Legal database - View: Cases: Re BHP Petroleum (Timor Sea) Pty Ltd and Minister for Resources

BHP Petroleum (Timor Sea) Pty Ltd & Ors v Minister for Resources
(1997) 46 ALD 117

(Decision by: Mathews J, P, McDonald D, DP, Ermert C, M)

BHP Petroleum (Timor Sea) Pty Ltd, Peko Oil Ltd, Norcen International Ltd, Ampol Exploration Ltd, Santos (NT) Pty Ltd, BHP Petroleum Pty Ltd & BHP Petroleum (Cartier) Pty Ltd v
Minister for Resources

Tribunal:

Administrative Appeals Tribunal

Mathews J, P
McDonald D, DP
Ermert C, M

Subject References:
ENERGY AND RESOURCES
petroleum, petroleum resource rent taxation, project combination certificate, whether projects 'sufficiently related to be treated ... as a single petroleum project'

Legislative References:
Petroleum Resource Rent Tax Assessment Act 1987 (Cth) - 2; 19; 20
Petroleum (Submerged Land) Act 1967 (Cth) - 5; 28; 38C; 39; 52; 58

Case References:
BHP Petroleum (Timor Sea) Pty Limited v Minister for Resources - (1994) 49 FCR 155
Bushell v Repatriation Commission - (1992) 175 CLR 408
Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) - (1979) 2 ALD 634
Smith Stone and Knight Ltd v Birmingham Corporation - [1939] 4 ALL ER 116
DHN Food Distributors Ltd v Tower Hamlets London Borough Council - [1976] 3 ALL ER 462
JH Rayner (Mincing Lane) Ltd, Maclaine Watson & Co Ltd v Department of Trade and Industry - [1988] 3 WLR 103
Briggs v James Hardie & Co. P/L - (1989) 16 NSWLR 549
Hardoplane Pty Ltd v Edward Rushton Pty Ltd - [1996] 1 Qd.R 156

Hearing date: 10 SEPTEMBER-24 OCTOBER 1996
Decision date: 9 MAY 1997

MELBOURNE

Decision by:
Mathews J, P
McDonald D, DP
Ermert C, M

INTRODUCTION

1. This is an application pursuant to s. 20(12)(b) of the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) ("the PRRT Act ") for review of a decision of the Minister for Resources dated 22 February 1991 refusing an application for a certificate to combine a petroleum project (Skua) with an already combined petroleum project (Jabiru and Challis/Cassini).

2. The combined project of Jabiru and Challis/Cassini ("Jabiru/Challis") and the Skua project ("Skua") are petroleum projects operated by BHP Petroleum Pty Limited ("BHPP") in the Timor Sea. Both are owned by joint venturers with a degree of common ownership between them. The development of Jabiru/Challis preceded that of Skua. On 8 January 1991 the Applicants sought from the Minister for Resources ("the Minister") a certificate pursuant to s. 20(1) of the PRRT Act combining the two projects for the purposes of the Act. This was declined on 22 February 1991. An application for review was lodged with the Administrative Appeals Tribunal (the "AAT") on 3 May 1991. Since then the matter has had a lengthy history which we shall describe later.

THE SCHEME OF THE LEGISLATION

3. The taxation regime introduced under the PRRT Act replaced the previous system whereby royalties were paid on recovered petroleum. The PRRT Act was designed to introduce a tax which would balance the concept of petroleum as a non-renewable community resource with the need to encourage the exploration and development of petroleum. Given the substantial financial risks involved in these operations, it was considered necessary to permit potentially high returns to be derived from successful development projects. The tax is assessed on individual petroleum projects, and is payable at the rate of 40 percent of achieved profits, after the deduction of project related expenditure during the year of income as well as certain undeducted expenditure from previous years.

4. A "petroleum project" is defined in s. 19(1) and (2) of the PRRT Act as follows:

"19.(1)

Subject to subsection (1A), for the purposes of this Act, where an eligible production licence is in force and is not specified in a project combination certificate that is in force, there shall be taken to be a petroleum project in relation to the eligible production licence.

(1A): ....

(2)

For the purposes of this Act, where 2 or more eligible production licences are specified in a project combination certificate that is in force, there shall be taken to be a petroleum project in relation to such of the eligible production licences as are in force.

..."

5. In the Full Federal Court Jenkinson J described this definition of petroleum project as an "...artificial definition...[which] would,...preclude recourse to ordinary usage." 2. ^[1]

6. An eligible production licence is a production licence issued under Part III of the Petroleum (Submerged Land) Act 1967 (Cth) ("the PSL Act "). Under s . 52 of that Act, a production licence authorises the licensee to recover and explore for petroleum and to conduct incidental activities in the petroleum licence area.

7. Section 20 of the PRRT Act provides for the issuing of a project combination certificate. The effect of the granting of a certificate is that the participants who are common to the pre-combined projects become entitled to have their share of the exploration and development costs of one project offset from their share of profits derived from the other.

8. Section 20, so far as is relevant here, provides as follows:

"20.(1)

Subject to this section, where within the qualifying period in relation to an eligible production licence, the certifying Minister, whether on application, request or otherwise, having regard to:

(a): the respective operations, facilities and other things that comprise, have comprised or will comprise the petroleum project in relation to the eligible production licence and any other petroleum project or projects existing at the time at which the eligible production licence came into force;
(b): the persons by whom or on whose behalf the operations, facilities and other things referred to in paragraph (a) are being, have been or are proposed to be carried on or provided; and
(c): the geological, geophysical and geochemical and other features of the production licence areas in relation to the projects;

considers that the projects are sufficiently related to be treated for the purposes of this Act as a single petroleum project, the certifying Minister shall issue a certificate under this subsection specifying the eligible production licence or eligible production licences in relation to each of the projects.

(2)

For the purposes of subsection (1), the qualifying period in relation to an eligible production licence is:

(a): the period of 90 days after the licence comes into force or the commencement of this Act, whichever is the later; or
(b): where, within the period referred to in paragraph (a), the certifying Minister receives any information, application or request relevant to the exercise of the powers of the certifying Minister under subsection (1) in relation to the eligible production licence, such longer period (if any) as is necessary to enable the certifying Minister adequately to consider that information, application or request.

(3)

For the purposes of paragraph (1)(a):

(a): a reference to operations, facilities and other things that have comprised a petroleum project includes, in the case of a combined project, a reference to operations, facilities and other things that have comprised the pre-combination projects in relation to the project; and
(b): a reference to operations, facilities and other things that will comprise a petroleum project is a reference to operations, facilities and other things that are proposed, by the registered holders of, and the holders of registered interests in, the production licence or licences in relation to the project, to comprise the project.

(4)

The Minister shall not accept or comply with any application or request (other than from an officer in the performance of his or her duties) for the issue of a certificate under subsection (1) in respect of petroleum projects unless the application or request is from a person who is, or from persons who together are, entitled to receive at least half of the receipts from the sale of marketable petroleum commodities produced in relation to each of the projects.

(5)

A certificate under subsection (1) shall not be repealed, rescinded, revoked, amended or varied otherwise than:

(a): under subsection (8);
(b): pursuant to a decision of the Tribunal or an order of a court; or
(c): to correct an error in the certificate.

(6)

A certificate under subsection (1) shall come into force on the issue of the certificate and continue in force until the issue of a subsequent certificate under that subsection specifying eligible production licences that include such of the eligible production licences specified in the first-mentioned certificate as are in force at the time when the subsequent certificate is issued.

(7)

Where, in deciding whether or not to issue a certificate under subsection (1) specifying 2 or more eligible production licences, the certifying Minister has reasonable grounds to believe that an operation, facility or other thing is being, has been or is proposed to be carried on or provided, or is being, has been or is proposed to be carried on or provided in a particular manner or by particular persons, for the sole or dominant purpose of obtaining the issue of the certificate, the certifying Minister shall disregard the carrying on or provision of the operation, facility or thing.

(8)

Where, after the issue of a certificate under subsection (1), it appears to the certifying Minister that, having regard to information that was not available to the certifying Minister at the time of issue of the certificate, the certificate would not, by reason of the application of subsection (7), have been issued if the certifying Minister had been aware of the information at the time of issue of the certificate, the certifying Minister shall cancel the certificate and upon the cancellation the certificate shall be deemed never to have been issued.

..."

9. Section 20(12) provides for an application to be made to the AAT for review of, inter alia, the Minister's decision to refuse an application to issue a certificate under sub-s 20(1).

10. The "operations, facilities and other things" referred to in s. 20(1)(a) are defined in s. 19(4):

"19

....

(4)

For the purposes of this Act, a reference to the operations, facilities and other things comprising a petroleum project is a reference to:

a)

operations and facilities for the recovery of petroleum from the production licence area or production licence areas in relation to the project; and

b)

such of the following as are carried on or provided:

i): operations and facilities involved in moving petroleum so recovered between any storage or processing facility prior to the production of any marketable petroleum commodity from the petroleum;
ii): operations and facilities involved in the storage, processing or treatment of petroleum so recovered to produce any marketable petroleum commodity from the petroleum;
iii): operations and facilities involved in the moving or storage of any such marketable petroleum commodity before it becomes an excluded commodity;
iv): services, or facilities for the provision of services, in connection with the operations, facilities, amenities and services referred to in this section;
v): employee amenities in connection with the operations, facilities and services referred to in this section."

11. Section 19(4) is exhaustive of the matters which are to be taken into account by the decision-maker in considering the application of s. 20(1)(a). 11. ^[2] [2]

12. Section 2 of the PRRT Act , defines "excluded commodity" as follows:

"2.: ....

' excluded commodity' means a marketable petroleum commodity that:

(a): has been sold;
(b): after being produced, has been further processed or treated;
(c): has been moved away from the place of its production other than to a storage site adjacent to that place, or
(d): has been moved away from a storage site adjacent to the place of its production."

Section 2 also contains the following definition of "marketable petroleum commodity":

"2.: ...

`marketable petroleum commodity' means any of the following products produced from petroleum:

(e): stablised crude oil;
(f): sales gas;
(g): condensate;
(h): liquefied petroleum gas;
(i): ethane;
(j): any other product declared by the regulations to be a marketable petroleum commodity;

not being a product produced from another product of a kind referred to in paragraphs (a) and (f) (inclusive);"

13. It follows from the above that the three factors to be considered in this application are those set out in s. 20(1)(a), 20(1)(b) and 20(1)(c) (described hereafter as Factors (a), (b) and (c)). Each of these will receive detailed discussion later. In the meantime it is necessary to return to the factual background of the matter.

FACTUAL BACKGROUND

14. There was little dispute between the parties on most factual matters, although the significance to be attached to many of the facts was very much in issue.

15. The Jabiru, Challis and Skua petroleum projects are all located in remote areas of the Timor Sea approximately 640 kilometres west of Darwin. Jabiru and Challis are approximately 300 and 280 kilometres respectively north of the Kimberley coast of Western Australia and are approximately 20 kilometres apart. The Skua project is to the south west of them, approximately 60 kilometres from Challis and 80 kilometres from Jabiru. Access is gained to all three facilities by fixed wing aircraft which flies west from Darwin to Troughton Island, a distance of some 540 kilometres. Helicopter facilities are maintained on Troughton Island and from there one takes a helicopter to the three facilities which are a little over 200 kilometres to the north west.

16. Geologically speaking, all three fields are situated within the Vulcan Sub-basin. This is a fault bound basin, approximately 400 kilometres long, with a north east to south west orientation. It is bordered on its west by the Ashmore Platform and on its east by the Londonderry High, with the Browse Basin to its south. A detailed exposition of the features of the Vulcan Sub-basin, with particular reference to Jabiru, Challis and Skua will be given when we discuss the matters set out in paragraph 20(1)(c) of the PRRT Act .

17. Exploration permits in the area were first taken out in 1979 in the case of Jabiru/Challis and in 1969 in the case of Skua. Under the PSL Act , exploration permits are granted for an initial period of six years. They are then renewable for further periods of five years each, but 50 percent of the currently held permit area is required to be relinquished with each renewal. BHPP "farmed into" the exploration permits covering the Jabiru, Challis and Skua fields in mid-1983. In exchange for drilling wells in the area, BHPP became the operator and acquired a 50 percent share in each of the joint ventures.

HISTORY OF DEVELOPMENT IN THE AREA

Jabiru and Challis

18. The first commercial discovery of petroleum in the Timor Sea took place in August 1983 when the Jabiru-1A Well was drilled. This revealed a commercial accumulation of petroleum ("hydrocarbons") and was thus classified as a "discovery well". Twenty wells had previously been drilled in the region, the most successful of which had been the Puffin-2 Well which had discovered oil but in a non-commercial accumulation.

19. The Jabiru-1A Well was drilled in the crest of an elongated tilted fault block, a structure we shall be describing in more detail later. The discovery of petroleum in this reservoir indicated to BHPP that the fault block structure should be further pursued in exploration in the area. Attention was thus directed to Challis, which is located in a similar structural setting to Jabiru. The first Challis well was drilled in November 1984. This also was successful and was classified as a discovery well.

20. In 1984 further appraisal wells were drilled at Jabiru. On 7 December 1984 the Jabiru and Challis Joint Venture Operating Agreements were signed. The accumulations at Challis and those on the adjoining Cassini were always planned to be developed through a single production facility, as they were geographically very close, and the Cassini accumulation was too small for it to be economically feasible to be developed separately. On 17 July 1985 a production licence under the PSL Act was granted in relation to Jabiru (licence no. AC/L1). As to Challis, three further appraisal wells were drilled in 1986 and one in 1987. In January 1988 the production licences for Challis and Cassini were granted (licence nos. AC/L2 and AC/L3).

21. On 14 April 1988 the then Minister granted a combination certificate under section 20 of the PRRT Act in relation to Jabiru and Challis/Cassini. The circumstances under which this occurred, and the significance of the granting of that certificate to the present application, was the subject of considerable discussion during these proceedings and we shall be returning to discuss it shortly.

Skua

22. The first well which was drilled at Skua was dry. It was the second well, drilled in January 1986, which intersected a hydrocarbon reservoir and was classified as a discovery well. Further appraisal wells were drilled at Skua in 1988 and 1989. On 12 April 1990 the Skua Joint Venture Operation Agreement was finalised. There was a substantial commonality between the Skua partners and those in the Jabiru and Challis agreement, but there were also differences. These will be discussed in detail when we consider the issues raised by s. 20(1)(b) of the PRRT Act . At the time the Skua project was initially approved in 1990 the estimated oil reserves were 31.3 million barrels. However this assessment was later amended to 11.7 million barrels. On the basis of the amended assessment, the project could be considered an extremely marginal one.

23. On 12 October 1990 the Skua production licence was granted under the PSL Act, being licence no. AC/L4. This is a significant date, for it is the commencement of the "qualifying period" referred to in s. 20(1), which is the period during which the Minister, and therefore this Tribunal, must consider the respective "operations, facilities and other things" which comprise the relevant petroleum projects.

HISTORY OF THIS APPLICATION

24. On 21 December 1989 BHPP first wrote to the Secretary of the then Department of Primary Industries and Energy (DPIE) seeking the Department's preliminary views on the combination of Skua with Jabiru/Challis. A development decision was scheduled for the first quarter of 1990, and even at that stage, with the estimated oil reserves at Skua standing at 31.3 million barrels, it was envisaged that the decision would be a difficult one, and would depend on costs being kept to a minimum. The letter pointed out that combination would enable the joint venturers to offset Skua deductions against project revenues of Jabiru/Challis/Cassini and would enhance the probability of the Skua project receiving joint venture approval. It was submitted that an identical rationale existed for combining Skua with Jabiru/Challis as had previously held for the combination of the Jabiru and Challis projects.

25. The Department's response is not amongst the material which was before us at the hearing. However it must have been an adverse one, for on 15 March 1990 BHPP again wrote to the Secretary of the DPIE seeking that the Department's views on the requested combination be "reviewed and revised". The letter contained detailed submissions which addressed each of the three factors referred to in s. 20(1) of the PRRT Act. Members of the Skua Joint Venture also wrote to the Department in support of BHPP's request. These moves however were unsuccessful. On 18 April 1990 the Department provided the Minister with an "evaluation of any request for a combination certificate of Skua". This document discussed the various statutory criteria and concluded that there were not sufficient grounds to satisfy the requirement under the Act that the Jabiru/Challis and Skua projects were "sufficiently related" to be eligible for a combination certificate. The Department accordingly recommended that BHPP be advised that the projects were not sufficiently related, on the basis of then current understandings, to be eligible for a combination certificate. Further discussions then took place between BHPP and the Department. BHPP was apparently provided with the departmental recommendation, and on 8 May 1990 a further lengthy letter from BHPP to the Secretary of the Department addressed the various matters raised in the recommendation.

26. During the course of this correspondence a number of legal issues were raised by BHPP, upon which the DPIE sought the advice of the Attorney-General's Department. On 25 May 1990 an opinion was provided by the Attorney-General's Department on these issues. Finally, on 7 June 1990, the acting Secretary of the DPIE recommended to the Minister that he await a formal application from BHPP for a combination certificate before taking any further steps in the matter. This advice was presumably accepted, for it seems that no further correspondence took place until the formal application was lodged some six months later.

27. The summary of events thus far purports only to deal with the nature of the communications between BHPP and the Department, not with their content. Many issues were raised in the correspondence and it would be premature to discuss them here. Insofar as the correspondence on these issues is relevant to our considerations in the case, we will be discussing it later.

28. Notwithstanding that BHPP's informal overtures to the DPIE had met with a negative response, the Skua joint venturers decided to proceed with the development of the Skua project, and on the 12 October 1990 the Skua production licence came into force. Under s. 20(2) of the PRRT Act , any application or request for a combination certificate must be made within 90 days of the commencement of the licence period. On 8 January 1991 BHPP formally applied to the Minister for the granting of a certificate. No new material was provided with the application, which referred to and relied upon the various communications between BHPP and the Department over the previous 15 months.

29. About this time seismic surveys of the Skua licence area indicated that the Skua petroleum reserves were likely to be significantly lower than previously estimated. There was thus a real question as to the economic viability of Skua, and BHPP informally advised the DPIE that the project might not proceed unless a combination certificate was issued.

30. On 22 February 1991 the Minister formally declined to issue a combination certificate. BHPP thereupon requested that a statement of reasons be provided, which was furnished on 27 March 1991. Insofar as these reasons are relevant to our considerations we shall be referring to them later.

31. On 3 May 1991 an application was made to this Tribunal for review of the Minister's decision pursuant to s. 20(12) of the PRRT Act .

THE PREVIOUS ADMINISTRATIVE APPEALS TRIBUNAL HEARING

32. The application was originally heard before a differently constituted Tribunal of the AAT in February and March 1993. On 16 July 1993 the Tribunal delivered its decision in which it dismissed the application for want of jurisdiction upon the basis that the original application or request to the Minister did not comply with s. 20(4) of the Act. Nevertheless the Tribunal proceeded to discuss the merits of the application and determined that, had there been jurisdiction, it would have found that the Skua and the Jabiru/Challis projects were sufficiently related to be treated, for the purposes of the PRRT Act , as a single petroleum project, and would thus have reversed the Minister's decision. BHPP appealed to the Federal Court against the Tribunal's finding that it had no jurisdiction. The Minister filed a notice of contention in which, whilst seeking to uphold the Tribunal's decision of dismissal, he contended that it had erred in its reasoning when it concluded that, had jurisdiction existed, it would have decided in favour of the Applicants on the merits.

THE FEDERAL COURT PROCEEDINGS

33. On 6 April 1994 the Full Federal Court (Jenkinson, Beaumont and Heerey JJ) unanimously allowed the appeal, holding that the application to the Minister had been properly made and thus that the Minister and the Tribunal had jurisdiction in the matter ^[3] [3]. As to the merits of the application, the majority (Jenkinson and Beaumont JJ) found that the Tribunal had erred in its reasoning in that it had considered the similarity of the projects to be a significant factor when determining whether they were sufficiently related under s. 20(1) of the PRRT Act . Accordingly the matter was remitted for further hearing.

