inner and outer casings.[73] As a result of the blockage between the P1 and P4 production/injection wells and Moreton Resources shut down the plant.[74]
[73] Exhibit E at [95]-[98]
[74] T documents; T100 at 2215 and 2213-2251 generally
From 21 March 2010 until 19 April 2010, Moreton Resources injected air into P4 in order to create an air block. The air block was intended to stop gases, which were still being produced by the UCG generator from escaping into atmosphere. The air was tested.[75] Injection into P4 stopped when T5037, which was located some 270 metres from P4 and used for groundwater sampling, was found to be bubbling air and water to the surface. The same phenomena was not seen at T5038 located 15 to 20 metres away but its standing water level had risen 13.9 metres between 23 March 2010 and 9 April 2010.[76]
[75] Statement of Mr Melik; Exhibit E at [100]; Annexure VM-58 at 3155
[76] Statement of Mr Melik; Exhibit E at [100]; Annexure VM-59 at 3170
L. Plans to restart the UCG burn process
In April 2010, Moreton Resources installed a network of vibrating wire piezometers (VWPs) at various depths in six boreholes. It did that in order to monitor a wider area outside the UCG pilot plant in the direction of the dominant groundwater flow. The drilling and installation of the VWPs was undertaken on the advice of Golder which carried out the work and calibration tests.[77]
[77] Statement of Mr Melik; Exhibit E at [66]; Annexure VM-31 at 943
Mr Melik stated that the network of VWPs was used by Moreton Resources for a number of purposes:
“67.1 to ensure that the internal pressure of the burn chamber did not exceed the external pressure affecting the chamber, as where the internal pressure of the burn chamber exceeded the external pressure affecting the burn chamber, this could have resulted in hydrocarbon chemicals leaking into the surrounding groundwater and contaminating the soil.
67.2to monitor the impact of events such as a sudden influx of groundwater, flooding, drought, subsidence or other geological influences, including sagging or expansion of the overburden or under-burden around the coal seam, on groundwater flows and the burn chamber.
67.3to design and conduct tests investigating whether the Company could potentially control or influence the UCG burn process through limiting or increasing hydrostatic pressure by increasing or decreasing the rates of injected air into the UCG cavity. This capability was preliminarily experimented on during the air injection trials of four production wells P1-P4 and during investigations into the well failure when the air injected into P4 increased hydrostatic pressure of basalt above the coal seam;
67.4although the VWPs were principally used for monitoring hydrostatic pressure, they could also be used (together with conventional groundwater monitoring bores and open piezometers) to determine standing water levels within the coal seam and other aquifers; and
67.5to better understand the groundwater flows and how contaminants might move into the groundwater, and to establish the conditions that would need to be observed to prevent contamination from occurring.”[78]
[78] Statement of Mr Melik; Exhibit E at [67]
Registration of activities for R&D tax concession
On or about 20 April 2012, Moreton Resources applied for registration of its activities as research and development activities to be undertaken in the 2010-11 year (2011 year) in relation to the Kingaroy site. The project was entitled “Design and development of an integrated underground coal gasification process for fuel (including electricity generation) and chemical feedstock manufacturing”. Among the activities to be registered were:[79]
[79] T documents; T79 at 1701-1715
Activity
Start
End
Environmental monitoring and research including:
- research into ground water movement and extent of the plume within surrounding aquifers.
- installing and monitoring of underground pressure sensors to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination.
- sampling water from boreholes to monitor whether groundwater is being contaminated by the UCG process;
- analysing the results to determine whether any contamination is occurring; …
- if any contamination is detected, develop an understanding of any contamination and underground contaminant transport mechanisms and devise methods/technologies to prevent such contamination.
July 2010
June 2011
Test and evaluate gas production and plant performance, to test the technical and financial viability of the environment and methods, and to determine presence of any environmental impact (new knowledge and technical risk).
July 2010
June 2011
Scale up the gasification process to undertake a series of trials to test both underground and surface operations under a range of conditions.
