Tri-Star Seeks Confirmation of Reversion of CSG Interests

October 28, 2014

The Tri-Star group of companies has commenced proceedings in the Supreme Court of Queensland against Australia Pacific LNG Pty Ltd (APLNG), seeking court orders that reversion has occurred for its 45% interests in coal seam gas (CSG) assets in more than 60 petroleum tenements and tenement applications in Queensland.

The interests are currently operated and/or held by Australia Pacific LNG Pty Ltd (APLNG) and relate to tenements located in the Bowen, Surat and Galilee Basins in Queensland, including CSG fields in the Fairview, Durham, Walloon, Condabri, Durham and Spring Gully project areas. Tri-Star discovered CSG on these fields and appraised them during the 1990s.

In 2002, Tri-Star group companies ‘farmed out’ their interests to APLNG (then Oil Company of Australia Ltd) to operate and develop under a farmout and reversion deed (the 2002 Deed).

Under the 2002 Deed, Tri-Star group and APLNG agreed that 45% of Tri-star’s rights to CSG projects in those tenements revest in Tri-Star when benefits to APLNG and revenue to its affiliates from the farmed out interests first exceeded agreed development costs. Relevant costs include capital and operating expenditures, interest and vendor and government royalty payments.

The Supreme Court has been asked to confirm that benefits received by APLNG and its affiliates from third party contracts and arrangements have in fact triggered reversion.

Tri-Star contends that these contracts and arrangements include:

  • Arrangements with ConocoPhillips in 2008 regarding the operated and non-operated CSG assets for an estimated benefit to APLNG of A$ 9.6 billion.
  • Arrangements with Sinopec in 2012 regarding the operated and non-operated CSG assets for an estimated benefit to APLNG of US$ 2.86 billion; and
  • A 2012 agreement between APLNG and the Kansai Electric Power Company to supply 1 million tonnes of LNG per year for 20 years.

The Statement of Claim in the proceedings also asks the Supreme Court to rule on the proper interpretation of sales proceeds and revenue, interest and royalty payments for purposes including calculating the reversion date.

The Supreme Court has been asked to:

  • Determine whether amounts received by APLNG constitute ‘Revenue’ under the 2002 Deed (and therefore whether reversion of Tri-Star’s interest has occurred);
  • Clarify the correct method of calculation of interest under the 2002 Deed;
  • Determine Tri-Star’s rights to certain royalty payments under the 2002 Deed; and
  • Clarify if certain blocks relinquished and reapplied for by APLNG and its affiliates are subject to Tri-Star’s reversionary rights.

Tri-Star President and Managing Director, James H. Butler Jr., said he hoped that the orders would provide clarity and certainty for both Tri-Star and for APLNG:

“We have not taken this decision lightly. We have been in discussion with APLNG for many years over these matters and have been unable to reach an agreement.”

The Tri-Star group is represented in the proceedings by Mr Walter Sofronoff QC, Mr Adam Pomerenke QC, and Tucker and Cowen, Solicitors.