34. It is clear that the jurisdictional issue under s. 20(4) has been laid to rest by the Federal Court judgment and we do not need to mention it further. However their Honours, in separate judgments, discussed a number of other issues which are of central importance to this application and which thus bear close analysis.

35. The leading majority judgment was that of Beaumont J. After describing the factual background and dealing with the jurisdictional question, his Honour turned to the Tribunal's reasoning on the merits. The Tribunal had held that the factors specified in s. 20(1)(a), (b) and (c) were an exhaustive statement of the matters to be taken into account by the Minister. His Honour confirmed the correctness of this approach.

36. Two other aspects of the Tribunal's reasoning were discussed by his Honour. The first related to the meaning of the words "for the purposes of this Act" in s. 20(1). The Tribunal had found that as the PRRT Act was an Act for tax purposes, the question which needed to be considered was whether the individual petroleum projects were sufficiently related "to be treated as a single tax unit which would be the appropriate tax unit by virtue of the related nature of the individual projects". The Tribunal went on to reject the Minister's submission that the process of combination had nothing to do with the question of taxation. In the Federal Court the Minister challenged the appropriateness of considering whether the projects should "be treated as a single tax unit". On this issue Beaumont J made the following findings:

"(a): Treatment as a 'single tax unit'

In my opinion, as a matter of statutory interpretation, in considering whether a combination certificate pursuant to s 20(1) should issue, the Minister should have regard to the factors stipulated in paras (a), (b) and (c) of s 20(1). Further, in my view, there is nothing in any of those factors, explicit or implicit, to suggest that the question, or one of the questions, to be addressed by the Minister under s 20(1) is, as the Tribunal put it, `whether the individual projects are sufficiently related to be treated as a single tax unit ...'

It is true, as its long title indicates, that this is legislation `relating to the assessment and collection of ... tax ...'; that the Commissioner of Taxation has the general administration of the Act (s 15); and that Pt V of the Act creates a liability to tax on a taxable profit as there defined. But it does not follow that when the Minister, acting under s 20(1), considers whether a combination certificate should issue, he takes into account any fiscal or revenue considerations. The Minister's determination to issue, or not to issue, a certificate may, of course, have fiscal consequences but that is another matter. We are here concerned with the question of what considerations may be taken into account by the Minister in deciding whether to issue, or not to issue, a certificate.

In this connection, in my opinion, the use of the expression `for the purposes of this Act' in s 20(1) cannot mean that revenue factors are to be taken into consideration on the question whether a certificate should issue. The function of this expression is merely to confirm that for no other purpose, for instance mining legislation, are the individual projects to be treated as a single project.

However, it is a different question whether the Tribunal in fact relied upon the opinion it expressed in this context when it came to consider the material before it. In this connection, I have had the benefit of reading the reasons of Heerey J. I agree that, notwithstanding its reference (in par 34 of its reasons) to the facilitation of the process of tax assessment, the Tribunal in fact placed no reliance upon tax or fiscal considerations when it dealt with the `merits' of the application. It is one thing to point, as the Tribunal did, to the fiscal consequences if a determination is made that a combination certificate should issue. It is a different thing to have regard to fiscal matters in determining whether a certificate should, or should not, issue. It follows, in my view, that any error of law on the part of the Tribunal in the opinion it expressed in this connection was not material to the formation of its view on the `merits'. In other words, the error did not vitiate the Tribunal's conclusion in this respect. It must further follow that it would not be appropriate for the Court to intervene by way of judicial review of the Tribunal's decision on this aspect." (pp 175-176)

37. The second aspect of the Tribunal's reasoning which was discussed by his Honour related to the issue of similarity. The Tribunal had expressed the view that similarity was an important attribute to be taken into account under s. 20(1), a finding which was challenged by the Minister. On this issue, Beaumont J made the following comments:

"(b): The `similarity' of the projects

In my opinion, the `similarity' of the individual projects is not a consideration to be taken into account for present purposes. Again, the only factors which should be taken into account are those stipulated in paras (a), (b) and (c) of s 20(1). Once regard is had to those considerations, s 20(1) requires the Minister to make an informed judgment whether or not the individual projects are `sufficiently related' to justify their treatment `as a single petroleum project'.

Two questions arise in this connection: (1) the meaning, in the present context, of `related' (the notion of `sufficiently' being clearly a question of degree); and (2) the meaning, in this regard, of `single'.

As to (1): The Macquarie Dictionary relevantly defines `related' as `1. associated; connected. 2. allied by nature, origin ... etc.' According to the Macquarie Dictionary , the meanings of the verb `associate' include: `1. to connect by some relation ... 2. to join as a companion, partner, or ally. 3. to unite; combine ...' The Macquarie definitions of `connect' include: `1. to bind or fasten together; join or unite; link ...'

The Shorter Oxford definitions of the verb `relate' include `to connect'. Its definition of `relation' include this: `3. ... the particular way in which one thing is thought of in connection with another; any connection, correspondence, or association, which can be conceived as naturally existing between things.'

The Oxford defines `connection' to mean, inter alia, `2. Relation between things one of which is bound up with, or involved in another'. That dictionary offers these meanings of `associated": `1. Joined in companionship, action or purpose, dignity or office, allied. 2. Connected in thought. 3. Combined [with]; occurring in combination.' The Oxford definitions of `allied" are: `1. United, jointed; esp by kindred or affinity, or by league or treaty. 2. Connected in nature, or qualities ...'

In my opinion, when `related" is used in the context of s 20(1), it is intended to have these dictionary meanings, that is to say, to indicate two individual projects that are, by reference to the factors in pars (a), (b) and (c), connected, associated or allied projects.

As to (2): The provisions of s 20(1) contemplate, not merely that the projects will be related, but that they will be `sufficiently related to be treated as a single petroleum project ...'. That is to say, a judgment must be made of the degree of the relationship, connection or association to determine whether, by virtue of factors (a), (b) and (c), there exists, in truth, a `single' project. What is meant here by a `single' project?

The Macquarie definitions of `single' include these: `1. one only; separate; individual ...'. The Oxford meanings include this: `5. One only; one and no more.' In my opinion, in the context of s 20(1), `single' is intended to have this dictionary meaning.

Is there any place in the scheme of s 20(1) for any notion of `similarity'? In my opinion, there is not. The dictionary definitions of `similarity' and `similar' indicate meanings which are quite different from the notion of projects being sufficiently `related' to be treated as a single project.

According to the Macquarie Dictionary , the noun `similarity' may be defined as: `1. state of being similar; likeness. 2. a point of resemblance.' The adjective `similar' is defined, relevantly, as: `1. having likeness or resemblance, esp in a general way.' The Shorter Oxford Dictionary , relevantly, defines `similar' as: `1. of the same substance or structure throughout; homogeneous. 2. having a marked resemblance or likeness; of a like nature or kind.'

With all respect, the Tribunal erred in holding that `similarity' was an important attribute to be taken into account under s 20(1). There is a substantial difference, in my view, between a situation where two projects resemble one another and the situation where two projects are sufficiently connected or associated to be regarded as one. Projects may be quite remote from another in location and thus not connected in any way; in that event, combination would not be appropriate whatever degree of resemblance may exist. Although one of the dictionary definitions of `related' refers to a `correspondence' which can be conceived `as naturally existing between things', this is different from the notion of resemblance which is inherent in the meaning of `similarity'. The relevant question to be addressed is not whether the individual projects are like one another but whether, together, they should be regarded as one." (pp 176-177)

38. His Honour then proceeded to assess whether this error of law had vitiated the conclusion reached by the Tribunal on the merits. He concluded that in respect of Factors (a) and (b) the issue of similarity did not contribute to the process of the Tribunal's reasoning. However in relation to Factor (c) his Honour quoted a number of extracts from the Tribunal's decision which referred to the similarity of the projects. He concluded that the Tribunal must have had regard to irrelevant considerations in reaching its findings. His Honour thus ordered that the matter be remitted to the Tribunal for further consideration.

39. The other majority judge, Jenkinson J, was in agreement with Beaumont J on most issues. However he considered that the purposes of the PRRT Act must be taken into account when considering whether two petroleum projects are "sufficiently related". In this regard his Honour said:

"Notwithstanding my expression of a contrary view during the hearing of the appeal, I accept the opinion expressed by Beaumont J that the words `for the purposes of this Act' in s 20(1) cannot be understood as giving any indication as to the considerations to which the legislature intended the Minister to have regard in exercising his function, but should be understood as indicating no more than the limitation they express.

I agree also that the requirement that two or more petroleum projects be considered by the Minister to be `related" is a requirement that those projects be considered, having regard to the matters specified in pars (a), (b) and (c) of s 20(1), to be connected, associated or allied projects. In my opinion the word `sufficiently" imports the further requirement that the Minister consider the connection or association or alliance of the projects to be of such a degree or such an extent that the projects may rightly be treated as a single petroleum project. It is when the Minister undertakes that last consideration of sufficiency that he may give thought to the purpose for which the legislature has required of him performance of the function conferred by s 20(1). How can a reasonable judgment be made as to what the required degree or extent of association between projects is to be unless the purpose and effect of the judgment is considered? If the purpose were some purpose of scientific or historical classification, or industrial regulation, or military or police surveillance, it would surely be unreasonable to ignore that circumstance in making the judgment. I do not suggest that the Minister is authorised to have regard to the fiscal consequences for a particular person likely to derive assessable receipts in relation to a particular petroleum project, or for all persons likely to derive such receipts. But unless he forms his judgment as to sufficiency by reference to the cardinal principles of the fiscal regime ordained by the legislation, it would seem that the only other criterion available to him is that of linguistic nicety. He might, I suppose, ask the question whether, having regard to the matters specified in pars (a), (b) and (c) of s 20(1) and to the extent of the association thereby disclosed, informed English usage would sanction description of the several petroleum projects as `a single petroleum project'. There are several obstacles to that course. Section 20(1) does not say `sufficiently related as to be a single petroleum project' or `sufficiently related as to be described as a single petroleum project'. The artificial definition of `petroleum project' (ss 2 and 19) would, unless excluded by construction, preclude recourse to ordinary usage. And usage would almost certainly fail to provide an answer to the question until a context had been supplied which was not confined to Part IV of the Petroleum Resource Rent Tax Assessment Act 1987 (Cth)." (pp 158-159)

40. As to the criteria adopted by the Tribunal his Honour said:

"I agree, for the reasons stated by Beaumont J, that resemblance or similarity is not in s 20(1) an indication of relatedness and that the Tribunal's contrary opinion was an error of law.

Resemblance and difference are in my understanding of the Tribunal's reasons for decision repeatedly remarked, as if of significance in determining whether, and to what extent, the two projects under consideration are related. It may be that my understanding of the words used in those reasons is flawed because of a lack of understanding on my part of the objects and processes being discussed. But that understanding of the words used leads me to conclude that before any order of the Tribunal is made, the matter must be further considered by the Tribunal. I agree in the orders proposed by Beaumont J." (p 159)

41. Heerey J agreed with the majority as to the irrelevance of similarity as an criterion under s. 20(1). However after a detailed examination of the Tribunal's reasoning he disagreed that similarity had been used by the Tribunal as an independent statutory criterion. As to the Tribunal's ultimate finding his Honour said:

"The structure of s 20 is such that it leaves to the decision-maker a large area which, while perhaps not strictly speaking discretionary, nevertheless leaves open the possibility of legally valid but differing conclusions on the same evidence.

In considering the factors prescribed in the three paragraphs of s 20(1), in giving weight to various factors within each paragraph and then in relation to factors in the other paragraphs, the decision-maker is left very much at large.

In the present case the Tribunal dealt with a large body of complex and conflicting evidence. The fairness of the procedures it adopted is not questioned. Nor is any complaint made about its primary fact finding (other than the point - which for the reasons already mentioned I find not sustained - about the exposure of its reasoning). Viewed broadly the ultimate conclusion the Tribunal reached seemed one very much open on the evidence before it." (pp 188-189)

42. As to the meaning of the words "for the purposes of this Act" Heerey J said:

"As to the second ground of attack, the `single tax unit' point, it seems to me that the expression `for the purposes of this Act' can only refer to the Petroleum Resource Rent Tax Assessment Act 1987 (Cth). Probably the phrase has been inserted to make it clear that a combination certificate has effect only in connection with the assessment of tax under the Act and does not impinge on other matters such as title to mining tenements or the corporate or contractual structures of entities engaged in petroleum production. The worst that can be said about the Tribunal's reasoning at par 34 is that it perhaps engaged in unnecessary speculation as to the reason for s 20. But that expression of view did not translate itself into any legal error in the way the Tribunal dealt with the evidence before it. There was simply no evidence of the tax consequences for any of the parties if a combination certificate were to issue, and none of the Tribunal's reasoning suggested there was." (p 188)

THE HEARING BEFORE THE TRIBUNAL

43. In accordance with the Court's order the matter was remitted to the Tribunal for further consideration. Thus it is that the hearing before us was a re-hearing of the case before a differently constituted Tribunal. The matter took a considerable time to prepare for hearing as the affidavit material on both sides was voluminous. It consisted of the whole of the affidavit material presented to the previous Tribunal together with a large number of further affidavits. Some of the new material constituted updates of earlier affidavits. However many of the more recent affidavits were from deponents who had not participated in the earlier proceedings. Accordingly there was a great deal of material before us which was not available to the earlier Tribunal.

44. At the hearing before us Mr G Nettle QC with Ms M Sloss represented the Applicants and Mr H Berkley QC with Ms D Mortimer represented the Minister. At the outset of the hearing we had before us the documents prepared for the purposes of s. 37 of the Administrative Appeals Tribunal Act 1975 (the `T documents' ). By agreement all of the affidavit material was accepted as evidence albeit that much of it was not directly referred to during the course of the proceedings.

45. The proceedings themselves took the following form. We first convened for two days to take Mr Nettle's opening submissions. These provided us with a very detailed account of the factual background of the matter. The formal proceedings were then adjourned to enable the three Tribunal members, accompanied by the legal representatives of both parties, to travel to Darwin and the Timor Sea for a view of the Darwin base, the Troughton Island base and the three facilities. This view assisted us greatly in understanding the material relied upon by both parties, particularly in relation to Factor (a). Although virtually everything we observed during the view was described somewhere in the documentary material, the image created by a personal inspection is much more powerful than that which comes from an examination of documents.

46. On resuming the hearing after the view we commenced the taking of oral evidence. A large number of affidavits had already been furnished, and the parties had agreed which of the deponents would be called for cross-examination. As a result 13 witnesses were called for the Applicants and 5 for the Respondent. All affidavits were received into evidence, regardless of whether their deponents were giving evidence. Attached to these Reasons, as Attachment "A", is a list setting out the witnesses who gave evidence before us and the deponents who did not give oral evidence but whose affidavits were received into evidence.

47. By the end of the hearing the material before us had reached formidable proportions. The hearing itself, apart from the view, had occupied some 19 hearing days. In addition to the affidavit material and oral evidence, a number of exhibits had been tendered. Final addresses on both sides had taken four days to present. Although there was, in the final analysis, very little dispute about the background facts, there was considerable dispute as to the relevance of many of them and the interpretation of some others.

48. A number of legal issues have emerged which require resolution in this decision. Some of these relate to the specific Factors, (a), (b) and (c), and these will be discussed when we come to deal with those factors. However there are several overriding issues which require discussion at the outset. Accordingly, the balance of this decision will take the following form. We shall first discuss the overriding legal issues. We shall then deal with the three Factors, (a), (b) and (c) and discuss the evidence and submissions in relation to each. Finally we shall discuss whether, on the basis of our findings under these three factors, we consider that the Skua project is sufficiently related to the Jabiru/Challis project to be treated for the purposes of the PRRT Act as a single petroleum project.

49. It is obvious from all we have said that a number of questions of law will fall to be determined during the course of this decision. This being a joint decision, it goes without saying that, in accordance with s. 42(1) of the Administrative Appeals Tribunal Act 1975, all these questions have been decided in accordance with the opinion of the presiding member.

OVERRIDING LEGAL ISSUES

50. There are five issues which need to be addressed before we turn our attention to the particular factors in s. 20(1). They are:

1.: Burden of proof;
2.: The meaning of the word "related" in s. 20(1);
3.: The meaning of the phrase "sufficiently related to be treated for the purposes of this Act as a single petroleum project";
4.: Whether there should be a "weighting" between the various factors to be considered under s. 20(1)(a), (b) and (c); and
5.: The effect of the Minister's earlier decision to combine Jabiru and Challis.

51. We shall deal with each of these issues in turn.

1. Burden of Proof

52. Mr Nettle in his final address raised the question of the burden of proof. He pointed out that the appellations "Applicant" and "Respondent" might lead one to think that the Applicants bear the burden of proof in the Tribunal. This is patently not the case. The question, as Mr Nettle points out, is whether, having regard to the factors set out in section 20, the Minister or the Tribunal considers that the projects are sufficiently related to be treated as a single petroleum project. It is neither for the Applicants to prove nor for the Respondent to disprove this proposition. Rather it is for the decision-maker to consider the material as to the relatedness of the projects and determine for itself whether this constitutes sufficient relatedness under section 20. As Brennan J (as he then was) said in Bushell v Repatriation Commission (1992) 175 CLR 408 at pp 424-425:

"Proceedings before the A.A.T. may sometimes appear to be adversarial when the Commission chooses to appear to defend its decision or to test a claimant's case but in substance the review is inquisitorial. Each of the Commission, the Board and the A.A.T. is an administrative decision-maker, under a duty to arrive at the correct or preferable decision in the case before it according to the material before it. If the material is inadequate, the Commission, the Board or the A.A.T. may request or itself compel the production of further material. The notion of onus of proof, which plays so important a part in fact-finding in adversarial proceedings before judicial tribunals, has no part to play in these administrative proceedings."

2. The meaning of the word "related" in s. 20(1)

53. This issue can be disposed of shortly, for it was the subject of findings by the majority judges in the Federal Court which are binding upon us. In particular Beaumont J took the word "related" in s. 20(1) to bear its dictionary meaning and thus to indicate "two individual projects that are, by reference to the factors in pars (a), (b) and (c) connected, associated or allied projects." ^[4] Jenkinson J agreed with this interpretation of the word "related". ^[5] Heerey J did not address this question directly, although he implicitly agreed that similarity was not a relevant criterion under s. 20(1). Heerey J's disagreement with the majority was only as to whether the Tribunal had in fact adopted this incorrect criterion in reaching its conclusions.

54. It has thus been accepted throughout these proceedings that in order for the Skua and the Jabiru/Challis projects to be related within the meaning of s. 20(1) they need to be connected, associated or allied with each other. It has also been accepted that similarity or resemblance in themselves can play no part in determining the relatedness of the projects. Insofar as we refer in this decision to similarities or resemblances between the projects we do so only because it is relevant to another feature of relatedness, such as whether there is a connection or association between the projects.

3. The meaning of the phrase "sufficiently related to be treated for the purposes of this act as a single petroleum project"

55. There are a number of concepts contained in this single crucial phrase. That of relatedness we have just dealt with. It is unnecessary to discuss what is meant by a "single petroleum project" for the words mean exactly what they say. But the concept of being "sufficiently related to be treated for the purposes of this Act as a single petroleum project" bears some discussion.

56. Dealing first with the phrase "for the purposes of this Act". It is clear that this does not entitle the decision-maker to have regard to the fiscal consequences of the making of a combination certificate when he/she is considering whether a certificate should be granted. On its face, this phrase stipulates no more than that the projects, if combined, will not be treated as a single petroleum project for any purposes outside the PRRT Act . However we share Jenkinson J's concern about the inherent uncertainty of what is denoted by the word "sufficiently" unless it is accompanied by some yardstick. The answer, we think, is that the phrase "for the purposes of the Act" means simply that the projects must be sufficiently related to be treated as a single petroleum project for the purposes of the application of the provisions of the PRRT Act . Accordingly, when we come to consider whether, in the light of our findings in relation to Factors (a), (b) and (c), these projects are sufficiently related to be treated as a single petroleum project, we shall do so with regard to the general provisions of the PRRT Act .