July 2010
June 2011
Moreton Resources made its application under s 39J of the IRD Act as it was then enacted.[80] In a letter dated 24 April 2012, the Department advised it that Innovation Australia (as it was then known) had approved the registration of activities described in Moreton Resources’ application for registration. The letter advised that registration should not be taken to imply that the activities were eligible for the R&D Tax Concession.[81]
[80] Section 39J of the IRD Act was repealed by the IRD Amendment Act
[81] T documents; T80 at 1716
On 16 March 2011, Moreton Resources withdrew eight activities that had been registered as part of its project for the 2009 year.[82] This followed an AusIndustry Desk Review for the 2009 year. That Desk Review raised concerns that the project involved the use of existing technology. Seven of the activities comprised all of the activities registered for the Kingaroy site and the eighth was a sub-project at a separate site near Wandoan in Queensland.[83] AusIndustry acknowledged the withdrawal and adjusted its records accordingly.[84] Moreton Resources provided further information regarding the ninth activity described as:
“Environmental monitoring including: installation and monitoring of pressure sensors installed underground to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination, and sampling water from boreholes … to ensure water is not contaminated by the UCG process.”[85]
Innovation Australia advised in a letter dated 8 April 2011 that it had no issues with that activity at that time.[86]
[82] T documents; T59 at 880-881
[83] T documents; T153 at 2905-2906
[84] T documents; T62 at 885
[85] T documents; T68 at 898
[86] T documents; T67 at 897 following Desk Review at T68 at 898-901
Moreton Resources made similar applications and its activities were initially registered with a similar caveat for the years ending 30 June 2010 and 2011 in relation to the Kingaroy site.[87] On 6 May 2011, Moreton Resources withdrew its application for the registration of R&D activities for the year ending 30 June 2010 (2010).[88] It did not withdraw its application for the registration of activities as R&D activities for the 2011 year under the project title: “Design and development of an integrated coal gasification process for fuel (including electricity generation) and chemical feedstock manufacturing”.[89] With the usual caveat, its activities were registered by Innovation Australia on or about 24 April 2012.[90]
[87] T documents; T46 at 774 and T80 at 1716
[88] T documents; T69 at 904-905 and see also T153 at 2906
[89] T documents; T79 at 1701-1715
[90] T documents; T80 at 1716
Water quality tests and detection of benzene and toluene in ground water
On 11 May 2010, Moreton Resources detected trace readings of benzene in groundwater monitoring bore T5037 when it was conducting routine water quality sampling. A laboratory report on the sample was issued on 27 May 2010 and subject to a “confirmation test”.[91]
[91] Statement of Mr Melik; Exhibit E at [102]
On 31 May 2010, the Executive Director of the Department of Mines and Energy (DME) advised Moreton Resources that the Associate Director-General of the Department of Employment, Economic Development and Innovation (DEEDI) had approved the generation capacity of power plant facilities for demonstration purposes to be limited to 30 megawatts (MW) or less. Generation of electricity would also remain subject to the necessary approval processes and variations to the work programmes relevant to Moreton Resources current licences and, specifically, to MDL 385.[92]
[92] T documents; T174 at 2057-2058
At some time before 15 July 2010 and probably on 13 July 2010, Moreton Resources reported to the Department of Environment and Resource Management (DERM) that water quality tests it had conducted on 29 June 2010 had detected benzene and toluene in a groundwater monitoring bore close to the plant.[93] Moreton Resources advised DERM that the water quality tests had been conducted at bores T5037 and T5038 as well as plantation bore 127533.[94] DERM conducted its own tests on the water at five of the eight bores and concluded that, in each case, the levels were below the Australian Drinking Water Guideline standards.[95] On 15 July, DERM stated that it would order Moreton Resources to keep the pilot UCG project closed until the Government was assured that the groundwater resources were protected.[96]
[93] Water quality tests conducted by Moreton Resources on 29 June 2010 referred to in Media Statement issued by the Queensland Government on 15 July 2010: T documents; T32 at 530 and see also Statement of Mr Elks at [14] and Statement of Melik; Exhibit A at [102]
[94] T documents; T32 at 530; Statement of Mr Elks; Exhibit A at [14]; Statement of Mr Melik; Exhibit E at [102]
[95] T documents; T33 at 533
[96] T documents; T32 at 530
Moreton Resources required to carry out Environmental Evaluations of its plants
DERM required Moreton Resources and the operators of the other two experimental sites, to carry out Environmental Evaluations of their plants.[97] On or about 15 July 2010, DERM announced that the results of the Environmental Evaluations would be reviewed by the Government’s independent expert panel. That panel would assess and report on the technical, environmental and social impacts of the UCG industry and, if it was not satisfied that the projects could resume operations without environmental harm, the three pilot projects, including that undertaken by Moreton Resources, would not be given approval to continue.[98]
[97] Press Release by DERM dated 15 July 2010: T documents; T32 at 530-532
[98] T documents; T32 at 530-531
Environmental Protection Order and Environmental Evaluation Notice
DERM issued an environmental protection order (EPO) to Moreton Resources on 17 July 2010 and before it reignited the UCG pilot plant. The EPO referred to Moreton Resources’ obligations under the EP Act to do two things. One was to take all reasonable and practicable measures to prevent or minimise environmental harm (general environmental duty). The other was to comply with all conditions of the EA issued in relation to the UCG pilot plant under the EP Act. The EPO was issued to secure compliance with the general environmental duty and with the EA and, in particular, with conditions C1-1 and C10-5.[99]
[99] EPO; Exhibit 1 at cl A.3 and see [36] above for conditions C1-1 and C10-5
The EPO recited the history of the shutdown of the UCG pilot plant and the sampling and analysis of groundwater monitoring bores, other bores and waters. DERM noted that the groundwaters from which samples had been taken were groundwater monitoring bores T5037, from which sampling had been taken between 35 to 47 metres below ground level, and T5038, from which sampling had been between 64 to 76 metres below ground level and outside Moreton Resources’ underground coal gasification working cavity. The presence of contaminants could not be attributed to a release of stormwater runoff in accordance with condition (C4-1) as that condition did not allow stormwater contaminated with benzene or toluene to be released. Moreton Resources had not notified TPA of any stormwater exceedances. Therefore, any contamination of the groundwaters was not in accordance with condition (C1-1). Whether direct or indirect, a likely cause of the contamination was the inner casing break in production well P4 and/or the associated controlled shut down.