57. The word "sufficiently" clearly denotes a question of degree, as to which a judgment must be made based on all the evidence in the case. The concept of relatedness itself encompasses a very broad spectrum, ranging from a minor or distant association to a state of almost total interconnection. It is the duty of the decision-maker to determine where on this spectrum the relationship between the two projects lies, and then to consider whether, at that point, the projects are sufficiently related to be considered a single petroleum project for the purposes of the PRRT Act . As Jenkinson J points out, the concept of "sufficiency" is a relatively imprecise one. ^[6] Consequently the relationship between the projects may well be found to lie at a point on the continuum where different but nevertheless legally valid conclusions might be reached as to whether the projects are "sufficiently" related for the purposes of the Act. ^[7]

4. Should there be a "weighting" between the various considerations referred to in s. 20(1)(a), (b), and (c)?

58. The Respondent's case in relation to all three factors placed strong reliance on reports by Gaffney, Cline & Associates Ltd ("Gaffney Cline"). Gaffney Cline is an international company which provides consulting and advisory services in relation to the exploration and exploitation of hydrocarbons. In its report of May, 1996, Gaffney Cline attributed weightings to the various criteria which it said should be considered under section 20. ^[8] The report divided these criteria into categories of "high", "medium" and "low" importance according to the influence which each was said to have upon the process of petroleum extraction.

59. The following extract from the summary of the May 1996 report provides an overview of Gaffney Cline's approach:

"In general therefore, the association or connection of geological, geophysical and geochemical features is ranked of low importance because they do not relate to either primary or support activities of the project. Title is of medium importance because it does relate to who does the activities but may change with time. Support activities within criterion a) are of medium importance because it could be argued that they are necessary, although often regionally applicable, but alone are not of sufficient association or connection and can be changed at the whim of the producers. Primary activities or associated elements therewith, within criterion a) are of high importance because they are specific while their association or connection is fundamental to petroleum extraction at the level of the main value adding functions of the projects." ^[9]

60. That report identified the following components as being of high importance: timing, distance, interdependence, common pay zones, common aquifer, construction contractor(s), common production facilities, common production licences, common joint venture operating agreements, and common financing agreements. The following were of medium importance: equity ownership, common production infrastructure, common services, common operator, common technical support, accommodation, and common logistics. The following were considered to be of low importance: common administration (accounting/personnel), common laboratories, play type, reservoir rock (type, age and quality), source rock (type, age and quality), seal rock (type, age and quality), reservoir management strategy (i.e. water injection gas lift), reservoir drive mechanism (water drive, gas cap expansion, solution gas drive, gravity drainage), reservoir fluid quality (`GOR'), API, pour point etc, production equipment type, processing scheme(s), and environment (water depth, wind/wave/current, etc).

61. The report discussed each of the above components within the context of Jabiru/Challis and Skua and expressed the following conclusion:

"In general, the `High Importance' components are considered to exist to a low to medium degree of association or connection between the Jabiru/Challis and Skua projects. The `Medium Importance' components have a low to high degree of association or connection while the `Low Importance' components are predominantly of a medium degree of association or connection." ^[10]

62. The Applicants were highly critical of the May 1996 Gaffney Cline report in a number of respects. It was submitted that there was no legislative authority for this approach, and that it was erroneous to attempt to attribute different weightings, whether they be weightings between Factors (a), (b) and (c) themselves, or between the various features referred to in those provisions. In addition it was submitted that a number of the criteria identified by Gaffney Cline were irrelevant under section 20. Others were accorded inappropriate levels of importance.

63. We would uphold these submissions. As a matter of principle there is no justification, statutory or otherwise, for treating any one of Factors (a), (b) and (c) as more significant than the others. As to the features mentioned within those provisions, there are some which would appear to be accorded a degree of significance by the terms of the provisions themselves. In particular, under Factor (a), a relatedness between the "operations and facilities" referred to in paragraph 19(4)(a) and subparagraphs 19(4)(b)(i) to (iii) would appear to be more significant than a relatedness between the services, facilities and amenities referred to in subparagraphs 19(4)(b)(iv) and (v). We shall be discussing this later, under Factor (a). But unless the legislation itself gives pointers as to the relative significance of the various criteria it mentions there is no justification, in our view, for adopting a weighting system such as that suggested by Gaffney Cline.

64. In any event, the Gaffney Cline weightings themselves do not in many cases accord with the requirements of the legislation. By way of example, "common construction contractors" and "common financing agreements" were specified by Gaffney Cline as high important components, but it is difficult to see how these can have any relevance at all, given the terms of the legislation. As for "common production licences", this is an extraordinary inclusion, given that it is a precondition of the operation of s. 20 that the projects operate under different production licences. Finally, to relegate "geological, geophysical and geochemical" features to low importance is not only unjustified but is contrary to the terms of the legislation, which specifies these considerations as one of the three major factors to be taken into account by the decision maker.

65. Accordingly, we do not propose to rely upon any weighting system in our deliberations except as outlined in paragraph 61. We shall, as we have said, discuss each of the Factors, (a), (b) and (c) and determine what we consider to be the relatedness of the projects under each of them. We shall then, in the light of those findings, consider whether the projects are "sufficiently" related to be treated, for the purposes of the PRRT Act , as a single petroleum project.

5. The effects of the minister's decision to combine jabiru and challis

66. The combination certificate in relation to Jabiru and Challis is the only one which has ever been issued under the PRRT Act . The granting of this certificate was foreshadowed even before the legislation was introduced into Parliament. On 20 February 1985 the then Minister for Resources and Energy, Senator Gareth Evans, wrote to the executive general manager of BHPP outlining the Government's position on a number of matters relating to the projected resource rent tax regime. Under the heading of "Project Definition" the Minister said:

"The RRT project definition is intended to represent an integrated series of investments and could include a number of proximate fields. It is the Government's intention that all fields within the NT/P26 permit area will be treated as a single project. The deductibility of costs against RRT depends on the final definition of project and the point at which the revenue-generating products are considered marketable." ^[11]

67. Later in the same letter the Minister said:

"Since it is the Government's intention that all fields within the NT/P26 permit area will be treated as a single project, the question of allocating further exploration expenditure within the NT/P26 permit to more than one project does not arise. This expenditure will be deductible immediately against revenue from the single project." ^[12]

Still later in the letter the Minister said:

"Since it is the Government's intention that all fields within the NT/P26 exploration permit area will be treated as a single project, abandonment costs from any field will be deductible immediately against project revenues." ^[13]

68. This being a private letter from the Minister, its contents cannot be used as an aid to interpretation in the proceedings before us.

69. On 15 January 1988 the PRRT Act commenced its operation. Also in that month the production licences for Challis and Cassini were granted. On 11 April 1988 BHPP, on behalf of all participants in the Jabiru and Challis joint ventures, applied to the Minister for the issue of a combination certificate under s. 20 of the PRRT Act . On 12 April 1988 the matter was referred to the Minister by way of a Minute from the Assistant Secretary of the Exploration and Development Branch of the DPIE. The Minute referred, by way of background to the undertaking given to BHPP that all fields within the NT/P26 permit area would be treated as a single project. A copy of Senator Evans' letter dated 20 February 1985 was attached. After referring to the factors in s. 120(1)(a), (b) and (c), the Minute continued:

"The BHP application clearly establishes that with the exception of the separate production facilities for Jabiru and Challis, the operations are manned, serviced and supplied as a single project. The lifting, offtake and marketing arrangements of crude from Jabiru and Challis will be completely integrated.

The ownership of each of the existing production licences and the proposed combined project are identical. BHP Petroleum is the operator in each case.

Consistent with the Government's previous undertakings that these projects would be treated as a single project for RRT purposes, we consider that BHP's application provides the necessary supporting argument for a certificate to be granted." ^[14]

Accordingly the Minute recommended that a combination certificate be granted under s. 20 of the PRRT Act .

70. On 14 April 1988 the then Minister, Senator Peter Cook, issued a combination certificate. Since that date Jabiru and Challis have been treated for the purpose of the PRRT legislation, as a single project.

71. In the context of the present proceedings, the combination of the Jabiru and Challis projects gives rise to two major questions. They are:

(1): What, if any, is the precedent effect of this earlier decision in relation to the present application: and,
(2): How should the Jabiru and Challis projects be viewed when we are making our assessments in relation to Factors (a) and (c)?

72. The issue as to the precedent effect of the Jabiru and Challis combination arises in this case because in many respects, particularly those which are relevant to Factor (a), the relationship between Jabiru and Challis is identical to the relationship between either of them and Skua. In relation to Factor (c), the matter is a little more complex, but there are certain respects in which the relationship between Jabiru and Skua or Challis and Skua might be considered to be at least as close as that between Jabiru and Challis. Only in relation to Factor (b) do the circumstances clearly favour a Jabiru/Challis combination over and above Skua. For the participants in the Jabiru and Challis joint ventures are identical, whereas there is only partial commonality between them and the Skua joint venturers.

73. Mr Berkeley at first sought to argue that the precedent effect of the decision to combine Jabiru and Challis is non-existent. The Minister, he urged, was committed to issuing the combination certificate in that case by reason of the earlier undertaking which had been given to BHPP. As such, the decision was based on political rather than legal considerations and should be ignored for present purposes.

74. We cannot accede to the correctness of this approach. It would involve assuming, for the purposes of these proceedings, that the then Minister simply ignored the requirements of the law and allowed himself to be influenced by irrelevant considerations, an assumption which we are not prepared to make. Nor, if we look to the other extreme, is the decision to combine Jabiru and Challis in any way binding upon us. It is clear that administrative decisions, even those based on identical fact situations and those made at ministerial level, are not binding on subsequent decision-makers. It is always necessary to consider individual cases according to their own circumstances rather than by virtue of the way in which previous cases have been decided.

75. Administrative consistency is, however, always a relevant consideration in cases where there is scope for a discretionary judgment. As Brennan J said in Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 at p 639:

"Inconsistency is not merely inelegant: it brings the process of deciding into disrepute, suggesting an arbitrariness which is incompatible with commonly accepted notions of justice".

76. In the instant case, a decision as to the extent of the relatedness of the two projects must be based solely upon the factors set out in s. 20(1)(a), (b) and (c). However it is possible, as Heerey J points out, that in determining whether this degree of relatedness means that the projects are "sufficiently" related to be treated as a single petroleum project, there will be an area of discretion. ^[15] If this be so in this case, then clearly the desirability of administrative consistency would be a relevant consideration in the exercise of our discretion.

77. We shall defer further discussion on this aspect of the Jabiru/Challis relationship until we have completed our discussion of Factors (a), (b) and (c) and determined where, on the spectrum of relatedness, the relationship of Jabiru/Challis and Skua lies.

78. This brings us to the second issue under this head, namely how we treat the combined projects of Jabiru and Challis when considering their relationship with the Skua project.

79. The legal requirements are clear. Section 19(2) of the PRRT Act provides:

"19.

...

(2): For the purposes of this Act, where 2 or more eligible production licences are specified in a project combination certificate that is in force, there shall be taken to be a petroleum project in relation to such of the eligible production licences as are in force."

80. Accordingly, when we are considering the "respective operations, facilities and other things" that comprise Skua and Jabiru/Challis, we are obliged to treat Jabiru/Challis as a single project, at least since 14 April 1988, when the combination certificate was issued. As to any assessments before that date, s. 20(3)(a) of the PRRT Act requires that any consideration of the operations facilities or other things be undertaken by reference to the individual projects

81. As to our considerations under Factor (c), s. 19(2) requires that we assess the geological, geophysical, geochemical and other features of the production licence areas comprising, on the one hand, Jabiru and Challis (namely the features of the areas covered by licence numbers AC/1, AC/2 and AC/3), and on the other, those of Skua's production licence area, (covered by licence number AC/4).

82. The legal position is thus clear and we shall address our considerations accordingly. However a conceptual difficulty remains, particularly in relation to Factor (a). For the fact is that the Jabiru and Challis facilities are two distinct, geographically separated entities. So also is Skua. Its geographic separation is greater, but this is not a significant factor, given the isolated position of all three facilities. For example the transport arrangements between them are identical in all cases.

83. We must ask, then, how we can logically treat the "operations facilities and other things" at both Jabiru and Challis as a single unit and at the same time explore, as if it were an open question, the level of relatedness which they bear to each other compared to that which both bear to the operations and facilities at Skua.

84. The answer, we think, is that we must abandon logic when we are undertaking this exercise. We must consider the operations etc at Jabiru and Challis as if they were a single unit, and, difficult as this may be, remain open-minded about the degree of relatedness which they bear to those at Skua. That, in any event, is the approach which we have adopted during the course of this decision.

85. We turn now to discuss each of the matters set out in section 20(1)(a), (b) and (c).

FACTOR (A)

Preliminary

86. Section 20(1)(a) requires that the decision maker have regard to "the respective operations, facilities and other things that comprise, have comprised or will comprise the petroleum project in relation to the eligible production licence and any other petroleum project or projects existing at the time at which the eligible production licence came into force..."

87. As we have already observed, the definition of the "operations, facilities and other things" contained in s.19(4) is exhaustive of the matters to be considered under s. 20(1)(a). Insofar as the evidence before us was descriptive of the operations, facilities, etc. referred to in s.19(4), there was little if any dispute. The real issue between the parties related to the scope of our considerations under Factor (a), with the Applicants urging an expansive approach and the Respondent favouring a narrower one which focuses upon the matters specified in the section.

88. One of the main areas of disputed relevance related to the financial interdependence between the projects. The Applicants adduced evidence to show that both the capital costs and operating expenses of Skua were significantly reduced because of its relationship with Jabiru/Challis. This, together with the benefits to Skua through the intellectual knowledge acquired in the Jabiru/Challis projects, and the close interdependence of their respective support services, creates, according to the Applicants, a very close relationship between these projects.

89. The Respondent maintained that these financial considerations were not part of the "operations and facilities" as defined in s. 19(4). It conceded that there was an interdependence between the services, facilities and amenities referred to in subparagraphs 19(4)(b)(iv) and (v), but said that these are subordinate to the "operations and facilities" referred to in the balance of s. 19(4).

90. Before we come to discuss these issues it is relevant to describe the projects as they exist at Jabiru, Challis and Skua. We shall first describe the various components which go to make up the "operations and facilities" referred to in paragraph 19(4)(a) and subparagraphs 19(4)(b)(i) to (iii) (in which discussion we have included reference to personnel), and shall then give details of the support services and employee amenities referred to in subparagraph (iv) and (v).

OPERATIONS AND FACILITIES

(A) Jabiru

91. The low estimated reserves at Jabiru meant that the recovery and production operation had to be an economical one. This and other considerations, including the distance from the production licence areas to land, (which made it uneconomic to pipe the oil and gas to shore for processing), led BHPP to conclude that a Floating Production Storage and Off-take Unit ("FPSO") would be the appropriate type of facility to install.

92. Mr R B DeSouza ^[16] , told us that, at the time it was decided to proceed with Jabiru, there were seven FPSOs in operation around the world. They were all converted from existing oil tankers, and thus had the advantage of having substantial storage facilities. The conversion involved considerable modifications to the tankers. In Jabiru's case, as with Challis and Skua, it was also necessary to connect the FPSO to the sub-sea oil wells, and to install processing equipment for the stabilisation of the crude oil prior to storage. Off-take facilities also had to be installed.

93. The variable climatic conditions in the Timor Sea give rise to a further problem. In general the region enjoys calm weather. However on occasions it is subjected to extreme cyclonic conditions. The solution which was devised in the case of Jabiru was an ingenious one and was the first of its type in the world. The FPSO was designed to have a "quick disconnect" system so that it could be entirely detached, at short notice, from its fixed mooring, and could thus sail away as an independent vessel should adverse weather conditions require it. The only fixed structure is a mooring riser which is anchored to the sea bed and is attached by flow lines to the sub-sea wells. This mooring riser is a steel structure about 90 metres high and 6 metres in diameter, the top of which is attached by a swivel mechanism to a rigid arm on the bow of the FPSO. This enables the vessel to move around the mooring system according to the prevailing currents and winds. The disconnection system has the additional advantage that the vessel can be removed to a shipyard whenever major workovers or upgrades are required.

94. There are four sub-sea wells at Jabiru, each of them with a sub-sea completion system (called a "christmas tree") located above it on the sea bed. Each christmas tree consists of hydraulically operated valves which can start and stop the flow of oil. 6 inch flow lines, 4.6 inch "umbilicals" and 2 inch gas lift lines then connect these systems to the pipework on the mooring riser. The flow lines conduct the retrieved oil through to the riser. The umbilicals carry hydraulic fluid down from the FPSO in order to control the hydraulic mechanisms in the christmas trees. The gas lift lines enable gas to be injected into the reservoir for the purpose of boosting the pressure of oil through the flow lines. This gas lift was not installed initially at Jabiru, but was added in 1991.

95. Between the wells and the mooring riser each of the lines passes over a single mid-depth buoy. The function of the buoy is to support the flow lines in their catenary shape, which in turn is necessitated by the need for some flexibility, as the mooring riser will move with the tides and during heavy weather conditions. Once at the riser, the oil flows up the pipework to the surface, then through a manifold which combines the oil from all four wells into a single piping system, and then into the processing facilities on the deck of the tanker. There the crude oil is subjected to a three stage separation process (initially in the case of Jabiru, it was a two stage process) for the purpose of removing excess gas and water, thereby stabilising the oil. Some of the recovered gas is recycled back into the separation process as well as being used for the gas lift. In addition Jabiru has a natural gas liquids plant. Excess gas is flared off from a flare tower on the deck of the vessel. The separated water is pumped into the ocean after being tested according to set standards to ensure the removal of any oil pollution. The stabilised oil is then cooled and pumped into the vessel's storage tanks. From time to time shuttle tankers berth at the stern of the FPSO. On those occasions a floating off-take hose is connected to the shuttle tanker and oil is pumped out of the FPSO's storage tanks, through a metering system on the FPSO's deck, and across to the tanks of the shuttle tanker.

96. One of the issues debated at the hearing was whether the off-take procedures fall within the purview of s. 19(4). S. 19(4)(b)(iii) includes the movement or storage of petroleum before it becomes an excluded commodity . Under s. 2 of the PRRT Act , petroleum becomes an excluded commodity when, inter alia, it has been moved away from a storage site adjacent to the place of its production. This, in our view, means that once the petroleum has passed through the metering system on the deck of the FPSO, it becomes an excluded commodity. Any subsequent processes, including the marketing of the petroleum, is outside the purview of s. 19(4).

(B) Challis

97. The Challis/Cassini field was shallower than that at Jabiru. It was geographically long and narrow with multiple pockets of oil located in different reservoirs. This necessitated a larger number of sub-sea wells, spaced over a greater area, than at Jabiru.

98. An FPSO was also considered to be an appropriate facility for Challis. However the particular form of FPSO which was adopted at Challis differed from that at Jabiru in that it comprised a custom built barge which is permanently fixed to the mooring riser and is thus unable to disconnect and sail free. The mooring riser itself is fixed to the sea bed by way of gravity base which allows the top of the riser to tilt in heavy weather. However there is much less movement at the bottom of the riser than at Jabiru and no danger of chaffing between the flow lines arises. As a result, Challis is able to accommodate a larger number of sub-sea wells and there is no necessity for mid-depth buoys as at Jabiru.

99. There are ten sub-sea wells at Challis. As at Jabiru, these are connected with the mooring riser by flow lines, umbilicals and gas lift lines. Challis has had a gas lift system since its inception. The system for piping oil to the deck of the "Challis Venture" is essentially the same as at Jabiru.

100. The petroleum processing facilities on the deck of the "Challis Venture" are also similar to those at Jabiru, as are the oil storage arrangements. There is no natural gas liquids plant on Challis, but otherwise the recycling and flaring of gas is the same as at Jabiru. Virtually identical off-take facilities have also been installed.