Among other things, the EPO required Moreton Resources to stop and not commence, or recommence, any burning of underground coal as part of its underground coal gasification activities until further notice from the EPA.[100] It required Moreton Resources to sample the groundwaters and to cause those samples to be analysed. Within seven days of being served with the EPO, Moreton Resources was:
“… required to repair and seal the damaged production well P4 to prevent the escape of gas or liquids from production well P4 to the groundwater or aquifer ….”[101]
[100] EPO; Exhibit 1 at cl B.25
[101] EPO; Exhibit 1 at cl B.28
Moreton Resources was also required to:
“a. sample (in accordance with the requirements of Australian Standard AS5667.11:1998 Water Quality sampling: Guidance on Sampling Groundwaters) the groundwaters from all known existing bores in the potentially affected area twice per week (with samples taken at least 3 days apart) from the date of service of this order until further notice; and
b.ensure the samples are analysed by a NATA accredited laboratory for Benzene, Toluene, Ethylbenzene and Xylene (BTEX) and provide all certificates of analysis (for every sample) to the administering authority within 5 calendar days of the sample being taken;
c.provide the owners and occupiers of all land in the potentially affected area with any and all certificates of analysis that relate to samples taken from bores on land they own or occupy within 3 calendar days of Cougar Energy’s receipt of each relevant certificate.”[102]
[102] EPO; Exhibit 1 at cl B.27
On 16 August 2010, DERM also issued an Environmental Evaluation Notice (EEN) to Moreton Resources under ss 322 and 324 of the EP Act.[103]
[103] Statement of Mr Elks; Exhibit A at [14] and see also reference at T54 at 807
Design and installation of new production wells
In the meantime, Moreton Resources designed and installed new production wells for the UCG burn process with the aim of ensuring that the uncontrolled shut down that had occurred in March 2010 was not repeated. It continued with a pre-feasibility study that it had started in January 2010. The primary objective of the pre-feasibility study had been to identify and recommend the preferred power generation option for a nominal 200 MW (gross electrical) power station utilising UCG syngas produced from coal deposits under MDL 385. The study concluded in late June 2010 with the preparation of a report entitled “Kingaroy Power Project Pre-Feasibility Study 210-REP-251” (2010 Pre-Feasibility Study) issued on 16 August 2010. The report acknowledged that some of the areas it addressed were based on highly conceptual and typical data as precise data from the pilot plant had not been available and exploration activities had been curtailed. Furthermore, significant uncertainties remained due to incomplete geological investigation, very low levels of UCG technology input and the need to rely on typical engineering data rather than actual data derived from the pilot plant.[104]
[104] T documents; T37 at 566
Moreton Resource’s evaluation of its options with respect to UCG pilot plant
Based on the evidence of Mr Elks, I find that Moreton Resources continued to evaluate its options with regard to its UCG pilot plant. It prepared a document in which a number of options are summarised by their heading. Four options have been expanded to show their pros and cons. Those four are that Moreton Resources: initiate a test burn per the new DERM EA; consider new EA too onerous to restart; continue to provide response to DERM up until 2012 and challenge DERM in court. One of the six matters in favour of the first option of re-ignition was that there would be “proof of concept”.[105]
[105] Statement of Mr Elks; Exhibit A at [17]; Annexure JE-5 at 150
In summary, in the 2010 Pre-Feasibility Study, Moreton Resources’ project team believed that it had evaluated and presented a viable go-forward option for power generation using UCG syngas. That option would enable Moreton Resources to achieve its vision of being a world leader in UCG generating clean, low cost energy through efficient resource utilisation. At the same time, the document acknowledged that significant uncertainties remained due to incomplete geological investigation and the need to rely on typical, rather than actual, engineering data. Construction and operation of a “3+1” CCGT co-fired with scrubbed UCG syngas and waste hydrocarbons, which would deliver the most flexible, cost-effective and reliable method of generating commercial cash flows would not have been effectively tested through the test phase. A multi-turbine configuration generation would reduce the risk of UCG gas field performance affecting projected returns. Effective technology transfer from Moreton Resource’s technology provider was required to mitigate significant commercial and technological risk. At the early stage, that risk was seen as bordering on being fatal flaws but they could be overcome. At the very least, greater understanding of UCG gas field layout and operation had to be achieved early in the Bankable Feasibility Study (BFS) before effective engineering and, therefore, accurate cost estimates and financial assessments, could be undertaken. The penalty for not achieving higher definition of UCG technology would be higher direct costs for performance of the BFS, greater cost estimate contingencies, extended time and larger technical risk allowances.[106]
[106] T documents; T37 at 652
Further Environmental Evaluation Notices
DERM issued two further EENs on or about 16 September 2010.[107] One of them included Requirement 23d:
“In addition to the information provided in 22 conduct a geological and hydrological investigation in relation to the aquifer/s in the immediate vicinity of the UCG operations (ie. those underlying the Cougar lease) with the potential to be affected by groundwater contamination from the Cougar site and provide a report including the raw data that demonstrates a high level of understanding and interpretation of at least the following
…
d. Exploration of all possible sources of benzene and toluene in T5037 and T5038 (rather than limiting investigation to the casing break in production well P4 as being the only possible source).”[108]
[107] Statement of Mr Elks; Exhibit A at [15] and T documents; T43 at 752 and see also reference at T54 at 807
[108] Statement of Mr Melik; Exhibit E at [104] and Annexure VM-201 at 5126
Moreton Resources’ response to EPO and to first three Environmental Evaluation Notices
On 24 September 2010, Moreton Resources lodged its first response to the EENs it had been given on 16 August and 16 September 2010. That was in relation to T5037 gas monitoring
Moreton Resources began investigations to confirm the potential sources of benzene and toluene that had been identified in the groundwater. As part of those investigations, it drilled bore T5061 in October 2010 to investigate the level of benzene, toluene, ethylbenzene and xylenes (BTEX) generated as a result of the uncontrolled shutdown. On 1 October 2010, it lodged a case break report in relation to an EEN. This was followed by a T5058 monitoring results report and an interim status report on 11 October 2010. A report regarding risk management plans was lodged on 15 October 2010. A further three reports in response to the EENs were lodged on 10 November 2010: groundwater monitoring results report; monthly update of T5037 gas monitoring report; and monitoring network report. A groundwater monitoring results report was lodged on 17 November 2010.[109]
[109] T documents; T54 at 807
On 22 November 2010, Moreton Resources issued a media release announcing that the new monitoring bores showed no detectable levels of BTEX.[110] Moreton Resources delivered its findings of its investigations when it presented its final six, of 17, reports to DERM in response to the EENs issued in September 2010. That occurred on 10 December 2010.[111]
[110] T documents; T47 at 776
[111] T documents; T54 at 807
Update of response to Requirement 23d of Environmental Evaluation Notice
On 10 December 2010, Moreton Resources responded to Requirement 23d of the EEN dated 16 September 2010. The document set out seven potential pathways and sources that could have caused benzene and toluene to be present in T5037 and T5038. It described them as “theories” but ruled out all but two of them. The first and second theories were both based on a theory that the source of the benzene and toluene was pyrolysis of coal within the cavity. The report reviewed the trials undertaken prior to ignition and the body of evidence that was available. Given the data and evidence, the report concluded that the first theory was the most likely mechanism for the contamination.[112] That theory was:
“The first theory is that proposed in response to Requirements 19c and 20e of the EE dated 17 July 2010, in the report submitted on 16 August 2010. The source of the benzene and toluene is considered to be the pyrolysis of coal within the cavity. These species exist in the syngas in P4, and with the assistance of injected air, exit the production casing at the break. They travel down annulus between the 7” and 10” casing through the shattered cement grout, exit at the base of the 10” casing, and disperse within the upper aquifer. Transport of the benzene and toluene is via air to the lateritic clay and basalt horizons and hence to T5037 and T5038.”[113]
[112] Statement of Mr Melik; Exhibit E at [104] and Annexure VM-201 at 5143
[113] Statement of Mr Melik; Exhibit E at [104] and Annexure VM-201at 5126-5127
Benzene detected in water samples
On 13 December 2010, Moreton Resources announced that it had done two things. One was to submit the final six reports required by DERM under the EEN issued in September 2010. It described that as the culmination of extensive work it had undertaken over the previous four months that had resulted in the submission of 17 reports and studies. The second was to advise that it had conducted further water sample tests from the new monitoring bores located close to the pilot plant. No benzene or toluene had been detected.[114]
[114] T documents; T47 at 775
The following day, 14 December 2010, Moreton Resources announced that one part per billion of benzene had been found in T5066 located close to the pilot plant but neither benzene nor toluene had been identified in the other bores.[115] In an announcement made on 7 January 2011, Moreton Resources announced that two water samples from T5066 continued to indicate a level of one part per billion of benzene. Some readings from T5066 had shown no detectable levels of benzene. The other bores consistently returned samples indicating that were no levels of benzene or toluene. Sampling and testing would continue.[116]
[115] T documents; T48 at 777
[116] T documents; T51 at 789
Wandoan
In early 2011, Moreton Resources undertook a study of the Wandoan site to identify whether there were adequate coal resources. This had involved drilling ten holes in 2009 in order to identify the density and thickness of coal resources at the site. The results led Moreton Resources to form the view that the coal deposits at the Wandoan site provided suitable hydrostatic pressure for the UCG process.[117] The report of the analysis of the boreholes was completed on 8 March 2011 and noted in the Joint Ore Reserves Committee (JORC) Compliant Resource Statement.[118]
[117] Statement of Mr Melik; Exhibit E at [188]
[118] See [89] below
The earliest reference to MNA in the material is found in the report prepared by GHD in August 2011, I find that it first recommended that MNA was an appropriate management response to the identified contamination as per the monitoring plan that GHD set out in the Groundwater Management Plan that it set out in the same report.[358] It continued to adopt the same approach in the draft letter it prepared for Moreton Resources in February 2012 and in June 2012. Those letters were written on the basis that MNA now had new technical guidelines and was a known process even though there were subtle differences between its use as a remediation tool, as it would be at Kingaroy, and its use as a management tool. The technical guidelines published by CRCCARE and written by Messrs Beck and Mann from GHD had been designed for assessment of MNA in the context of petroleum hydrocarbon contamination of groundwater. The organic chemicals of potential concern, such as BTEX, identified at the site of the pilot UCG project, included the same organic chemicals as those that were the subject of the guidelines.