(C) Skua

101. The Skua development, which was designed to accommodate six sub-sea wells, is essentially an updated version of Jabiru. An existing oil tanker was converted into an FPSO (known as the "Skua Venture") and was connected to a mooring riser through a swivel mechanism which is virtually identical to that at Jabiru. As at Jabiru, the FPSO can be disconnected from the mooring riser at short notice, enabling the vessel to sail away if conditions require it.

102. The reservoir temperature and thus the oil temperature is higher at Skua than at Jabiru or Challis. There is a higher level of gas saturation within the oil (gas to oil ratio or "GOR"), leading to an increase in the oil pressure. This means that a gas lift is not required for the Skua wells. Also at Skua there is a slightly higher concentration of carbon dioxide. The effect of these differences is that some of the components, such as the valve actuators (the hydraulic cylinders which operate the valves which open and shut the wells on the Skua christmas trees) need to be more powerful and more resistant to corrosion than those at Jabiru and Challis. Similarly, the nylon lining in the flow lines at Jabiru and Challis was inadequate to withstand the higher oil temperatures at Skua, and was replaced with a stronger material called "Coflon". As a result, much of the Skua equipment can be used for Jabiru or Challis but the reverse does not apply, at least in relation to equipment which was manufactured before Skua became operational. Since that time, all sub-sea equipment for all three facilities has been devised to withstand the more rigorous conditions at Skua, so that more recent equipment is interchangeable between all three facilities. The only other significant difference in the sub-sea system arises from the fact that the sea at Skua is shallower than that at Jabiru (80 metres as opposed to about 120 metres). As a result there is less available depth to accommodate tidal and weather movements. Accordingly a double catenary of mid-depth buoys was established at Skua.

103. The oil processing facilities on the deck of the "Skua Venture" as well as the storage and off-take facilities are essentially the same as at Jabiru and Challis.

104. Petroleum reservoirs normally contain a combination of oil, water and gas, and all of these elements are contained in the crude oil which is recovered from the field. Water is the heaviest of these elements, and water thus lies beneath the oil. Similarly any excess gas, which is the lightest of them, lies at the top. At Skua (but not a Jabiru or Challis) the oil reserves were initially overlaid by a "gas cap". Accordingly, the first two months of production involved the "blowing down" of this gas cap before normal production could commence. However once this had been done and the excess gas removed, we were told that the existence of the gas cap (as distinct from the high GOR) ceased to have any significance to the recovery of the petroleum. The Respondent sought to make much of the existence of the gas cap at Skua and also of the fact that there is no gas lift required at Skua. However we are satisfied that once the gas cap was blown down it ceased to be of any real significance. As to the absence of gas lift at Skua, Mr P Behrenbruch (BHPP's Manager of Petroleum Technology) said that the use of gas lift equipment was not a significant factor from the point of view of reservoir engineering ^[17] .

105. As with the other facilities, the realised oil reserves at Skua have exceeded earlier estimates, and over 20 million barrels have now been produced. However the oil/water ratio has deteriorated to the extent that oil extraction has become uneconomical, and we were told that Skua was to cease operations in February 1997.

(D) Personnel

106. Section 19(4) makes no specific mention of the personnel who conduct the operations etc. which comprise a petroleum project, other than the reference, in subparagraph (b)(v), to "employee amenities". However it goes without saying that no petroleum production project operates itself. Accordingly it is appropriate to treat the personnel who work on the three facilities as part of the "operations and facilities" themselves.

107. Each of the three facilities is crewed by both marine and production staff. The marine staff are subject to the Floating Production Facilities Award 1989, and the off-shore production staff are subject to the BHP Petroleum and Hydrocarbons Gas Award 1991. The production personnel are on a 24 hour roster and generally work for 2 weeks on and 2 weeks off. They undergo common induction training for safety, process and mechanical equipment and are then assigned to a particular FPSO. Their uniforms and safety gear are the same, regardless of which facility they operate. The marine personnel include a master, engineer, ratings and catering staff. They undergo specialised training at the Australian Maritime College in Tasmania, covering safety, first aid, fire fighting and underwater escape training. In the case of Skua and Jabiru the master is in overall command. This is not so at Challis which, although it has a master and some deck crew, is not able to sail independently. There was evidence of an interchange of both marine and production personnel between the facilities. Mr N Ferguson, previously Vice-President, Field Development & Joint Ventures, BHPP, described this staff rotation as being "unique". On the other hand, Gaffney Cline distinguished between a system which enables an interchange of staff between facilities, on the one hand, and a pooling of staff on the other. ^[18] It pointed out that a pooling of staff would create a greater degree of relatedness. Whilst we accept this to be the case, the common training and the ability to interchange staff between the facilities clearly establishes a degree of relatedness between them.

SERVICE FACILITIES AND AMENITIES

108. As operator, BHPP provides all support services and amenities for each of the production facilities. In doing so, it charges only for actual work done on behalf of the joint venturers. In other words, it makes neither a profit nor a loss. The services etc. can best be classified as follows.

(a) Support for the Facilities

109. On-shore support is provided from BHPP's premises at Darwin and to a lesser extent from its head office in Melbourne. The support provided from Darwin includes operational, material, personnel and accounting assistance at an annual cost of approximately $3.3 million. BHPP's Darwin base, established in 1984, is headed by a production facilities manager to whom the masters of each of the three facilities report on a daily basis. While the masters are responsible for the day to day operations on the FPSOs (with the exception of Challis where there is a tripartite management team), strategic decisions are made by the manager from Darwin.

110. Mr RJ Brown, Manager, Finance & Administration with BHPP, described the offshore facilities and services provided by the operator as follows:

"...the production operators and marine crew, repairs and maintenance to the tanker and production facilities, transport between the offshore facilities and the shore, work boats, operating supplies for the offshore facilities, consumable stores, supplies, spare parts and specialist products such as chemical corrosion inhibitors." ^[19]

111. The facilities and services provided to each of the projects are essentially carried out by the same personnel. For example, there is a maintenance group within the Darwin office that provides repairs and maintenance for each of the FPSOs.

112. As operator, BHPP undertakes the accounting for each of the projects. Mr Brown said that he had adapted the accounting procedures used for Jabiru/Challis and applied them to Skua, so that the accounting principles and procedures were virtually identical for each of them. ^[20] The methodology for allocating charges between the projects depends on the services being provided. For example, standby boats have costs allocated according to the number of days worked at each location, whereas supply boats have harbour-related costs allocated on the basis of tonnages carried to each location. Each year BHPP convenes an accounting conference which is attended by all participants in both joint ventures. Participants in the Jabiru and Challis ventures are identical, and the meetings for Jabiru and Challis are generally held in the morning with the Skua meeting held in the afternoon.

(b) Movables and Spare Parts

113. It is essential for the efficient operation of each of the facilities that a full range of spare parts be constantly available. According to Mr N Ferguson ^[21] , there are also items called "movables", which are common items used for maintenance or inspection of the operations at all three facilities. Examples of "movables" range from blasting equipment used for deck maintenance, to the completion mooring system which was used to install the mooring risers. The spare parts and movables are retained in a yard adjacent to the Darwin office which is administered by BHPP. The spare parts are recorded on a computer system which can be accessed by each of the facilities, to see if the item is on one or other of the vessels, or stored in Darwin. If a spare part or movable is required by more than one facility at the same time then a decision as to priority will be made. Mr Ferguson estimated that the shared movables and spare parts amount in value to between $12 million and $14 million, out of a total value of $20 million for all spares and movables.

(c) Transport

114. The transport to all three facilities is by way of sea or air at a total annual cost of $3.8 million. Air transport is used for transporting personnel and small items, and sea transport for supplies, maintenance equipment and many spare parts. The distance from Darwin makes helicopter travel impracticable over the whole distance. Accordingly, airport facilities have been established on Troughton Island, west of Darwin and north of the Kimberley coast of Western Australia. Dash Eights fly between Darwin and Troughton Island, and helicopters between the island and the FPSOs. Troughton Island also acts as a helicopter and first aid base, the latter because the flying doctor is also able to land there. A common contractor, Lloyds Helicopters, provides helicopters for all facilities. The helicopter costs are borne by the facility making use of the service according to the number of passengers carried. There is a small community of BHPP employees and contractors which is based on Troughton Island. As with the FPSO personnel, they work on a rotational basis.

115. As to sea transport, a supply vessel will generally visit all three facilities once every 2 weeks.

(d) Employee Amenities

116. Attached to the Darwin office are employee recreational amenities including a swimming pool, bar and dining room. These are available for use by Darwin-based staff as well as personnel from the three facilities. Amongst the latter, the operational staff presumably get much greater use of these amenities as they are required, pursuant to their Award, to reside in Darwin. Marine staff, on the other hand, are required to be returned to their residence, wherever it may be in Australia, at the conclusion of their fortnightly tour of duty.

DISCUSSION OF ISSUES UNDER FACTOR (a)

117. The evidence thus reveals a clear relatedness between the support services and facilities for the Jabiru/Challis and Skua projects and between their employee amenities, these being the matters referred to in subparagraphs 19(4)(b)(iv) and (v). That much was conceded at the hearing. The real issue between the parties related to the significance of this, given the framework of s. 19(4). The Applicants submitted that the services, facilities and amenities under subparagraphs 19(4)(b)(iv) and (v) are equally as important as the "operations and facilities" referred to in the balance of the section, and that there is no justification for relegating them to subsidiary status. However the terms of the legislation, in our view, do just that. Not only are these services subsumed under the phrase "and other things" both in s. 19(4) and in s. 20(1)(a), but more importantly, their very nature confirms their subsidiary status. The focus of s. 19(4) is clearly upon the operations and facilities which are involved in the production and initial processing, movement and storage of petroleum. This is extended by subparagraphs (iv) and (v) to include services, facilities and amenities which support those operations. But that cannot serve to give those services etc. an independent life of their own. They remain, after all, supporting services.

118. Accordingly, we accept that the operations and facilities for the recovery, storage, processing and movement of petroleum to the point at which it becomes an excluded commodity, comprise the primary components of a petroleum project and thus the main focus for our considerations under s. 20(1)(a).

119. What, then, is the relationship, if any, between the operations and facilities which comprise the Jabiru/Challis and Skua projects?

120. There is clearly a relationship established through the common training and the interchange of personnel between the facilities which comprise these projects. However when one looks at the operations and facilities themselves (as opposed to the people who conduct them) the principal relationship appears to be one of similarity. In terms of petroleum recovery and production each FPSO operates independently of the other.

121. Similarity is, of itself, irrelevant to the issues under s. 20. However the fact of similarity can have consequences which are very relevant to the issues in this case. Indeed it is the similarity between the operations and facilities which enables many of the supporting services to be effectively coordinated, thereby providing a high degree of relatedness between those services. The interchangability of spare parts and movables is a good illustration of this.

122. In addition, the similarity of the operations and facilities has meant that there has been a progressive accumulation of technical knowledge and experience, to the benefit of all three facilities within the two projects, and particularly to the benefit of Skua, which was the latest in point of time. As Dr CJ Simmons said, both the design and the method of operation of the Skua FPSO were an evolution of Jabiru. ^[22] Similarly, the subsea equipment at Skua was an evolution of the Challis equipment which in turn was an evolution from Jabiru. ^[23] Common contractors were retained for the manufacture and installation of the subsea systems, flow lines and control systems at all three facilities. At the same time, BHPP was establishing an in-house engineering capacity through the progressive use of its own development teams for Jabiru, Challis and Skua. This, according to Mr Ferguson, had substantial benefits for the design of both Challis and Skua. ^[24]

123. Some of these benefits would probably be difficult to quantify in any material sense. Many of them would no doubt have flowed in any event from the fact that common contractors were used to manufacture and install the equipment at all three facilities. Nevertheless it must be assumed that the operations and facilities at Skua have benefited in design and efficiency from the knowledge and experience derived from Jabiru/Challis. ^[25] This in our view provides some evidence of relatedness which goes beyond mere similarity.

124. One of the main disputed issues between the parties under Factor (a) was the extent to which the financial interdependence of the projects could be used as an indication of relatedness. The Applicants relied upon the evidence of Professor Khurana and Mr W Allinson of this aspect of the matter. Professor Khurana is Professor of Petroleum Engineering at the University of New South Wales and Mr Allinson is a petroleum economist. They were both provided with data by BHPP which enabled them to make a number of findings about the economic interdependence of the Jabiru/Challis and Skua projects.

125. In his report of October 1995, Professor Khurana concluded that relatedness arising from improvements in facility design, functionality and reliability, and improvements in installation and operating efficiency between Jabiru/Challis and Skua led to considerable financial saving to the Skua project with respect to capital expenditure (CAPEX) and operating expenditure (OPEX). ^[26] Professor Khurana sought to illustrate this relatedness by reference to figures contained in two hypothetical scenarios. The first, which he called "Skua Stand Alone", involved a cost analysis carried out on the basis that Jabiru/Challis existed, but that Skua was charged a commercial tariff for use of the established infrastructure. The second scenario, which he called "Skua From Scratch" involved the hypothetical costing of the Skua project as if Jabiru/Challis did not exist. The costing in each of these scenarios was based on figures provided by BHPP and is clearly hypothetical. However it was Professor Khurana's view that the estimates he used were reasonable. ^[27] [27] He concluded that there was a strong and direct economic interrelatedness between the Jabiru/Challis and Skua projects so that Skua would not have proceeded if CAPEX reduction benefits had not been available from Jabiru/Challis and if many OPEX costs could not have been shared between the projects. ^[28]

126. Professor Khurana was cross examined at length by Mr Berkerley. His conclusions were criticised both by reference to the material upon which they were based and the process by which they were reached. However our overall findings as to the relevance of all this material make it unnecessary for us to discuss this aspect of the evidence.

127. Mr Allinson also wrote a report in October 1995 on the economic interdependence between Skua and Jabiru/Challis. ^[29] In his report he analysed the cost advantages to Skua from its ability to share infrastructure and services already established for Jabiru/Challis and from the experience and technical knowledge gained from Jabiru/Challis. He analysed the data available to the joint venturers in mid-1990 when the initial decision was made to proceed with Skua, and said that at the time the Skua project would have been of uncertain economic viability without the financial benefits which flowed from the prior development of Jabiru/Challis. In 1991, after the estimated reserves at Skua had been downgraded, the future of the project was again considered by the joint venturers. At this time, according to Mr Allinson, the project would not have been a viable one without the cost savings which came from Jabiru/Challis. Indeed even assuming these benefits, he said that the viability of the project at that time was at best marginal. ^[30]

128. The Applicants submit that this material provides strong general evidence of relatedness under Factor (a). The level of economic interdependence and the resultant cost saving to Skua means, the Applicants say, that Skua almost certainly would not have come into existence at all without Jabiru/Challis. Moreover, once in existence, the reduction in operating costs meant that it was able to continue for longer before the costs of the project exceeded its income and it was forced to close down.

129. This raises two quite different issues which require separate discussion.

130. The evidence relied upon by the Applicants to the effect that Skua, being uneconomic, would not have proceeded without the cost savings emanating from Jabiru/Challis, came essentially from Professor Khurana and Mr Allinson, and was thus based, at least in part, upon hypothetical considerations. There was no evidence as to the actual deliberations during that time by BHPP or any of the other joint venturers. But even accepting Professor Khurana and Mr Allinson's evidence at its highest, we do not consider that it establishes any relevant relatedness under s. 20(1)(a). The focus of s. 19(4) is upon the physical operations and facilities for the production, processing, movement and storage of petroleum. The costs of these operations and facilities is not mentioned in s. 19(4) nor do we see how economic factors can be treated as implicit within the definitions contained in that section.

131. The fact that Skua might not have come into existence without Jabiru/Challis is not, as we see it, a relevant consideration under Factor (a). The decision maker under s. 20 is obliged to consider the actual or anticipated operations and facilities which comprise the petroleum projects, and then to determine the sufficiency of the relationship between the projects. In making this assessment, the fact that one of the projects might not have come into existence without the other (if this indeed be so) is merely part of the history of the projects which can have no continuing significance when one is considering the nature of the projects themselves.

132. The above considerations would certainly apply in relation to the first decision to proceed with Skua. This was made in 1990 before the production licence was taken out. The second decision was apparently made towards the middle of 1991, well after the expiration of the qualifying period in s. 20. Again, we do not see how the fact that the future of Skua was in doubt at that time (if that indeed was the case) would have any relevant bearing upon the decision-maker's considerations. It would certainly have rendered the whole exercise hypothetical if Skua had not proceeded at that time. But this cannot serve to create a relevant relationship between the projects.

133. The proposition that Jabiru/Challis extended the life of Skua by reducing its operating costs and thus deferring its closure raises different considerations. The Applicants urged that any extension in the life of the project would necessarily lead to the production of more petroleum, and that this must be a relevant consideration under s. 19(4)(a).

134. On its face, we might have been inclined to agree with this proposition. However ss. 20(1)(a) and 20(3)(b) require the decision maker to have regard to the operations and facilities etc. at Skua as they were proposed, during the qualifying period, to be conducted in the future. It is impermissible to look back now, with the benefit of hindsight, and to treat information which, by its very nature could not have been known at that time, as being relevant under s. 20. And the fact is that during the qualifying period nobody could have known with any accuracy when the project would become economically unviable and would have to close down. This depended not only on the amount of outgoings, but also, and more importantly, on the extent of the petroleum reserves. As we now know, the Skua reserves were much higher than was predicted in 1991 and presumably the life of the project was extended accordingly. But it would be just as erroneous to treat this as a relevant matter (assuming that it was otherwise relevant to our considerations under s. 20) as it would to use the other part of the equation, namely the extent of the outgoings. For all this was a matter of conjecture during the qualifying period, being dependent upon factors which could not have been known at that time.

135. We must add that, even if we had accepted the Applicants' submissions on this matter, it would have made no relevant difference. It would, at best, have established a minor additional level of relatedness between the projects which would have had no effect on our overall findings. There is a real question, in any event, as to whether the life of Skua has in fact been extended by the cost benefits arising from its relationship with Jabiru/Challis. There is a suggestion that the timing of its abandonment was dictated more by the date on which the FPSO was required to be taken away for certification than by the time at which its revenues failed to meet its costs. ^[31]

SUMMARY OF CONCLUSIONS UNDER FACTOR (a)

136. Our conclusions under Factor (a) are implicit from our discussion of the issues above. We accept that there is a clear relatedness between the supporting services, facilities and amenities in relation to the two projects. These however, being support services, are not the primary focus of s. 19(4). The primary components and activities of a petroleum project are the operations and facilities for recovery, movement, initial processing and storage of petroleum. As between these, there is some relationship derived from the common training and the interchange of personnel. Similarly, the Skua project is likely to have benefited in design and efficiency from the technical knowledge and experience derived from Jabiru/Challis. Otherwise, the relationship between the operations and facilities comprising the two projects is one of similarity only. Any economic benefits flowing from the relationship between the two projects are irrelevant under ss. 19(4) and 20(1)(a).

137. Finally it is relevant to point out that each facet of "relatedness" under Factor (a) derives, not from any direct relationship between the projects themselves, but from the fact that BHPP is the common operator. If that factor were removed, then the only relationship which would remain between the projects would be that of similarity. We shall be discussing this again later.

FACTOR (B)

138. Section 20(1)(b) requires the decision-maker to consider "the persons by whom or on whose behalf the operations, facilities and other things referred to in paragraph (a) are being, have been or are proposed to be carried on or provided". ^[32] The use of the word "or" in this provision is, in our view, significant. It shows that the section cannot apply separately to the persons by whom the operations are to be conducted (in this case BHPP as operator) as well as to those on whose behalf they are to be conducted (in this case the respective joint venturers). To the extent that these are not the same, it is the persons on whose behalf the operations are conducted, namely the owners of the projects, who must be considered under Factor (b).

139. The question of ownership of the projects is not simple. Each, as we have already said, is owned by a joint venture with a number of participants. It is claimed by the Applicants that the following list represents the participants in each of the Jabiru/Challis and Skua joint ventures. ^[33]

Common Participants	Jabiru/Challis	Skua
BHP Petroleum (Timor Sea) Pty Ltd (BHPP Group)		43.0295%
BHP Petroleum (Cartier) Pty Ltd (BHPP Group)	50.0%
Ampol Exploration Ltd	6.25%	9.2121%
Peko Oil Ltd(Santos owned)	10.3125%	18.6137%
Santos (NT) Pty Ltd		11.975%
Norcen International Ltd (Noranda Group)	12.5%	5.00%
Brenda Mines Ltd (Noranda Group)	1.09375%
Norpac Securities Pty Ltd (Noranda Group)	1.09375%
	____________	____________
	81.25%	87.8303%
Non-Common Participants
Esso Timor Sea Ltd	18.75%
Command Petroleum		9.0447%
Holdings NL Minora Energy Limited (Minora Resources NL Group)		0.125%
Weeks Exploration Pty Ltd (Minora Resources NL Group)		3.000%
	____________	____________
	100.00%	100.00%

140. BHPP (Timor Sea) Pty Limited and BHPP (Cartier) Pty Limited are both wholly owned subsidiaries of BHPP. The Applicants' submission is that they should be considered as part of the same corporate entity. Similarly that Peco Oil Limited should be treated as part of the Santos Group, and that each of Norcen, Brenda and Norpac should be treated as part of the Noranda Group. If this approach is adopted, the common ownership between the two projects is very substantial: the owners of 81% of Jabiru/Challis would also own 87% of Skua. On the other hand, if these companies are regarded as separate legal entities, as submitted by the Respondent then the common ownership decreases significantly.

141. It is the identity of BHPP (Cartier) and BHPP (Timor Sea) which is the central question here, for they are the most substantial participants in both joint ventures.

142. The question of the corporate identity of these entities was first raised in a letter from BHPP to the Secretary DPIE on 21 December 1989, that being the letter in which BHPP sought the Department's preliminary views on the possibility of a combination certificate issuing between Jabiru/Challis and Skua. Under the heading: "Technical Problems in Relation to Combination" the following comments were made:

"4.1: Although Ampol Exploration Limited, Peko Oil Limited and Norcen International Ltd hold their joint venture interests in both projects in the same corporate entities, BHP Petroleum holds its interests in different corporate entities. This is consistent with its established policy of segregating projects for risk aversion and other reasons. Thus BHP Petroleum (Cartier) Pty Ltd is the participant in Jabiru/Challis (Cassini) project whilst currently BHP Petroleum (Timor Sea) Pty Ltd is the corporate entity entitled to the Skua project interest.
4.2: For BHP Petroleum, the Skua project interest is to be held in a separate corporate entity consistent with its worldwide corporate policy. Sub-section 20(4) PRRT would not, in such circumstances, permit BHP Petroleum to apply for combination of Jabiru/Challis (Cassini) and Skua projects as the revenue flows are received by different corporate entities.
4.3: If BHP Petroleum is unable or unwilling to apply for a combination certificate the other common participants are prevented from making an application.
4.4: BHP Petroleum is therefore requesting that the government agrees to amend PRRT so as to permit effective corporate grouping by 100% related affiliates in respect of PRRT combination certificate applications. Similar provisions to the loss transfer provisions of the Income Tax Assessment Act, 1936, as amended could be incorporated in the PRRT legislation." ^[34]

143. At that stage, BHPP's concern on this issue was largely focused upon the requirements of s. 20(4). However by the time of its next letter on 15 March 1990, its concerns also extended to the test set out in s. 20(1)(b). Under the heading "Common Ownership" it made the following points:

"1.: Since BHP Petroleum's first submission dated 21st December, 1989 there have been substantial changes to ownership and commonality of interests as between AC/P4 (Jabiru/Challis/Cassini) and AC/P2 (Skua). In attachment "A" the revised current position is set out in detail. ^[35]
2.: In summary, the commonality of ownership as between venturers in each project (assuming for the moment that 100% related subsidiaries and affiliates are treated as a single entity) is 87.8303%. The only venturers not common are Command Petroleum Holdings NL (formerly Consolidated Petroleum Australia NL) at 9.0447% and Weeks Exploration Pty Ltd/Home Energy Company Limited (100% subsidiaries of Minora Resources Limited) at 3.125%. By any standards this is an extremely high degree of commonality of ownership.
3.: Ampol Exploration Limited and Norcen International Ltd hold their respective Permit interests in the same corporate entities. BHP Petroleum holds its current Permit interest in a separate 100% affiliated entity: however, as indicated to you in discussions, the historical reason for it being in that entity was directly related to original resource rent tax concepts which were not ultimately adopted in PRRT. It is proposed that BHP Petroleum would vest ownership of its interest in BHP Petroleum (Cartier) Pty Ltd which also holds the interest in Production Licences AC/L1, 2 and 3 - the Jabiru/Challis (Cassini) project Production Licences. Peko Oil Ltd (18.6137% Permit interest) has become a subsidiary of Santos Limited. That company has, effective 1st January, 1990, also acquired a 100% ownership of Elf Aquitaine Australia Exploration Pty Ltd. The combined interest of Santos Limited through those subsidiaries in the Skua project is 30.5887%. We are not privy to any plan Santos Limited may have in respect of structuring of its interest in the Skua project. However, assuming BHP Petroleum carries through its plan to vest the AC/P2 interest (and interest in relevant Production Licences derived from AC/P2) in BHP Petroleum (Cartier) Pty Ltd then the 50% threshold required under sub-section 20(4) PRRT will be achieved. The degree of commonality would only be reduced by the Percentage Interest held in Elf Aquitaine Australia Exploration Pty Ltd, namely 11.975%.
4: BHP Petroleum does not consider that sub-section 20(7) is an impediment to the issue of a combination certificate insofar as that sub-section is relevant to the proposed vesting of its Skua project interest in BHP Petroleum (Cartier) Pty Ltd. The restructuring will be consistent with implementation of its original purpose which was to ring-fence its development projects for accounting, taxation, legal, risk aversion, and management purposes. On those criteria BHP Petroleum is strongly of the view that Jabiru/Challis (Cassini)/Skua should be treated as a single project." ^[36]

144. In a further letter dated 8 May 1990 to the Secretary DPIE, BHPP said that it was "minded to have the Skua project and AC/P2 Permit vested in BHP Petroleum (Cartier) Pty Limited at an appropriate time." ^[37] Once this was done, the letter commented, there would be a high degree of common ownership between the projects.

145. In fact it was not until 1 June 1994 that this assignment took place. This was well outside the "qualifying period" in s. 20(1) of the Act, but is nevertheless relevant under Factor (b). We shall be discussing this shortly.

146. In April and May 1990 the Secretary, DPIE, sought advice from the Attorney-General's Department about a number of legal issues which had arisen during the correspondence with BHPP. One of them related to the common ownership question and the definition of "persons" in s. 20(1)(b). The Department's advice was furnished on 25 May 1990. In relation to this issue it said as follows:

"9.: You ask whether the word `persons' in s. 20(1)(b) is to be given a broad or a narrow interpretation. You say that a broad interpretation would include ultimate ownership or financial interest in the licensee company, whereas a narrow interpretation would limit the word to the licensee.
10.: I note that ss. 12 and 13 provide that the Act applies to a partnership and an unincorporated association, respectively, as if the partnership or unincorporated association were a person.
11.: In my view, the word `persons' as used in s. 20(1)(b) refers to the legal person, ie. companies or, by operation of ss. 12 and 13, partnerships or unincorporated associations, by whom or on whose behalf the operations, facilities etc. are being, have been or are proposed to be carried on or provided. This does not, however, necessarily result in a narrow interpretation of s. 20(1)(b). The matters set out in paras. (a), (b) and (c) of s. 20(1) are clearly intended to enable the Minister to consider a comprehensive range of factors relevant to the decision whether to issue a combination certificate, and those paragraphs should therefore not be given a narrow interpretation. In `having regard to' the `persons' referred to in para. (b), the Minister may, in my view, consider any matters concerning those `persons' that are relevant to the decision before him. This would include financial interests in, and ultimate ownership of, those persons." ^[38]

147. A copy of this advice was apparently forwarded to BHPP. Thereafter, at least for a considerable time, the issue under s. 20(1)(b) was treated as a closed one, as the Respondent was taken to have virtually conceded the relatedness of the project under this head. Indeed when the Minister declined the issue of a combination certificate, he did so in terms which accepted BHPP's contentions on this issue. In the reasons for his decision, the Minister dealt with Factor (b) briefly. Having set out the table showing the ownership composition of the two projects, he said

"The Department noted that the above indicates that there are in essence four companies involved in both projects, and that this ownership constitutes the major part of both, but that there are six companies which are not involved in both projects." ^[39]

148. Later, in giving his findings, the Minister said:

"I noted that BHPP is the common operator for both the Jabiru/Challis (Cassini) projects and that the level of common ownership was substantial, but I also took into account that there are six companies not involved in both Jabiru/Challis (Cassini) and Skua." ^[40]

149. It is clear from this that the Minister was treating the two BHPP subsidiaries as if they were the same "persons".

150. Similarly, the Tribunal at the last hearing accepted that there was a significant degree of relatedness between the projects under Factor (b), and this conclusion was not impugned before in the Federal Court. Indeed Mr Berkeley for the Respondent conceded in his submissions to the Court that the projects were "related" under Factor (b). It was therefore with a degree of diffidence that the Respondent urged, in the proceedings before us, that BHPP (Cartier) Pty Limited and BHPP (Timor Sea) Pty Limited should be treated as separate legal entities. In response, the Applicants referred us to the history of the matter, but otherwise mounted no substantive argument on this issue. Nevertheless, we are obliged to consider the matter on its merits.

151. This is not an easy question to determine. On one view of the matter, it would require a lifting of the corporate veil in order to treat BHPP (Cartier) Pty Ltd and BHPP (Timor Sea) Pty Ltd as, in effect, a single entity. Moreover it would need to be a double lifting of the veil, for BHPP would need to be substituted for both of them. Lifting the corporate veil is not a matter to which the courts have readily acceded.

152. The authorities suggest that there are two circumstances in which the corporate veil might be lifted in appropriate cases. These are firstly, where there has been fraud or improper conduct and secondly, where an agency relationship exists between a company and its parent.

153. In the present case there is no suggestion of fraud or improper conduct. The only possible method of lifting the corporate veil would thus be by establishing an agency relationship between the respective entities. In this respect the English courts have been more liberal than have their Australian counterparts. In Smith Stone and Knight Ltd v Birmingham Corporation [1939] 4 ALL ER 116 it was held that a parent company was able to claim compensation following the compulsory acquisition of premises upon which its wholly owned subsidiary had conducted its business. Atkinson J concluded that the ultimate question was:

"whether the subsidiary was carrying on the business as the company's business [i.e. the parents' business] or its own." (at p 121)

He said that this would be a question of fact in each case.

154. A similar factual situation gave rise to an identical finding in DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 3 ALL ER 462. In that case Lord Denning MR, in the context of discussing lifting the corporate veil, said:

"A further very interesting point was raised by counsel for the claimants on company law. We all know that in many respects a group of companies are treated together for the purpose of general accounts, balance sheet and profit and loss account. They are treated as one concern. Professor Gower in his book on company law says: `there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group'. This is especially the case when a parent company owns all the shares of the subsidiaries, so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says. A striking instance is the decision of the House of Lords in Harold Holdworth & Co (Wakefield) Ltd v Caddies. So here. This group is virtually the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point. They should not be deprived of the compensation which should justly be payable for disturbance. The three companies should, for present purposes, be treated as one, and the parent company, DHN, should be treated as that one. So that DHN are entitled to claim compensation accordingly. It was not necessary for them to go through a conveyancing device to get it." (at p 467)

155. Although there was no precise evidence before us as to the corporate and management structures of BHPP, BHPP (Cartier) Pty Ltd and BHPP (Timor Sea) Pty Ltd, it is very likely, from the material before us, that they would fall within the above description. However, these two decisions have been the subject of considerable criticism, both in England and even more so in Australia. In JH Rayner (Mincing Lane) Ltd, Maclaine Watson & Co Ltd v Department of Trade and Industry [1988] 3 WLR 1033 Kerr LJ said of Smith Stone :

"... the facts were so unusual that they cannot form any basis of principle." (at p 1099)

156. This comment was quoted with approval by Rogers A-J.A. in Briggs v James Hardie & Co. P/L (1989) 16 NSWLR 549. Rogers A-J.A. went on to say:

"... as the law presently stands, in my view that proposition advanced by the plaintiff that the corporate veil may be pierced where one company exercises complete dominion and control over another is entirely too simplistic. The law pays scant regard to the commercial reality that every holding company has the potential and, more often than not, in fact, does, exercise complete control over a subsidiary. If the test were as absolute as the submission would suggest, then the corporate veil should have been pierced in the case of both Industrial Equity and Walker v Wimborne". (at p 577)

157. In Hardoplane Pty Ltd v Edward Rushton Pty Ltd [1996] 1 Qd.R 156 Pincus J.A. commented that the tendency in Australian courts is against lifting the corporate veil. ^[41] He went on to say that:

"... Australian courts ...[are] inclined to insist on the legal distinction between the rights and obligations of a company which wholly owns another company, on the one hand, and those of the company owned on the other ..." (at p 161)

158. Thomas J in the same case said,

"I agree with Pincus J.A. that the tendency in Australia is against lifting the corporate veil, especially when the parties who create it rely upon its legal existence for collateral benefits." (at p 164)

159. It follows from the above that, although the position is not entirely clear, it would be going against the weight of Australian authority for the corporate veil to be lifted in the circumstances of this case.

160. However, this is by no means the end of the matter. In the Applicants' favour is the approach adopted in the Attorney General's advice, namely that, given the structure of the PRRT Act , a liberal interpretation should be given to the word "person " in s. 20. Moreover, although it is not suggested that the history of the matter creates an estoppel in law, nevertheless the fact that BHPP was reassured that it need not alter its corporate structure in order to enhance its position under s. 20 is clearly a relevant matter, particularly when one looks at the terms of s. 20(1)(b). This requires the Minister to have regard to: "the persons by whom or on whose behalf the operations, facilities and other things ... are being, have been or are proposed to be carried on or provided." (emphasis added)

161. BHPP indicated in its correspondence with the Department as early as 1990 that it was proposing to arrange for the Skua Project to be vested in BHPP (Cartier) Pty Ltd, thereby providing a total commonality of interests held on its behalf. This was the material which was before the Minister when he considered the application for a combination certificate. It is therefore appropriate that he should, at that time, have treated the BHPP entities as one, for this was in accordance with the provisions of the section. As we now know, the transfer was not effected until June 1994, BHPP having been assured that it was unnecessary for the purposes of s. 20 for it to do so. However, the fact of the delay is irrelevant under s. 20, as we are obliged to consider the matter with regard to the material that was available within the qualifying period, namely between October 1990 and February 1991. At that time every indication was that both projects were proposed to be carried on, through BHPP, by the same corporate entity.

162. Accordingly our conclusion under Factor (b) is that there is a high degree of relatedness between the projects.

FACTOR (C)

163. Section 20(1)(c) requires that, in determining whether to grant a certificate, the Minister must have regard to "geological, geophysical, geochemical and other features of the production licence areas in relation to the projects".

164. These words were given the following definitions in the evidence before this Tribunal:

geology: "... the science of the earth's crust, its strata and their relations and changes."; ^[42]; "... the study of the assorted processes that contribute to the formation of the earth's `crust'". ^[43]
geophysics: "...is the physics of the earth and in particular, within oil exploration companies, geophysics [sic] are involved in interpreting seismic sections and preparing structural maps which the geologist then uses to compile a geological history of the area";. ^[44]; "... is largely the study of the earth's crust using remote sensing methods. These methods measure parameters such as density (gravity data) and the magnetic response (e.g. aeromagnetic data) and the time it takes for sound waves to travel through the earth (seismic data) to build up a two-or three-dimensional picture of the earth's crust". ^[45]
geochemistry: "...the chemistry of the earth and again, in oil exploration companies, geochemists are concerned with the organic chemistry of oil formation."; ^[46]; "... is the study of the chemical composition of materials that constitute planet Earth. Organic geochemistry involves the study of organic materials in the Earth's surface layers (comprising lithosphere, atmosphere, hydrosphere and biosphere) that are or were derived through the action of cellular life. The analysis of petroleum source rocks and the factors which affect the chemical composition of oils comes within the field of organic geochemistry". ^[47]

165. "Feature" is relevantly defined in the Oxford English Dictionary as "a prominent or conspicuous part or characteristic".

166. A "production licence area" is defined in s. 2 of the PRRT Act as "a licence area within the meaning of the Petroleum (Submerged Lands) Act 1967 ". That Act defines "a licence area" as "the area constituted by the blocks that are the subject of a licence". ^[48] It would be possible to extend the definition process further within the provisions of the PSL Act , but this would do little to clarify the concept. Factor (c) is clearly referring to the relevant features of the area which is covered by the petroleum production licence issued under Part III of the PSL Act .

167. As to whether there are any "other features" of the production licence area which should be considered by a decision-maker, the only ones which were suggested during the hearing were geographical features. We shall be returning to discuss this later.

168. There are real difficulties in determining how Factor (c) is to be applied in any particular case. Does it mean, as the Respondent says, that there must be a common petroleum pool, reservoir or aquifer within the respective blocks? Or does it mean, as the Applicants say, that they must be part of the same petroleum system? This is the overriding question in relation to Factor (c), as there is little factual dispute between the parties on geological matters. It is the significance of the facts which is at issue. For depending on which criteria are to be adopted, the evidence will almost inevitably favour one or the other party on the issue of the relatedness of these petroleum projects.

169. Identifying the appropriate criteria, however, is by no means a simple matter. Notwithstanding that there was little factual dispute in the case, the concepts involved are extremely complex, particularly to lay people. The evidence on this issue is, to say the least, extensive. It includes several volumes of written material and the oral evidence of numerous experts, some of whom were brought from overseas for the purpose. To reduce all this into a cohesive, meaningful set of reasons is by no means an easy task. We cannot help wondering if Parliament really intended this provision to involve such complex and detailed analyses. Indeed much of our difficulty has been occasioned by a lack of legislative direction in the drafting of s. 20 (1)(c). The explanatory memorandum and second reading speech, which we shall be discussing later, provide little by way of assistance. Moreover one of the three "features" which the decision-maker is required to consider is, in its terms, meaningless. Geophysics is aimed at providing data which enable geologists to compile a geological history of the Earth's crust. Or to put it another way, geophysical data will assist in identifying the geological features of an area. But there can be no such thing as a "geophysical feature" of an area. Accordingly the decision-maker is left to grapple with the other two concepts, namely the geological and geochemical features of the production licence areas in relation to the projects.

170. We turn now to the issues in this case and we propose to frame our discussion of Factor (c) as follows. First we shall give a description of the general processes leading to the accumulation of petroleum. Then we shall discuss the geological and geochemical features of the Vulcan Sub-basin, with particular reference to the Jabiru, Challis and Skua production licence areas. We shall then turn to the particular features of the production licence areas which the parties say should be used as the basis for our findings under Factor (c), and shall discuss the various arguments in relation to them before reaching our conclusion.

THE ACCUMULATION OF PETROLEUM

171. There are several elements which are essential for the accumulation of petroleum (hydrocarbons). These include mature source rock, overburden rock, expulsion of hydrocarbons from the source rock, migration of hydrocarbons, porous and producable reservoir rock, an impermeable seal rock, a hydrocarbon trap, accumulation of hydrocarbons, and preservation after accumulation. Mr AF McIntosh, who is a geophysicist employed by BHP, noted in his affidavit, "[t]he absence of any one of these factors eliminates all possibility of a hydrocarbon accumulation. ^[49]

172. The source rock is invariably very old. In the case of Jabiru, Challis and Skua it was deposited over a 15 million year period between about 140 and 157 million years ago. It necessarily contains a significant amount of organic matter which, over a period of time, forms a solid mass known as "kerogen". The source rock is then buried under other rock (the overburden rock). Over time, with increasing burial, the temperature of the source rock increases. At temperatures of 100 degree C or higher, the kerogen breaks down and transforms into oil and gas. The pressure continues to build up and eventually becomes so great that the oil is expelled from the source rock. Sometimes this process is described as the "cooking" of the oil, and source rock is often referred to as a "source kitchen".