[358] Statement of Mr Melik; Exhibit E; Annexure VM-67 at 3305 and see [94] above
The basis on which I find the letters were written accords with the evidence of Dr McLaughlan and Dr Townley. By 2012, MNA was accepted as a well-established remediation approach for petroleum compounds known as BTEX. I also accept that the processes by which MNA was carried out were settled. So too were the three lines of evidence that would be relied on in any set of circumstances for the purpose of forming estimations of attenuation rates and remediation timeframes. The recording and analysis of samples of groundwater and its contaminants was data collection and did not involve any experimental activity.
Until the procedures inherent in MNA were followed, the circumstances that prevailed at the Kingaroy site could not be known or determined. MNA, however, is a process that monitors what is happening naturally. Having monitored what was happening naturally at the Kingaroy site, MNA allowed a prediction to be made as to the time that will be taken for that natural process to lead to a certain outcome. EISB was not conducted in the 2011-2012 year.
In the instance of the remediation process required by Condition (C10-7) of the 2011 Amended EA, the outcome to which MNA was directed was the removal of all residual contaminants attributed to the underground coal gasification. Dr McLaughlan thought that there was a “reasonable uncertainty” that the MNA would be successful.[359] He had explained what he meant earlier in cross-examination when he was referred to the letter dated 21 June 2012 prepared by GHD and to the passage under the heading “Level of Confidence in the Monitoring Data”:[360]
“… I mean, to me that sort of is saying are the conditions suitable? And you may not know that until you actually test it if there’s uncertainty about what conditions are really necessary or viable for these types of degradation reactions to go on, and that’s really been the heart of a lot of my reports, talking about that we aren’t absolutely certain what conditions will allow it and what aren’t, and this is really the heart of – to me, the uncertainty underpinning this particular site is there’s a lot of conditions there that really haven’t been tested before for benzene-specific degradation. And that’s a key point, as opposed to just general bio-degradation. …”[361]
[359] Transcript at 129
[360] See [111] above
[361] Transcript at 125
Dr McLaughlan also explained that over 90% of documented hydrocarbon MNA sites are typically shallow with oxygen, nitrate and a full range of electronic acceptors already in place when contamination occurs. Contamination is then degraded by consuming those electronic acceptors. That was not the case at Kingaroy.
Having regard to the letter dated 21 June 2012 and written by GHD to Moreton Resources for the purposes of the latter’s responding to DERM, I find that the groundwater management plan developed in August 2011 was regarded, for all practical purposes, as the conceptual model or CSM that DERM required up to that point. That follows from GHD’s suggested response to DERM’s request for a conceptual model of the processes that were occurring by expanding their previous assessment of MNA within the proposed groundwater management plan by including recent data and exploring potential indicators of attenuation, and particularly biodegradation, processes.
It is also apparent from the groundwater management plan put forward by GHD in August 2011 that it expected that MNA would lead to a successful outcome. That view is also inherent in the response it prepared for Moreton Resources addressing the issues raised by DERM. It clearly regarded its groundwater management plan as the conceptual plan or CSM. In that plan, GHD recommended that MNA was an appropriate management response to the identified contamination. It set out a monitoring plan and recommended compliance bores on the basis of site specific issues at the site and in consideration of DERM’s recommendations. The basic monitoring strategy was based on the concept of concentric rings of compliance, equivalent to the time of travel of one, five and ten years. A diagram illustrated the concept of concentric rings of compliance based on time of travel for benzene.[362]
[362] Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3307
The whole of the documentation reveals that Moreton Resources was relying very much on GHD’s advice but, more explicitly, Mr Elks said that it submitted the groundwater management plan to DERM.[363] It is clear from that plan, and particularly from its analysis of the contaminant trend summary, that it saw MNA as an appropriate management response in view of the trends showing decreasing contamination following natural attenuation due to mechanical dispersion and biodegradation.[364]
[363] Statement of Mr Elks; Exhibit E at [29]
[364] Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3305
While I accept that Moreton Resources could not know the extent to which natural attenuation of contaminants would continue, I also accept that it did not see the process as an experiment. The trends suggested that natural attenuation was occurring and would occur. MNA was adopted because it was seen as an appropriate response to its obligations regarding remediation of the site. It was not adopted so that Moreton Resources could gain new knowledge. The only new knowledge that it would gain would be knowledge relating to the way in which MNA played out in the precise circumstances of the Kingaroy site but that knowledge would always be specific to that site. There is no suggestion in the groundwater management plan that there were any particular concerns regarding the depth at which natural attenuation was being monitored. The outcome depended on the particular circumstances encountered. Depth was one of the circumstances but there was an expectation of success just as, to adopt the analogy given by Dr Townley, there is an expectation that the drugs a doctor prescribes a patient will lead to a successful resolution of the condition as they have done for other patients suffering from the same condition but a doctor cannot guarantee a successful resolution for each patient. That does not mean that the doctor is undertaking an experimental activity each time a prescription is written for a patient. The doctor is not prescribing drugs for the purpose of gaining new knowledge and nor was Moreton Resources. It was undertaking an activity that had been undertaken previously in circumstances involving hydrocarbon contaminants and adopting an accepted procedure.
It follows that I do not accept that the design and verification of a procedure for rehabilitation of the underground cavity using MNA was an experimental activity or that it satisfied s 355-25(1)(b). As it does not satisfy those criteria it cannot be a core R&D activity within the meaning of s 355-25(1).
I have reached that conclusion referring to MNA but am aware that enhanced MNA was also applied at the Kingaroy site. The dates are not clear but, in view of the letter written by DERM to Moreton Resources on 19 September 2012, it would seem that enhanced MNA had not been undertaken until the 2012-2013 years. In large measure, the same reasoning would lead me to the conclusion I have reached in relation to MNA. In particular, I am satisfied that the enhanced MNA was a process that was already accepted scientific practice. This is apparent from GHD’s advice to Moreton Resources but also accepted by Dr McLaughlan and Dr Townley. The paper “Use of High Concentration Magnesium Sulfate Solution to Remediate Petroleum Impacted Groundwater” published in 2007 is to the same effect.[365] The Introduction to the paper reads, in part:
“ The use of natural processes to remediate petroleum impacted groundwater in-situ is generally accepted practice. However, the length of time needed to reach regulatory required cleanup criteria is sometimes unsatisfactory. Enhancing natural processes to speed the rate of degradation would be very desirable. Anaerobic degradation is the dominant driving force in natural attenuation of petroleum contamination in the subsurface. The contribution to natural attenuation by electron acceptors other than oxygen, such as nitrate, iron III, manganese IV, sulfate, and even carbon dioxide, has been the subject of considerable research in recent years. Kolhatkar et al. (2000), Wiedemeier et al. (1999), and Wilson et al. (2002) have shown that of these natural anaerobic processes, sulfate reduction amounts for most of the degradation. The addition of these alternative electron acceptors has been shown to have many potential advantages over the traditional approach of attempting to add dissolved oxygen to the plume. Successful applications of relatively low concentrations of sulfate solution (<1,000 milligrams per liter (mg/l)) have been previously reported (Anderson et al., 2000; Cunningham et al., 2001). A process using high concentrations of sulfate solution (>1,000mg/l) has been developed to accelerate remediation and site incident closure. The case studies presented in this paper demonstrate the benefits of using high concentrations of Magnesium Sulfate Heptahydrate (MgSO4) solution to stimulate the biodegradation of petroleum contaminants in groundwater under field conditions at various sites. In addition to the relatively rapid degradation of petroleum compounds such as BTEX, this technology is quite cost effective in comparison to other currently available remediation techniques. Magnesium Sulfate was selected for use due to availability, low cost, high solubility and the relative safety associated with handling. This technology has advantages over others for many sites where physical limitations (buildings, utilities, etc.) preclude other technologies.”
[365] James F Cuthbertson, Jeffrey A Kaestner and Lyle G Bruce; Proceedings of the Annual International Conference on Soils, Sediments, Water and Energy: Volume 12, Article 24: Exhibit 3 at 1
The purpose for which Moreton Resources used enhanced MNA was to remediate the site and to comply with the statutory requirements. It did not use it for the purpose of generating new knowledge but employed a recognised scientific process that was being applied in a particular circumstance for a particular purpose. That purpose was remediation of the site. There was nothing in the material that suggests that the depth at which enhanced MNA would take place would present either a problem or an opportunity to gain new knowledge. The established science had already established that anaerobic degradation is the dominant force in natural attenuation of petroleum contamination in the subsurface and the successful applications of sulphate solution to enhance the natural process.