173. The oil will then migrate along the path of least resistance, usually along fault lines or through porous rocks such as sandstone. The oil is accompanied by water, and is generally driven by buoyancy to move in an upward direction, or sometimes horizontally, from areas of higher to lower pressure. It never travels downward.

174. The migration process is still not fully understood by geologists, but oil can travel many kilometres before it finally reaches a "trap". This occurs when further migration is prevented by impermeable rocks overlaying the porous rocks containing the oil. The overlying rock is called the "seal", and the porous rock in which the oil is trapped is the "reservoir".

175. Underneath virtually every hydrocarbon accumulation is a volume of water ("the aquifer"). Any extraction process will gradually deplete the oil accumulation, so that the water/oil ratio will increase and ultimately the petroleum component will become so low that any further recovery from the field will be uneconomical. This is what has now happened at Skua, the smallest of the three Timor Sea fields.

176. It is possible for a single source kitchen to be the source for oil trapped in many reservoirs, sometimes geographically quite distant from each other. When this occurs, each accumulation which has its source in the same source rock is said to be part of the same oil family, and the system which includes the source rock and all possible accumulations deriving from it is called a single petroleum system. We shall be discussing both these concepts later, for it is the Applicants' case that Jabiru, Challis and Skua all belong to the same oil family and are part of the same petroleum system, and that they thus bear a close relationship to each other from a geological and a geochemical point of view. The Respondent, however, says that this cannot be the appropriate test under Factor (c), for these characteristics have no bearing on the recovery or production of petroleum and, in any event, could not be described as "features of the production licence areas in relation to the project".

177. This brings us to a description of the features of the Vulcan Sub-basin, or at least those that are relevant to this inquiry.

GEOLOGICAL FEATURES OF THE VULCAN SUB-BASIN

Introduction

178. The primary sources of information as to the geological features of any off-shore area derive from remote-sensing surveys (principally using seismic technology) together with the physical analysis of substances recovered at various levels during drilling operations. With technological advances, the geological and geophysical information is constantly increasing. Accordingly there were a number of respects in which the information available to us differed from that which was before the Tribunal at the earlier hearing. It was certainly more detailed and sophisticated. For example Mr McIntosh showed us a series of computer-generated three-dimensional pictures which depicted various phases of the geological features of the Vulcan Sub-basin both in terms of depth and thickness. The thickness data enabled Mr McIntosh to reconstruct the features of the area at various points of time, going back 250 million years. This demonstration was accompanied by what can only be described as a very detailed lecture in advanced petroleum geology which, in all, occupied nearly 3 hearing days.

179. There were some minor respects in which the information before us contradicted evidence which had been presented to the earlier Tribunal, but not on any matter of significance. There was one matter of substance, namely the source of the oils extracted at Jabiru, Challis and Skua, in which opinions expressed at the last hearing have now strengthened. Accordingly this matter which was potentially in dispute then is no longer so now, although the significance of this fact remains very much in issue.

Geographic Position of the Respective Production Licence Areas

180. Factor (c) refers to the various features of the "production licence areas". Attachment "B" to this decision shows the geographic location of those areas, relative to the Australian mainland. As can be seen, Jabiru shares a boundary with Challis/Cassini, whereas Skua is some distance away towards the south west. The water depth is about 85 metres at Skua, and respectively 110 and 105 metres at Jabiru and Challis. Conversely, the sub-sea wells are deepest at Skua (over 2,000 metres) compared to about 1,600 metres at Jabiru and 1,340 metres at Challis.

181. AC/L4 (the Skua production licence area) is at the southern end of the Vulcan Sub-basin, not far from the Browse Basin. AC/L1 - 3 (Jabiru and Challis/Cassini) is towards the east of the mid-section of the Sub-basin, close to the Londonderry High.

Geological History of the Vulcan Sub-basin

182. We propose here to give only a thumb-nail description of the major geological events which have fashioned the present day Vulcan Sub-basin. In doing so we are putting to one side the thesis, presented by Dr G W O'Brien on behalf of the Respondent, that the rifting episode ("tectonic event") which caused the most significant rifting in the Vulcan Sub-basin occurred about 300 million years ago, causing a number of north west/south east trending faults. If this was correct, it would mean that Skua was situated on a geologically separate structure from Jabiru/Challis. This theory was described by the Applicants' witnesses as being possible but hypothetical, and as involving events which were so early in time that any structures then created would be too deeply buried to be of any real significance to the present day geology of the area. The depth (over 10 kilometres) also means that Dr O'Brien's theory can neither be proved nor disproved. It is not possible to drill to such depth, and remote sensing tools have poor resolution at that depth.

183. Putting Dr O'Brien's theory aside for the moment, it is generally accepted that there have been two major rifting events in the Vulcan Sub-basin, both of them in the late Jurassic period. The first, which commenced about 157 million years ago, was part of the extensional pressure which saw the continental separation of the Indian and Australian plates. This extensionism created a number of faults within the area and it is probable that during this period the Skua Trough and the Swan Graben (which we shall be describing shortly and which were then a single basin) changed from being a "sag basin" (a depression similar in shape to a soup plate) to a faulted basin.

184. The second major rifting event in the Vulcan Sub-basin occurred in the inter-Kimmeridgian/Tithonian stage, namely about 140 million years ago. That event caused a great deal of faulting in the area, with the appearance of numerous horsts and grabens. (A horst is an upthrown area between two roughly parallel faults, and a graben is the opposite, namely a depression caused by faulting on each side.) It was this event which created the trap formations at each of Jabiru, Challis and Skua.

Geological Structure of Jabiru, Challis and Skua

185. The structures at Jabiru, Challis and Skua were all caused by the same tectonic event and are thus of the same age. Both Jabiru and Challis are described as horst block structures, Jabiru being on the Jabiru-Turnstone horst and Challis on the Cleghorn horst. Skua is a tilted fault block structure on the Skua horst. The nature of these structures is illustrated diagrammatically in Attachment "C" to these reasons. ^[50]

Reservoirs at Jabiru, Challis and Skua

186. The reservoirs at both Jabiru and Skua are of early to middle Jurassic age and of Plover formation. This means that they were laid down between 210 and 157 million years ago. The reservoir at Challis is much older. It is of middle to late Triassic age (220 to 230 million years old). The horst block at Challis was thrown much higher than at Jabiru, leading to greater erosion at its top and less deposition above it of subsequent sediments. Accordingly, the older Triassic rock is much closer to the surface at Challis than it is at Jabiru or Skua.

187. According to Mr GJ DeMaison ^[51] , the age of the reservoir has no relevance. As he put it "[t]he age range has no relevance because we are dealing with a very homogenous sandstorm [sic] package." ^[52] However it is apparent that some of the characteristics of reservoirs, particularly their porosity, can be important to petroleum recovery, for the greater the porosity of the reservoir rock the higher will be the relative volume of oil. In this respect, Mr McIntosh described the Plover formation at Jabiru and Skua as "the premier reservoir in the region". ^[53] The Challis formation, he said, includes more non-porous material and thus contains less oil. ^[54]

188. Although the production licence areas at Jabiru and Challis/Cassini are adjacent to each other, their reservoirs are entirely separate. However it is likely that the oil fields at Jabiru and Challis are supported by the same underlying body of water or "aquifer". We shall be returning to discuss this later.

189. At Challis/Cassini there is a single petroleum pool but there are several distinct reservoirs within the field.

The Seal

190. The seal is an impermeable rock which overlies the sandstone reservoir and acts as a barrier to further migration by the petroleum. The whole of the Vulcan Sub-basin is covered by a relatively uniform blanket of sedimentary rocks of Cretaceous age (70 to 110 million years old) which has at its base thick clay-rich impermeable strata which provide the necessary seal at each of Jabiru, Challis and Skua.

Source Rock for Oil at Jabiru, Challis and Skua

191. In order to be capable of generating petroleum, the source rock needs to be not only rich in organisms but it must also be at least 500 metres in thickness, preferably more. Therefore source rock is normally found in structural basins, be they troughs (sag basins) or grabens.

192. It appears to be generally acknowledged that the Vulcan Sub-basin contains two structure basins capable of containing source rock. They are:

(1): the Cartier Trough and Paqualin Graben; and
(2): the Swan Graben and Skua Trough.

The Cartier Trough lies to the north west of the Sub-basin, but extends some distance towards the south west where it narrows into the Paqualin Graben. The Swan Graben and Skua Trough are physically separated by the Skua horst, but were once a single basin and a single "depocenter" for source rock.

193. One of the Applicants' key witnesses on this occasion (he did not give evidence at the last hearing) was Mr G.J DeMaison, a consultant in international petroleum, geology and geochemistry, living in California, USA. We shall be discussing his evidence again later, for he was one of the principal proponents of the "petroleum systems analysis" as a relevant criterion in this case. Mr DeMaison's expertise in this field is beyond question, and much of his evidence was undisputed. He described the source rock in the Cartier trough as very "mediocre", and it is certainly the case that the only three commercial accumulations in the Vulcan Sub-basin, namely Jabiru, Challis and Skua, have their source in the Swan Graben and the Skua trough.

194. We are talking here about very deep structures. The oil window (the point at which source rock gains the thermal maturity to commence generating petroleum) is at least 3 kilometres deep. In the Swan Graben the source rock is about 2 kilometres thick, and somewhat less in the Skua Trough.

195. The identification of the source kitchen for Jabiru, Challis and Skua was a matter of some contention at the earlier hearing before the Tribunal. This is one of the aspects in which geological, geophysical and geochemical advances in the meantime have enabled clarification of an issue which was then uncertain. For there is now no dispute that the petroleum pools at Skua and Challis each have their source in the Skua Trough, nor that the Jabiru field receives at least the major part of its petroleum charge from the Swan Graben. As to Jabiru, Mr DeMaison says that a small proportion of the pool, perhaps 20 to 30 percent, comes from the Skua Trough. However other witnesses, including Mr McIntosh, dispute this, and consider that the whole of the Jabiru oil comes from the Swan Graben. In the event, this question is academic to the issues in this case, and we shall not be discussing it further. For what it is worth, we propose to accept the bulk of the evidence on this subject and to treat the Jabiru oil as emanating entirely from the Swan Graben.

196. The real issue relating to the source rock (assuming the source rock to be relevant at all, a matter which the Respondent disputes) is whether the Swan Graben and Skua Trough can be considered a single source kitchen, given that they are now structurally separated by the Skua horst and, for about the last 140 million years, have comprised separate basins. It is in that period, since they were separated, that the source rock has commenced generating petroleum. Therefore, according to the Respondent, they should be considered as two separate oil kitchens.

197. It is questionable whether this argument assists the Respondent, given that Skua and Challis are both acknowledged to receive their oil from the Skua Trough. In any event, as we shall be discussing later, the evidence overwhelmingly supports the proposition that it is the environmental conditions at the time of the deposition of the source rock which determines the characteristics of the rock, and thus of the oil which is generated from it. Moreover one of the significant environmental conditions is the architecture, or geometry, of the depocentre (the depositional basin). A deep, narrow basin (as the Swan Graben and Skua Trough were before they were separated) comprises a much more favourable depositional environment, according to Mr DeMaison, than an open, less restricted basin such as the Cartier Trough.

198. In this case, the evidence indicates that the source rock was, to a significant extent, deposited before the separation of these two basins. As to the timing of the relevant events, there is some variation in detail, for we are talking about events which occurred between 135 and 160 million years ago, and as Mr DeMaison observed, precision in these circumstances is impossible. However Mr DeMaison describes the source rock as being Oxfordian lower Vulcan source rock, meaning that it was deposited in the Oxfordian stage of the late Jurassic epoch (between 151 and 159 million years ago) and that it is of lower Vulcan formation. He describes the deposition of the source rock as having occurred over a period of some 15 million years before the intra Kimmeridgian/Tithonian rifting episode, 135 to 140 million years ago, which threw up the Skua horst.

199. Mr McIntosh agrees that the source rock is Oxfordian in age and lower Vulcan in formation, and that the process of its deposition took about 15 million years. However he says that the rifting episode which resulted in the separation of these basins took place during the 15 million year period, not after it. He could not say at what stage of the deposition process the basins were separated. However it was not, he said, at the beginning the period.

200. Finally on the subject of source rock, further mention must be made of the "gas cap" at Skua. A gas cap is a pool of gas in the upper part of the reservoir rock within the trap. There was a gas cap at Skua, but not at either of Jabiru or Challis. Within the first few months of production at Skua the gas cap was "blown off", and since then it has had no impact upon production. However it was suggested in the Respondent's affidavits that the existence of the gas cap at Skua resulted in a different pattern of source rock maturation, and that the source rock for Skua was thermally more mature than for the other fields. This was refuted by the Applicants' witnesses, who pointed out that the most mature oil is at Jabiru not Skua. The existence of a gas cap, they said is indicative only of better trap integrity at Skua than at the other fields, where excess gas has found an outlet to escape to the surface.

201. In the circumstances, we accept that the existence of the gas cap at Skua has no relevance to any substantial issues under Factor (c).

Geochemical Features of the Vulcan Sub-basin

202. The geochemical evidence presented to us essentially related to the geochemical features of the oil recovered from Jabiru, Challis and Skua (as well as that from a number of other sub-commercial accumulations in the Vulcan Sub-basin). However as a BHPP geochemist, Dr G Woodhouse pointed out, geochemistry is not restricted to the analysis of oils. ^[55] Indeed he said that most reservoir geochemistry consists of the study of rock samples recovered during the drilling process. ^[56] This can be very important to production, as the analysis of fluids within the reservoir rock can assist in determining the volume of oil within the reservoir.

203. The breadth of the discipline of geochemistry was also stressed by the Respondent's geochemical expert, Dr R Summons, who listed the possible geochemical features of a petroleum province to include:

(a): the chemical makeup of organic rich source rocks and petroleum accumulations that have been generated from them;
(b): the chemical features of the carrier beds along which petroleum has migrated and the reservoir beds in which it has accumulated;
(c): the characteristics of any sediments through which petroleum has migrated to the surface environment; and
(d): the inorganic chemical features of the rock units as they influence the petroleum habitat. ^[57]

204. In addition, he said, the geochemical features of an area can include the chemical characteristics of the hydro-carbons in an accumulation. ^[58]

205. The geochemical evidence before us was essentially restricted to the last matter referred to by Dr Summons, namely the chemical attributes of the hydrocarbons found at Jabiru, Challis, Skua and elsewhere on the North West Shelf. The main evidence on this matter came from Professor Moldowan on behalf of the Applicants and Dr Summons on behalf of the Respondent.

206. Professor Moldowan was retained by the Applicants for the purpose of the proceedings before us. He was not involved in the previous hearing before the earlier Tribunal. In 1995 he conducted a series of geochemical analyses of 24 oils, selected by him and Mr DeMaison from a list of available samples in the North West Shelf area. The selection was made with the twin objectives of providing a real coverage of the Vulcan Sub-basin and also including samples from the Barrow and Dampier Sub-basins which are some distance to the south west. Samples from Jabiru, Challis, Cassini and two from Skua were among those tested.

207. In Professor Moldowan's resultant report ^[59] he concluded that these oils could be divided into eight petroleum families. The first of these (which he described as Group I: Vulcan Sub-basin oils) consisted of the oils from Skua (two wells) Challis, Cassini, Jabiru, Puffin, Birch and Talbot. Groups I-V all derived from areas within or near the Vulcan Sub-basin (or the "Vulcan Graben" as Professor Moldowan called it). To use Professor Moldowan's words:

"Oils within each of these families are determined to be genetically related, and distinguished from each other family. These genetic relationships are based on biomarker and carbon isotope parameters that record the diversity of organic matter input and/or effects of deposition environment on that organic matter that was incorporated into the source rock at the time of deposition." ^[60]

208. In his evidence, Professor Moldowan described the factors which combine to create these genetic differences:

"... genetic differences that are manifested in the geo-chemistry can be related to the input of the organic matter to the source rock, the organic matter being the source of the oil basically, the material source of the oil and the organic matter comes from organisms that live on the surface of the earth, so differences in the flora and fauna which - whose remains became part of that source rock would be one component of the genetic input, shall we say, to the source rock. Another component would be the conditions during the process that we call early digenesis in which chemical conditions of the basin act upon the organic matter to alter the chemistry of the compounds ... [These chemistries] ... can be altered in some cases ... and related back to what kind of environmental conditions occurred in that basin, those environmental conditions could be either having to do with the chemistry of the water, could be salinity, could be whether it's fresh water or saline ... It could be PH [sic] ... the other environmental factor which could be very important is the amount of oxygen in the water..." ^[61]

209. The concept of an "oil family" has already been mentioned and will be discussed again later. For present purposes it is sufficient to say that oils are members of the same oil family if they have their origin in the same source rock.

210. In his evidence Professor Moldowan repeated his view that Jabiru, Challis, Cassini and Skua all belong to the same oil family. He described Jabiru, which is more mature than the other oils, as a "a bit of a variant" or an "outlier" which on some parameters was close to the Barrow and Dampier oils. However this did not affect his view that it was part of the same oil family as the other Group 1 oils. The differences, he said, were attributable to the fact that the Jabiru oil is considerably more mature than the other Group I oils.

211. Dr RE Summons gave evidence for the Respondent on this aspect of the matter. He had been involved in a study conducted by the Australian Geological Survey Organisation ("AGSO") in conjunction with the Houston-based geochemical company, GeoMark Research Inc. This involved the analysis of over 350 Australian crude oils. At the time he swore his affidavit (1 May 1996) Dr Summons was not in a position to reveal the precise data or results of that survey, but he indicated that the classification of oil families differed from the classification in Professor Moldowan's report. Dr Summons described Professor Moldowan's methodology and findings as flawed and his affidavit contained a number of criticisms of the processes adopted by Professor Moldowan. However by the time Dr Summons came to give his evidence, the AGSO/GeoMark survey had been published. In that survey Dr Summons had reached essentially the same conclusion as Professor Moldowan, namely that Jabiru, Challis and Skua were members of the same petroleum family. Dr Summons' qualification as to Jabiru being an "outlier" was somewhat greater than that of Professor Moldowan, but his findings, as relevant to this case, were essentially the same as Professor Moldowan's. This being the case, we should put on record our concern that Dr Summons' affidavit should have been so critical of Professor Moldowan's methodology. The only reasonable purpose for criticising a survey's methodology is to lay the groundwork for impugning its findings. In this case, as we later learnt, there was no real dispute as to Professor Moldowan's findings. In these circumstances, we considered that the type of criticism contained in Dr Summons' affidavit introduced an unnecessarily adversarial flavour into the proceedings.

212. The allocation of particular oils to oil families was one of the areas of scientific knowledge which has advanced since the last hearing. On the last occasion, Dr Woodhouse had classified the Talbot oil as belonging to a different family from Jabiru, Challis and Skua, whereas Professor Moldowan later put them into the same family. Dr Woodhouse in his evidence before us willingly accepted that Professor Moldowan's conclusion would be the correct one, describing him as "the pre-eminent geochemist in the world", and acknowledging that his own work had been superseded by Professor Moldowan's and Dr Summons' studies. And although it is not suggested that the classification of the Talbot oils has any direct bearing on the issues in this case, the Respondent relied upon this sequence of events as illustrating the inexact nature of these sciences: one can never be entirely confident, it was submitted, that a conclusion which appears reasonable today might not be reversed tomorrow.

213. As with most other issues in this case, there was, as it transpired, very little factual dispute between the parties as to the chemical composition of the oils from Jabiru, Challis and Skua, that being the only area of geochemistry which was presented to us in any detail. It was the significance of these facts which was very much in dispute.