I am satisfied, though, that GHD, and so Moreton Resources, proposed a conceptual model of the enhanced MNA process from late June 2012. That is found in GHD’s letter dated 21 June 2012 to Dr Walker of Moreton Resources. It was a conceptual model at a high level but was to be read with the “contingency plan” at the end of the letter. That gave further detail of enhancement of the anaerobic biodegradation by way of sulphate reduction by the introduction of soluble sulphate into impacted bores. In bores where high pH is likely to be limiting microbial activity, the introduction of mildly acidic substances might be required.
That conceptual model is, I find, the hypothesis for what followed but I do not find that what followed was a progression of work that proceeded from that hypothesis to experiment, observation and evaluation and on to logical conclusions. It was a process that could not be described as trial and error.[366] If something is done by trial and error, it is done by “… trying various methods, alternatives, etc until a correct or suitable one is found. …”[367] There is an element of order and planning in a trial and error approach. The process that was adopted suggests a much more random approach that was not underpinned by order or planning. The letter dated 19 September 2012 from DERM to Moreton Resources identified ongoing issues with the process that had yet to be resolved. The groundwater flow studies predated the UCG process and might have changed in the meantime. Data supporting hypotheses that underpinned the conceptual model was absent. There is no reference in the material to that point indicating that tests had been conducted to test for microbes or the presence of factors which regulated microbial growth and nutrition in the MNA area. Water tests were carried out and the samples analysed on 4 October 2012 to measure sulphite reducing bacteria. Thought was given to carrying out laboratory bench trials but Moreton Resources decided to use sulphate reducing anaerobic bacterial at the Kingaroy site. The email correspondence between GHD and Moreton Resources on 26 October 2012 suggests that a robust approach was adopted in deciding what should be added to the bores and in what quantities. It was not a progression of work that proceeded from hypothesis to experiment, observation and evaluation and on to logical conclusions within the meaning of s 355-25(1)(a)(ii).
A.3.4Testing and evaluation of gas production and plant performance to test the viability of the coal seam and to ensure environmental standards can be met.
[366] Trial and error may be regarded as experimental in some contexts. See, for example, Re Babinda Co-operative Sugar Milling Association Ltd and Australian Industrial Research and Development Incentives Board [1980] AATA 38; (1980) 2 ALD 851 at [39]; 868-869; Senior Member Todd and Messrs Williams and Stock, Members
[367] Chambers
On the evidence, the pilot UCG plant had been shut down in March 2010 but I accept that Moreton Resources continued to plan for the time when it was permitted to re-ignite the pilot UCG project. That time never came but that does not determine the matter. What does determine the matter is that the activities in which Moreton Resources engaged were no different in their character from those that they undertook in relation to establishing the pilot UCG project before its shutdown. For the reasons that those activities were not core R&D activities, those undertaken in 2011-2012 in relation to re-ignition and including testing and evaluation of gas production and plant performance are also not core R&D activities.
A.3.5Investigation of ground water movement and extent of plume in upper and lower aquifers
I have reached the same conclusion in relation to Moreton Resources’ activities relating to the investigation of groundwater movement and the extent of the plume in the upper and lower aquifers. These are activities of data collection and of monitoring and, in the 2011‑2012 year, have already been considered in the context of the activities related to environmental monitoring, installation and monitoring of pressure sensors and subsidence monitoring and the activities related to design and verification of a procedure for rehabilitation of the underground cavity by means of MNA or enhanced MNA.
Core R&D Activity 1.1 for application year 2012-13
A.1Design and develop UCG generated syngas cleaning and power generation pilot plant
A.2Environmental monitoring, installation and monitoring of pressure sensors and subsidence monitoring
A.3Design and verify a procedure for rehabilitation of the underground cavity: MNA
These three activities reflect activities undertaken in the previous year by Moreton Resources. In so far as the activities were undertaken, and ISA queries that in relation to A.1, there is nothing in the evidentiary material that leads me to conclude that their essential characteristics is anything different from those I have found when they were undertaken in the previous year. That is to say, they are not core R&D activities.
A.4Investigations and development of processes to decommission the pilot plant ensuring that the environment is returned to its original condition, including building a conceptual model of natural attenuation of benzene
I have already considered this when considering enhanced MNA conducted by Moreton Resources. Those activities extended over both 2011-2012 and 2012-2013 but my findings remain the same. For the reasons I have given above, I am not satisfied that they are core R&D activities. They did not meet the criteria set out in s 355-25(1) and were, in any event, excluded by s 355-25(2)(f) as activities associated with statutory requirements for the same reasons that their activities associated with MNA were associated with them.
Core R&D Activity 1.1 for application year 2013-14
A.1Development of a conceptual water model of the natural attenuation of benzene and modelling/testing the actual results of this model.
A.2Develop a procedure for rehabilitation of the underground cavity including investigations that help to understand the chemical attenuation around the pilot plant as a result of the pilot plant … [trials].
At [111]-[113] above, I have identified one conceptual model that was developed in 2012 by GHD regarding the natural attenuation of contaminants including benzene. I have not identified another in the evidentiary material that was generated in the 2013-2014 year either as a single document, or part of a document, or by drawing from a number of documents relating to activities during the year. In the absence of my finding that activities were undertaken, I have nothing to assess against the criteria set by s 355-25(1) and so am not satisfied that core R&D activities of that type were undertaken.