214. This takes us, finally, to a discussion of the one truly contentious issue under Factor (c), namely the criteria to be adopted in determining the level of relatedness of the Jabiru/Challis and Skua projects, having regard to the "geological, geophysical and geochemical and other features of the production licence areas" in relation to the projects.

HOW IS FACTOR (c) TO BE APPLIED?

Applicants' Submissions

215. The Applicants' case has always been that Jabiru, Challis and Skua are part of the same petroleum system in that their oils derive from the same pod of active source rock. Accordingly their oils are all genetically related and are members of the same petroleum family. This, it is urged, is as close a geological and geochemical relationship as could be found, except perhaps by the sharing of the same petroleum pool.

216. Before exploring the merits of this submission we should say something more about the concept of a petroleum system. A petroleum system is defined by Magoon and Dow (the acknowledged authority in this area) in the following terms:

"A petroleum system encompasses a pod of active source rock and all related oil and gas and includes all the essential elements and processes needed for oil and gas accumulations to exist. The essential elements are the source rock, reservoir rock, seal rock, and overburden rock, and the processes include trap formation and the generation - migration - accumulation of petroleum. All essential elements must be placed in time and space such that the processes required to form a petroleum accumulation can occur." ^[62]

Mr DeMaison described this as the "benchmark definition" of a petroleum system. ^[63]

217. In order to determine the existence and extent of any petroleum system it is first necessary, according to Professor Moldowan and Mr DeMaison, to investigate a representative sampling of the oils recovered from the basin under consideration. If several genetically different oil families are found, then it is likely that several petroleum systems exist in the basin. However a geochemical analysis alone cannot be conclusive. The geochemical data must then be checked against the known geological features of the basin. If the geological framework and the chemical distribution of oil families are compatible with each other, then it is possible to segregate distinct petroleum systems within the same basin. ^[64]

218. This, according to the Applicants' witnesses, is precisely what has occurred in the Vulcan Sub-basin. The geochemical and geological information all point in the same direction, namely that there are two petroleum systems within that sub-basin, one having its source in the Swan Graben and the Skua Trough and the other having its source in the Cartier Trough and the Paqualin Graben. The first, which is the commercially more viable of the two, includes Jabiru, Challis and Skua.

219. We have already referred to the Respondent's contention that, because the Skua Trough and the Swan Graben are now separated by the Skua Horst, they should not be regarded as comprising a single source kitchen. However the evidence appears overwhelmingly to support the Applicants on this issue. Virtually every witness who addressed this point agreed that it is the conditions at the time of deposition of the source rock which establish the genetic characteristics of the oil which is later generated from the rock. And although Mr McIntosh said that there may have been some further deposition of source rock after the rifting episode which separated the Swan Graben from the Skua Trough, this was apparently insufficient to establish two separate petroleum systems. Even the Respondent's witnesses, Mr CS Robertson and Dr Summons, agreed that Jabiru, Challis and Skua belong to the same petroleum system, although they disputed the relevance of this. ^[65]

220. Even if these witnesses were all wrong, one would wonder how it could avail the Respondent in any significant way, for the result would be to isolate Jabiru from both Challis and Skua, something which would be conceptually quite difficult in the circumstances of this case. Fortunately we do not have to resolve this dilemma, as we have no difficulty in finding that all three fields belong to the same petroleum system and thus that their oils belong to the same oil family.

221. There is, it appears, a geological hierarchy which consists, at its most general point, of a "supersystem" or region, (which in this case encompasses the whole of the North West Shelf), then a "basin" (here the Vulcan Sub-basin) then, according to Mr DeMaison, a petroleum system (here the system which has its source in the Swan Graben/Skua Trough). ^[66] Mr McIntosh describes this level as consisting of "plays". A "play" is defined in the Dictionary of Petroleum Exploration, Drilling and Production ( Penwell, 1991 ) in the following terms: "a particular reservoir rock, cap rock, and trap type that has proven to contain commercial petroleum by previously discovered petroleum fields of that combination in that area. More fields of that play can be expected to be found." Mr McIntosh says that Jabiru, Challis and Skua are classified as all being of the same play type, namely the Base Cretaceous play type, which consists of a faulted pre-Cretaceous reservoir overlain by a Cretaceous seal and sourced by upper Jurassic shales from the Skua Trough/Swan Graben. ^[67] At the bottom of the hierarchy, according to both Mr McIntosh and Mr DeMaison, is a "prospect", being an undrilled, untested sub-surface trap with economic potential.

222. The fact that Jabiru, Challis and Skua all belong to the same petroleum system is, according to the Applicants, a matter of great significance in these proceedings, for it establishes a close relationship between them. In support of this proposition, Mr Nettle referred us to various parts of the study in which the Respondent's own officers participated, namely the AGSO GeoMark Study described earlier. This Study, named the "Western Australian Geochemical Study", analysed the characteristics of a large number of oils from five petroleum supersystems in the western half of the Australian continent. The result, according to the authors, "... is a strong validation of the petroleum systems concept, although it is not unexpected since oil compositions reflect source rock character as determined by geological factors such as depositional environment and tectonic setting." ^[68] As already indicated, the survey concluded that the Jabiru, Challis and Skua oils all belong to the same oil family although there were some significant differences in the Jabiru oils.

223. Mr DeMaison said in his report: "Petroleum system investigations are now in the forefront of petroleum geology, because of major advances made in geochemical technologies during the 1970's and 1980's ... The petroleum system approach, informally proposed by Dow in the early 1970's, ... has become widely used by most major international oil companies since the mid-1980's. It is now a standard tool of international petroleum geology, and the prime subject of the benchmark American Association of Petroleum Geology Memoir 60, edited by Magoon and Dow in 1994: `The Petroleum System - From Source to Trap'". ^[69]

Respondent's Submissions

224. The Respondent says that the petroleum system approach cannot be the appropriate one under Factor (c). There are, it is submitted, a number of reasons for this which we will set out but briefly here. All significant issues will be discussed in more detail in the next section of these Reasons.

225. The Respondent's overriding submission is that the only geological etc. features which can be taken into account when assessing the relatedness of petroleum projects under Factor (c) are features which are in some way related to the recovery and production of petroleum. Any other features of the production licence areas are, it is submitted, of academic interest only and can have no bearing upon the issues raised under section 20 of the PRRT Act .

226. In addition to this overriding submission, the Respondent raised a number of issues which to some extent vary according to whether it is the geological or geochemical features which are under consideration. Accordingly we shall deal with each of these features separately.

227. Factor (c) requires the decision-maker to have regard to the geological etc features of the production licence areas . The Respondent contends that belonging to a particular petroleum system cannot be described as a geological feature of a production licence area, for it is necessary to go outside the area in order to ascertain the single feature that will differentiate a member of any one petroleum system from members of any other system, namely the identification of the source rock from which its oil accumulation has gained its charge. The Respondent points out that there is no observable geological (as opposed to geochemical) feature within any production licence area which results from its being a member of one petroleum system as opposed to another.

228. Finally the Respondent submits that, when one considers the Applicants' evidence relating to the geological features of the Jabiru, Challis and Skua production licence areas, the only relationship which could possibly be said to exist between them is one of similarity. This has been found to be irrelevant to issues raised under section 20 of the PRRT Act .

229. The Respondent's primary submission with respect to geochemical features mirrors its submission in relation to the geological features of the area. It is not permissible, we were urged, to go outside the production licence areas in order to establish some commonality of features within those areas. Therefore, the fact that oil accumulations within a production licence area emanate from the same source rock could not be described as a feature of that area.

230. The Respondent submits that the family metaphor is a bad one. The word "family" appears to connote a close relationship between its members, but in fact these oils are joined by nothing more than genetic similarities which are also shared by all other members of the same petroleum system, a potentially very large group. As such, the "family" is too extensive for the relationship between its members to be a meaningful one. In any event, the relationship, being based on similarities alone, is not relevant to any issue under Factor (c).

231. Finally (and this is reverting to its overriding submission) the Respondent contends that even if, contrary to its earlier submissions, the classification of the Jabiru, Challis and Skua oils into a single oil "family" creates a geochemical link between their respective oil accumulations, it is still not a relationship which can be taken into account under Factor (c). For the genetic classification of oils into oil families is relevant only to establish the source of the oils, a matter which is highly significant in the exploration of petroleum, but which has no bearing at all upon its recovery or production. And according to the Respondent it is only features which are relevant to the production of petroleum which can have any bearing on considerations under Factor (c).

232. In the final analysis, the Respondent's case is that there can be only one geological, geochemical or geophysical feature which it is relevant to consider under Factor (c), namely the existence of fluid communication between the reservoirs in the respective production licence areas. This can take the form either of a common petroleum pool or an underlying aquifer which straddles the respective areas. These, the Respondent says, are the only features which can have any impact upon the recovery or production of petroleum by the respective projects. As between Jabiru and Challis, there is no common petroleum pool, but it is likely that there is a common aquifer which underlies the pools in both areas. This is not the case with Skua, where the aquifer pressure gradient is different from at that Jabiru and Challis, thus eliminating any possibility of its being common to all three areas. Accordingly, the Respondent says, an appropriate geological and geochemical link has not been established between the projects at Jabiru/Challis and at Skua.

233. In mounting its submissions the Respondent relied upon the affidavit evidence of a number of geologists and geochemists, and also on a number or reports by Gaffney Cline. ^[70] In its 1992 report, Gaffney Cline expressed the view that the most significant features of the production licence areas in relation to the projects were the hydrocarbon reservoirs. It concluded that there was no reservoir communication between Jabiru/Challis and Skua, and proceeded:

"Consideration of other geological, geophysical and geochemical factors is not pertinent to the projects. A detailed analysis, for example, of the relative ages of the reservoirs, trap styles, seals and source rocks etc. inevitably provides similarities between the fields; however these factors do not define or impact upon the project once it has been established that the petroleum pools are separate. A petroleum pool has specific subsurface characteristics such as areal coverage, hydrocarbon column height, fluid type, pressure, temperature etc. that define the mechanism by which it can be exploited. The relatedness of two pools becomes clear when their proximity and characteristics are such that specific engineering considerations allow for a form of unification, or production from one reservoir impacts upon the performance of another. Theoretical analyses of the geological factors such as reservoir age provide interesting analogies but if they were regarded as criteria that affected a petroleum development project then the conclusions drawn could be somewhat ludicrous in a worldwide context." ^[71]

Discussion of Issues under Factor (c)

234. Factor (c) requires a consideration of the "geological, geophysical and geochemical and other features of the production licence areas in relation to the projects". For reasons already given, there can be no such entity as a "geophysical feature" of any area. Geologists can utilise geophysical techniques such as seismic surveys in compiling geological pictures and histories of the Earth's crust and its strata. However the adjective "geophysical" cannot qualify the word "feature". The only way any meaning can be attributed to this phrase is by including amongst the geological features of the production licence areas, those features which are ascertainable by geophysical means.

235. It is relevant here to consider the Explanatory Memorandum and the Second Reading Speech of the PRRT Act as they relate to this issue. Unfortunately they provide little by way of assistance.

236. The Explanatory Memorandum recites the provisions of s. 20(1)(a) and (b) without comment. In relation to paragraph (c), it says:

"the geological, geophysical and geochemical and other features of the production licence areas ( paragraph (c )) - the Minister would, for example, be required to take into account the fact that two production licences entitle the licensees to recover petroleum from the same discrete petroleum pool." ^[72]

The Second Reading Speech was delivered by the Hon. John Kerin MP on 21 October 1987. It contained only a very general reference to the granting of combination certificates:

"As a practical matter, two or more projects will be treated as a single project for tax purposes where the Minister for Primary Industries and Energy, having regard to relevant factors, considers that they should be so treated and issues a certificate to that effect." ^[73]

237. Having derived little assistance from these statutory aids, we turn to a further matter of law which was discussed during counsels' submissions, namely the effect, if any, of the Federal Court judgment on this aspect of our deliberations.

238. It is necessary here to return to the Reasons given by the previous Tribunal after the earlier hearing. Having dismissed the application for want of jurisdiction, the Tribunal went on to consider the merits of the application and determined that, had jurisdiction existed, it would have found that the Jabiru/Challis and Skua projects were sufficiently related to be treated for the purposes of the Act as a single petroleum project. In relation to Factor (c), the Tribunal discussed the matters which were disputed between the parties, including whether Jabiru/Challis and Skua belonged to the same petroleum system, and the genetic relationship between their oils. It concluded that the projects were related under section 20(1)(c). In doing so the Tribunal rejected the opinions expressed in the Gaffney Cline report namely that the projects could only be related if there was a direct communication between their reservoirs.

239. This overall finding in relation to Factor (c) was the subject of several grounds of contention in the Respondent's Notice of Contention in the Federal Court. One of these was in the following terms:

"That the Tribunal erred in law in rejecting the construction of paragraph 20(1)(c) of the Act (paragraph 118), and should have construed that provision, as requiring that communication between reservoirs is fundamental to `relatedness'." (para 8)

In its written submissions to the Federal Court, the Respondent reiterated its contention that communication between reservoirs is fundamental to a finding that the projects are sufficiently related for the purposes of paragraph 20(1)(c) of the Act. The Applicants' written submissions refuted this proposition. Paragraph 77 was as follows:

"The critical legal question is whether it is essential to s.20(1)(c) that there be communication between reservoirs. The Applicants contend that it is clear under s.20(1)(c) that while communication between reservoirs is a relevant geological feature in the application of s.20(1)(c), it is not essential. If communication were intended to be essential, s.20(1)(c) at s.20(1) would have said so. In fact, the section does not mention communication, and does not differentiate between geological features. There is no warrant to read the section so that the absence of communication is conclusive, and in effect, over-rides the other factors that are referred to in ss.20(1)."

240. Neither of the majority judges in the Federal Court (Jenkinson and Beaumont JJ) discussed this issue directly. They based their findings solely upon the Tribunal's erroneous reliance upon the "similarity" of the geological etc features of Jabiru/Challis and Skua production licence areas. Heerey J, (who was in the minority only in relation to the question of whether the Tribunal had in fact relied upon the erroneous "similarity" test) dealt separately with the issues raised under each of paragraphs (a), (b) and (c) of sub-s. 20(1). In relation to (c) he said:

"The Tribunal reviewed carefully and in considerable detail the many conflicts in the evidence of the various experts. For present purposes it is not necessary to refer to that evidence at any length. It is sufficient to point out that occasional references in the Tribunal's reasons to `similarity' fit quite logically and understandably into the legitimate exercise of determining whether there was a common source of oil and cannot fairly be taken as erecting a separate and improper legal criterion...

In the event, the Tribunal rejected the respondent's case that `communication between reservoirs is fundamental to `relatedness'' for the purpose of s 20(1)(c). The Tribunal noted that the Jabiru/Challis combination (where the respondent had issued a s 20(1) certificate) failed that test.

The Tribunal concluded its discussion of this section of the evidence as follows:

`125. We have considered the evidence put forward in relation to the architecture within the Vulcan Sub-basin, the age and type of the fault structures which trap the oil, whether the fields are all of the same `play' type, whether the fields all have the same source kitchen and whether the oils produced have similar compositions, and we have evaluated it in terms of the factors set out in paragraph 20(1)(c). Having regard to the evidence, the Tribunal has concluded that the projects are related.'

The respondent did not suggest there was no evidence to support this conclusion on the ultimate issue." (p 186-187)

241. As was noted earlier, in respect of the Tribunal's ultimate findings Heerey J said:

"In the present case the Tribunal dealt with a large body of complex and conflicting evidence. The fairness of the procedures it adopted is not questioned. Nor is any complaint made about its primary fact finding (other than the point - which for the reasons already mentioned I find not sustained - about the exposure of its reasoning). Viewed broadly the ultimate conclusion the Tribunal reached seemed one very much open on the evidence before it." (p 188-189)

242. According to the Applicants, it follows from all this that it is at least open for us, on this occasion, to reject the Respondent's submission that relatedness under Factor (c) requires a communication between the reservoirs of the respective projects. Not only did Heerey J (albeit that he was in the minority) expressly discuss the issues under section 20(1)(c) in terms which appeared to endorse the Tribunal's rejection of the Respondent's contentions, but the majority judges, having had the matter directly raised before them, failed to give any direction to the incoming Tribunal to the effect that the conclusion reached by the previous Tribunal was legally untenable.

243. The issues under Factor (c) raise a number of questions. The first is an overriding question which needs to be explored at the outset. The others, which to a large extent flow from it, can best be dealt with separately in relation to the respective geological and geochemical features of the production licence areas.

244. The overriding question under Factor (c) is whether it concerns only those geological etc features which are relevant to the recovery and production of petroleum (as the Respondent urges) or whether it can also include features which are relevant to exploration (as the Applicants urge).

245. If the Respondent's contentions are correct, then it will significantly restrict the features which can be taken into account under Factor (c). Indeed, the only geological feature which would probably then be relevant to the relatedness of the projects would be the existence or otherwise of a fluid communication between the reservoirs. The Applicants counter this by saying that if the relevant considerations under Factor (c) are as restricted as this, why did Parliament couch s. 20(1)(c) in such apparently wide terms? If the legislature had intended that there should be only one or two geological and geochemical criteria of relatedness, why did it not specify them accordingly.

246. It might be argued, in answer to this criticism, that a restrictive provision has been inserted into s. 20. We shall assume for the moment that the final phrase in s. 20(1)(c) ("the geological, geophysical and geochemical and other features of the production licence areas in relation to the projects ") is descriptive only of the words "production licence areas", and does not otherwise affect the operation of the section. Nevertheless, the overriding question under s. 20 is whether, having regard to, inter alia, the matters in Factor (c), the Minister considers the projects to be sufficiently related to be treated as a single petroleum project. And this brings us back to the concept of a "petroleum project".

247. The definition of "petroleum project" contained in section 19(1) and (2) of the PRRT Act , as set out in paragraph 4 of these Reasons, is not on its own of very great assistance. However the existence of a petroleum project is clearly linked with the issue of an eligible production licence, a matter which is dealt with in Division 3 of Part III of the PSL Act . Section 39 of that Act provides as follows:

"39

A person shall not carry on operations for the recovery of petroleum in an adjacent area except:

(a): under and in accordance with a licence; or
(b): as otherwise permitted by this Part.

Penalty: $50,000 or imprisonment for 5 years, or both."

An "adjacent area" is an area adjacent to a state or territory. ^[74]

248. Sections 39A to 51 deal with applications for and grants of production licences. Section 52 is in the following terms:

"52.

A licence, while it remains in force, authorizes the licensee, subject to this Act and the regulations and in accordance with the conditions to which the licence is subject:

(a): to recover petroleum in the licence area and to recover petroleum from the licence area in another area to which he has lawful access for that purpose;
(b): to explore for petroleum in the licence area; and
(c): to carry on such operations and execute such works in the licence areas as are necessary for those purposes."

The Applicants rely upon s. 52 to show that the activities conducted under a production licence include both production and exploration. Therefore, it is urged, there is no warrant for restricting a "petroleum project" in s. 20 to one which is concerned with production only.

249. However this must be considered in the context of the PSL Act as a whole. A person cannot apply for a production licence under that Act unless he or she is already the holder of either an exploration permit or a retention lease in relation to the area in question. Under ss. 28 and 38C of that Act, a permit or lease authorises its holder to "explore for petroleum, and to carry on such operations and execute such works as are necessary for that purpose, in the permit [or lease] area." ^[75] This means that the sole additional right acquired through the obtaining of a production licence is the right to recover petroleum from the licence area, as indeed the name "production licence" implies. Certainly the right to explore for petroleum continues under that licence. It would be surprising were it to be otherwise. But the continuation of exploration rights cannot cloud the essential purpose of the issue of a production licence, namely to permit the recovery of petroleum.

250. We return to the provisions of the PRRT Act . The Applicants rely upon the fact that, under Division 3 of Part V of the Act, exploration expenditure is deductible from a project's assessable receipts. Therefore, it is urged, exploration is a relevant part of a petroleum project's activities under the PRRT Act and it would be wrong to restrict the decision-maker's considerations under s. 20 to activities which exclude exploration.