I have already considered activities of the sort that come within the description of development of a procedure for the rehabilitation of the underground cavity including investigations that help to understand the chemical attenuation around the pilot plant as a result of the pilot plant trials. Whether they are activities associated with sampling groundwater and analysing the samples and other activities associated with MNA and enhanced MNA, they are activities associated with Moreton Resources’ complying with the statutory requirements of conditions such as Condition (C10-1), (C10-7) and Condition (A8‑1) as well as Conditions such as (F3-2), (F3-3), (F4-1), (F4-2) and (F4-3). That would take them outside any characterisation as core R&D activities as they would be excluded by virtue of s 355-25(2)(f).
Quite apart from their being excluded from any description as core R&D activities, the activities would not come within the terms of s 355-25(1) for the same reasons that the activities undertaken in relation to MNA, enhanced MNA and rehabilitation of the pilot UCG project did not.
Are the activities making up Activity 1.1.1, 1.1.2 and 2.1.1 for each year supporting R&D activities?
In view of my findings and conclusions, there are no supporting R&D activities because none of the activities claimed to come within that category is an activity directly related to a core R&D activity because there are no core R&D activities.
DECISION
For these reasons, I affirm the decision of the respondent dated 21 December 2015 confirming the decision dated 21 August 2015 that activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of ITAA97.
GLOSSARY OF TERMS
ABBREVIATION
TERM
AWS
Applicant’s Written Submissions
BFS
Bankable Feasibility Study
Administering authority
Environmental Protection Agency
BART
Biological Activity Reaction Test
BTEX
benzene, toluene, ethylbenzene and xylenes
CPOC
contaminants of potential concern
CSM
conceptual site model
DEC
Department of Environment and Conservation (New South Wales)
DEEDI
Department of Employment, Economic Development and Innovation
DEHP
Department of Environment and Heritage Protection (successor of DERM)
DERM
Department of Environment and Resource Management and later known as Department of Environment and Heritage Protection (Qld)
EA
Environmental Authority being Permit No. MIN100656507 issued 30 April 2008
2008 Amended EA
Environmental Authority as amended on 24 October 2018
EEN
Environmental Evaluation Notice
EISB
in situ biodegradation
EPA
Environmental Protection Agency
EP Act
Environmental Protection Act 1994
EPO
environmental protection order
FEED document
“Kingaroy Pilot UCG Project Front End Engineering Definition” released on 27 May 2008
GHD
GHD Pty Ltd
GWB
GWB Engineering Pty Ltd
ISA
Innovation and Science Australia
ISP
Independent Scientific Panel on Underground Coal Gasification
JORC
Joint Ore Reserves Committee
Kingaroy Project
Project 1
MDL
Mineral Development Licence
MDL385
MDL No. 385 granted under s 186 of the Mineral Resources Act 1989 (Qld)
MDL420
MDL No. 385, for which application was made under s 186 of the Mineral Resources Act 1989 (Qld) in March 2011
MNA
monitored natural attenuation
MR Act
Mineral Resources Act 1989 (Qld)
NOPA
DERM’s Notice of Proposed Action dated 28 January 2011
PEP
Kingaroy Pilot Gasification Plant Project Execution Plan
Project 1
Kingaroy Project
Project 2
Wandoan Project
SEQEPL
SE Qld Energy Pty Ltd
SRB
Sulphate Reducing Bacteria
TPH
total petroleum hydrocarbon
UCG
underground coal gasification
Wandoan Project
Project 2
UCG policy
Underground Coal Gasification Policy issued by Queensland Government on 18 February 2009
2008 Amended EA
Environmental Authority amended on 24 October 2008
2009 Amended EA
Amendment of 2008 Amended EA: 22 September 2009
2009 Further Amended EA
Amendment of 2009 Amended EA:15 October 2009
2011 Amended EA
Amendment of 2009 Further Amended EA: 7 July 2011
| I certify that the preceding three hundred and twenty-nine (329) paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie |
..................[sgd]....................................................
Personal Assistant
Dated: 10 September 2018
| Date of hearing: | 13 February 2017, 14 February 2017 and 16 February 2017 |
| Counsel for the Applicant: Solicitor for the Applicant: | Ms Melanie Baker Ms Angelina Lagana |
| Counsel for the Respondent: Solicitor for the Respondent: | Dr Sarah Pritchard and Mr Thomas Prince Ms Rebekha Pattison |
“(a) is being conducted, or has been completed, during the income year in which the application is made; or
(b) is yet to be conducted, but that it is reasonable to expect that the activity will be conducted in any or all of the following income years:
(i) the income year in which the application is made;
(ii) either of the next 2 income years.”
“(a) systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purpose of:
(i) acquiring new knowledge (whether or not that knowledge will have a specific practical application); or
(ii) creating new or improved materials, products, devices, processes or services; or
(b) other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a).”
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