251. It is necessary to put this submission into context. Successful petroleum exploration will inevitably have preceded the grant of a production licence. Exploration may or may not continue after the grant of the licence. Under the scheme of the PRRT Act , the previously incurred exploration expenditure, as well as any continuing exploration expenditure, will be taken into account, subject to the complex formulae contained in the Act. However, the only statutory requirement upon a licensee relates to the recovery of petroleum. Under s. 58 of the PSL Act , where petroleum is not being recovered in a licence area and the Joint Authority is satisfied that there is recoverable petroleum in the area, it may direct the licensee to take all practicable steps to recover it. Similarly the Joint Authority can direct the licensee to increase or reduce the recovery of petroleum in a licence area and can give incidental directions. There is no corresponding statutory requirement relating to petroleum exploration. Mr Nettle told us that the Applicants have been continuing to conduct "down-dip" exploration work in conjunction with its production facilities. ^[76] However this does not appear in any of the Development Plans which accompanied the Production Licence Applications for Jabiru, Challis and Skua. These plans provided very detailed information as to the Applicants' proposals for the development of the respective production licence areas, all of which related to petroleum recovery and production. None of them contained any reference to on-going exploration activities within the respective areas. ^[77] And even if petroleum exploration is continuing, this cannot affect the essential nature of a "petroleum project" under s. 19(4) of the PRRT Act , a matter we shall be discussing shortly.

252. Finally, the Applicants say that it is by virtue of the geological and geochemical features of the production licence areas which relate to exploration (such as the tectonic setting of the structures, the age of the seal, the genetic characteristics of the oil, and the fact that all three fields belong to the same petroleum system) that the Applicants were able to pursue their successful exploration program which culminated in the discovery of these fields and which thus led to the issues of the production licences. Accordingly, these features have played an essential role in the establishment of the petroleum projects and cannot now be treated as irrelevant to them.

253. There can be no doubt as to the significance for exploration purposes of the geological and geochemical features relied upon by the Applicants as establishing the relatedness of these projects. As such, the projects might well owe their existence to the Applicants' ability to discern the relationship between these features. But that process was complete before the issue of the production licences, and therefore before the petroleum projects came into existence. Once that happened, the geological etc. features which had assisted in the exploration process ceased to have any relevance to the then production projects.

254. Section 19(4) of the PRRT Act defines, for the purposes of the Act, the "operations, facilities and other things comprising a petroleum project". The section proceeds to list a number of operations and facilities etc., all of which are associated with the recovery, production, movement and initial storage of petroleum. This definition is most relevant in relation to Factor (a), for it mirrors the language of s. 20(1)(a). We have already adverted to the limitations it imposes in our discussions under that head. However it must also be relevant in defining the scope of the petroleum project itself. If the "operations, facilities and other things comprising a petroleum project" are restricted to matters relating to recovery and production, then surely it must follow that the petroleum project itself is subject to a similar restriction.

255. At its highest, it might perhaps be urged on behalf of the Applicants that there is an ambiguity as to whether a "petroleum project" can extend to exploration-related matters. If this were the case (and we do not think that it is) then recourse could be had to extrinsic aids in an attempt to resolve the ambiguity. On this aspect of the matter the Minister's Second Reading Speech clearly favours the Respondent's contention. The Minister described a "petroleum project" in the following terms:

"In broad terms, a petroleum project incorporates the production licence area, and such treatment and other facilities and operations outside that area as are integral to the production and initial on-site storage of marketable petroleum commodities such as stabilised crude oil, condensate and liquefied petroleum gas." ^[78]

256. Under Factor (c) a decision-maker is required to determine whether, having regard to the "geological, geophysical and geochemical and other features of the production licence areas in relation to the projects" the projects (being projects for the recovery and production of petroleum) are sufficiently related to be treated as a single petroleum project. This being the case, how can the geological etc. features of a production licence area which relate to exploration but not to recovery or production, be relevant to the decision-maker's considerations? In our view they cannot. Accordingly we must uphold the Respondent's submission on this matter, and find that the geological and geochemical features to be taken into account under Factor (c) are restricted to a consideration of those functions which are relevant to the recovery and production of petroleum.

257. At this point it is convenient to discuss the remaining issues separately, according to whether they relate to the geological or geochemical features of the production licence areas.

Geological Features

258. Our determination of the overriding issue under Factor (c) in favour of the Respondent resolves a number of other matters which were in dispute between the parties. In relation to the geological features of the production licence areas, it means that the only relevant feature is likely to be the existence of some form of communication between the reservoirs. This patently does not exist between Jabiru/Challis and Skua. However it is appropriate to deal briefly with some of the other issues which have been raised, if only to show that our overall findings under Factor (c) would probably have been no different even if we had reached a contrary conclusion on the production/exploration issue.

259. One of the Respondent's other contentions was that the fact that a field belongs to a particular petroleum system could not be described as "a geological feature of a production licence area". Mr Nettle was asked about this during addresses. He responded by saying that the geologically relevant feature is the petroleum accumulation, and a significant aspect of it is that it derives from a particular source. This remains no less a feature of the production licence area, he said, because one needs go outside the area in order to determine its essential character.

260. Mr Nettle's submission on this matter is a powerful one in relation to the geochemical features of the oil within the accumulation, a matter to which we shall be returning very shortly. However it is difficult to see how the fact that the Jabiru accumulation receives its charge from the Swan Graben as opposed to the Paqualin Graben (as was thought to be a possibility at the last hearing) could be described as a geological feature of the production licence area. Putting aside the chemical composition of the oil, the fact that a field belongs to a particular petroleum system does not result in any observable geological feature within the production licence area.

261. Closely related to this argument is the Respondent's submission that a petroleum system is a regional characteristic rather than a local one. We think that there is force in this submission, for a single petroleum system can extend over a very large area. Indeed Mr DeMaison said that there are only two petroleum systems in the whole of the Vulcan Sub-Basin. He described the Swan Graben/Skua Trough System as being about 250 kilometres long by 100 kilometres wide. This, he said, is fairly typical of the size of the North Sea petroleum systems. In other areas, such as Siberia, they can be much more extensive.

262. We mention this issue here because it was the cornerstone of the Applicants' case that geological relatedness was established by the fact that Jabiru/Challis and Skua all belong to the same petroleum system. It is therefore relevant to note that there are two separate bases upon which we would regard membership of a petroleum system as extraneous to the issues under Factor (c): first, because of the exploration/production dichotomy; and secondly, because this could not be described as a geological feature of the production licence area.

263. The Respondent also submitted that insofar as the Applicants were relying on the relatedness of any other features of the production licence areas, the relationship is one of mere similarity or is otherwise of minimal significance.

264. Were it necessary to do so, we would have upheld the substance of this submission. For example, the fact that the Jabiru and Skua reservoirs consist of Middle to Late Jurassic sandstones of the Plover formation is, in our opinion, a point of similarity only. So too is the fact that all three are of the same play type. The same applies also to any resemblance between the trap structures at the three fields. The fact that all three traps were formed by the same tectonic event is, as Dr O'Brien described it, similar to three people being born on the same day. ^[79] Moreover, the tectonic event was a major one which extended over 1000's of kilometres, so there are a very large number of structures which would also share the same birth date. The Cretaceous seal over all three traps is certainly a shared characteristic, but it is a regional characteristic and could not have any real significance under Factor (c).

265. We mention this matter here because it means that even without our findings on the exploration/production issue, we would, at the end of the day, have concluded that an assessment of the geological features of the Jabiru/Challis and Skua production licence areas revealed no significant area of relatedness between these projects.

Geochemical Features

266. It is not disputed that the Jabiru, Challis and Skua oils all belong to the same oil family. In other words they share a number of genetic characteristics which link them to the same pod of active source rock. It is this genetic linkage which enables geochemists and geologists to conclude with reasonable certainty that a particular accumulation belongs to a specified petroleum system.

267. The Respondent submits that the word "family" is misleading. It tends to denote a relatively small, readily ascertainable and closely linked group. In this case, to maintain the analogy, all members of an oil family share the same parent (the pod of source rock). However the size of the group can never be known with certainty, as there is always the likelihood of undiscovered accumulations. The group can thus be a very large one.

268. The genetic characteristics of the oil are determined by the environmental conditions and the organic composition of the source rock at the time of its deposition. Accordingly, as the Respondent says, the word "genetic" can be misleading, for it normally would be taken as denoting an inherited characteristic which is handed down from generation to generation. In the case of oil families there can only be one generation, namely the various "off-spring" of a particular source rock.

269. The Respondent further urges that even if these shared genetic characteristics could be described as geochemical features of the respective production licence areas, the relationship between them is merely one of similarity. The Applicants dispute this and say that these genetic characteristics denote a close relationship between the various members of an oil family and thus between Jabiru, Challis and Skua.

270. On the issues raised thus far we would accept the Applicants' submissions. The fact that an accumulation derives from a particular source rock may not affect the geological features of the area in which it is found, but it will certainly affect the chemical composition of the accumulation itself. As such, it is a geochemical feature of the area. Moreover it is a relationship which, in our view, clearly goes beyond mere similarity and establishes a degree of relatedness between these accumulations and thus between the areas in which they are found.

271. There remains, however, the question as to whether the genetic features of a petroleum accumulation will have any bearing upon the production of the petroleum as opposed to its exploration. In accordance with our earlier finding, a shared geochemical characteristic will only be relevant in determining the relatedness of petroleum projects under s. 20 if it has some effect upon the recovery or production of the petroleum.

272. In relation to this issue the Respondent relied, inter alia, on the affidavit of Mr Robertson dated 29 March 1996, in which he said:

"23.: The geochemical features of a production licence area include the geochemistry of the petroleum produced in those areas. It is generally the physical properties of the oil, such as the API gravity or viscosity, that are most relevant to production processes because these properties govern the readiness with which the oil flows from the reservoir rocks to the surface and through pipelines to production and storage facilities. For example, in cold climates, the pipes carrying oils with a high wax content or low API value may have to be heated so that the oil flows freely and does not solidify.
24.: Where it is believed that a single petroleum pool might extend into two petroleum licence areas, a geochemical analysis of oil samples from two licence areas may provide evidence that they came from a common pool and hence that the production licence areas were connected. Apart from this circumstance, geochemical analysis of oil samples can only establish likely genetic relationships; that is, analysis might indicate that the oils probably came ultimately from the same or a similar source rock millions of years ago. Owing to the migration patterns of oil, that source might well have been many tens of kilometres from where the oil is now found. Such genetic relationships have no bearing on the production of oil today or the current relationship between production areas in a practical sense." ^[80]

273. In this respect it is interesting to note that there are variations between the API gravity and the wax content of the Jabiru, Challis and Skua oils. Mr R V Foulds, BHPP's Manager of Operations and Logistics, gave this information in his affidavit:

"Jabiru, Challis/Cassini and Skua oils are all generically what is termed light sweet oils. They are `light' in respect of API gravity and `sweet' because they have low sulphur content. In general terms, all other crudes produced in Australia and most other BHPP produced crude oils are light sweet oils. The characteristics of Jabiru, Skua and Challis oils ... are as follows:

	Jabiru	Skua	Challis
API gravity	42.3	42.5	39.5
Sulphur (weight %)	0.05	0.08	0.07
Pour point (degree C) (temperature below which oil will not pour)	15	9	-9
Wax (weight %)	5.9	4.3	2.3

^[81]

274. According to Mr DeMaison, petroleum sends out at least three "messages", one of which reflects its genetic characteristics. In his evidence before this Tribunal Mr DeMaison said:

"...in an oil there is [sic] so many messages. There are maturity messages, there are genetic messages, there are biodegradation messages. So you read at least three sets of information in an oil. What we are talking about when we are talking about family is genetics. Where do they come from." ^[82]

275. Professor Moldowan was questioned closely by the Respondent as to the circumstances in which knowledge of the genetic characteristics of oil families might be used for purposes which went beyond mere exploration. He said that he could think at least three uses. ^[83] The first of these is in the search for "down-dip oil" related to the field. As to this, he said: "... it's considered part of the same field that's been discovered and they're looking for additional pockets of oil ... Sometimes they don't know what they've found ... So it's a way to evaluate a finding." ^[84] When asked whether this was an exploration use Professor Moldowan said: "They usually call it exploitation or field development at that point, once the initial discovery is made." ^[85]

276. Professor Moldowan described the second use as follows:

"The second use is to explain and predict in the development of a reservoir different properties of oil that may have been found in a reservoir and these particular reservoirs probably haven't come across oils with different properties within a single field, but this (sic) is not uncommon to tap different reservoirs as you drill down into a field. Maybe different production zones or different reservoirs within a field that are encountered by the drill bore. And oil produced from those reservoir zones may have different physical properties that affect the production and the kind of equipment that's used to produce the oil and so on. The production geologist - again I'm not a geologist but they use this information to be able to predict as they're developing the field where they might encounter oils with similar property [sic] within the field. Sometimes they're - you need two entirely different types of production machinery to produce oils from the same field." ^[86]

277. As to the third use, Professor Moldowan said:

"... I am really thinking of a third example that I have worked on, was when there was a basin where the oil was fairly heavy at one end of the basin and there was a gradient and it was fairly light at the other end of the basin. Whether it is heavy or light affects the way it is produced and the equipment for production because the light oil is more highly valued than heavy oil. In that instance I was asked to look and compare the heavy oil and the light oil to see if they were related to the same oil family or whether there was some other oil family contributing to the light oil that was different from the heavy oil. If so it would indicate a different source and would possibly indicate deeper drilling to look for more light oil in the same field." ^[87]

278. Professor Moldowan commented that the second use probably did not apply to Jabiru, Challis or Skua. Nor, it seems, would his third illustration apply to them. As to the first, the search for down-dip oil, we would have thought that this was a form of exploration. However Professor Moldowan described it as "field development" and said that it went beyond mere exploration, so we must assume this to be correct. In this regard we were told by counsel for the Applicants, in his final address, that a search for down-dip oils is continuing in relation to these projects. And although we were unable to find any specific evidence to support this assertion, we are prepared to concede that it might be concealed within the mass of material which has been presented in this case. Accordingly, we accept that there is a possibility that an understanding of the genetic characteristics of these oils, deriving from their membership of a particular oil family, might assist in development of these fields. To that extent, there could be said to be a geochemical feature of the production licence areas which might be relevant to these petroleum projects.

279. On the other hand, field development has clearly not played a major role in the life of these projects. It was not referred to in the Development Plans which accompanied the Jabiru, Challis and Skua production licence applications, and it received barely a mention in the evidence. Accordingly, if this provides the only basis upon which the genetic categorisation of the respective oils is relevant to these projects, then it is, at best, a minor one.

Geographic Features

280. The only additional features which it has been suggested might be relevant under Factor (c) are the geographic features of the respective production licence areas. This will presumably include sea depth (which is variable in the region) and geographic proximity. As to the latter, Skua is some 60 - 80 kilometres from Jabiru/Challis. This would normally not be described as geographic proximity. On the other hand it is an extremely isolated and remote area, so that even 80 kilometres becomes, relatively speaking, a moderate distance.

281. In the result we would accord these projects a slight degree of geographic relatedness. However under the scheme of the legislation, this must rate as a relatively insignificant feature.

SUMMARY OF CONCLUSIONS UNDER FACTOR (c)

282. Our conclusion is therefore that the degree of relatedness between the projects, based on the geological and geochemical features of the Jabiru, Challis & Skua production licence areas is minor only. It arises only from such relevance which the fact of membership of a single oil family (being a geochemical feature of the production licence areas) has to field development activities within those areas. These activities themselves clearly constitute a minor part only of the projects, so the degree of relatedness is, at best, slight. There is also a slight degree of relatedness based on the geographic features of the areas.

283. In reaching these findings we are well aware that we have reduced significantly the number of "features" which can be taken into account under Factor (c). Moreover, the only geological feature which we find to be relevant, namely the existence of a communication between the reservoirs, is not a feature which can be identified by geophysical means, thus rendering the phrase "geophysical features" entirely devoid of content. On the other hand, this phrase, as we have already pointed out, is a meaningless one in any event, so it is clear that there was not a great deal of informed thinking which went into this aspect of the legislation.

OVERALL CONCLUSIONS

284. It is now incumbent upon us, in the light of our findings in relation to Factors (a), (b) and (c), to determine whether the Jabiru/Challis and Skua Projects are sufficiently related to be treated as a single petroleum project for the purposes of the PRRT Act . This is not a mathematical exercise. Nor is it a case of "passing" each of the three tests. The threshold of sufficiency might well be reached, notwithstanding that there is only a minor degree of relatedness under one of the three factors.

285. In this case we are prepared to accept that there is a significant degree of relatedness under Factor (b). However, a substantial uniformity of ownership between the two projects is clearly inadequate on its own. We must also look to the other criteria, under Factors, (a) and (c).

286. Turning first to Factor (c), there is, in our view, at best, a very minor degree of relatedness under this head. Such as there is arises from the relative geographic proximity of the projects, a proximity which itself occurs only by reason of the extreme remoteness of all three fields. It also arises from the fact that the petroleum within the fields derives from the same oil family. However, as we discussed under Factor (c), this is of doubtful relevance to the operation of the projects themselves.

287. As to Factor (a), there is a relatedness between the support services and the personnel who conduct the operations and facilities comprising the projects. However when one looks at the details of this, it becomes apparent that virtually every aspect of the relationship between the projects under Factor (a) derives from the fact that BHPP is the operator for both projects.

288. It was suggested by the Respondent's witnesses that any relationship which derives from the fact that the projects have a common operator should be downgraded because of the possibility that the operator might be changed during the life of the projects. However in the circumstances of these projects we cannot accept that the possibility of this occurring is a relevant consideration. There are a large number of legal and practical reasons why it would have been quite unfeasible for there to have been a change of operators during the life of these projects.

289. That, however, is by no means the end of the matter. For the overall question remains as to whether it is sufficient, in terms of s. 20, if the relationship between the projects is substantially restricted to a high commonality of ownership together with the fact that there is a common operator (and all that the latter carries with it).

290. In our view these factors cannot be sufficient on their own. Jabiru/Challis and Skua are, at present, the only commercial petroleum projects in this remote area of the Timor Sea. Their very isolation tends to promote an impression of relatedness. But this is to a large extent attributable to the fact that there are currently only three facilities in the area.

291. Mr J McGhee, a witness for the Respondent and a group Chief Executive of Gaffney Line and Assoc Ltd, alluded to this issue during his evidence. He said that 20 years ago there were only four or five petroleum projects in the North Sea, all of them in remote geographic locations ^[88] . Some of them had the same equity owners and all of them were supported from the same base at Aberdeen, in Scotland, which provided the same type of support facilities as BHPP does for Jabiru/Challis and Skua. Under no circumstances, he said, would he have considered them to have been related. ^[89] Since then a very large number of petroleum projects have been established in the North Sea, most if not all of them being operated through Shell and Esso. Could it be said that those of them which also have a substantial commonality of ownership would be related, assuming that there was a PRRT Act in operation there? The answer, Mr McGhee says, is no ^[90] , and we would have to agree with him.

292. We are not suggesting that the North Sea scenario can or should be projected onto the Timor Sea. However Mr McGhee's illustrations do serve to demonstrate the inherent difficulties in treating a relationship which derives only from common ownership and the employment of a common operator as being "sufficient" under s. 20. For they reveal the relative nature of this relationship. The larger the number of projects which share these attributes, the lower will be the apparent relationship between them.

293. There is no way of knowing with any certainty what is the future of the Timor Sea exploration program. Nor could it have been known during the qualifying period in 1990 and 1991. But in the event of any further commercial accumulations being located, it is and would have been likely, from a practical point of view, that BHPP would become the operator of the petroleum project which would result. BHPP would in that event be using for the new project(s) precisely the same infrastructure as it has been using for Jabiru/Challis and Skua. If that were to occur, the question must be asked whether the mere additional fact of a substantial commonality of ownership between those new projects would mean that they were sufficiently related to be treated as a single petroleum project under the PRRT Act ? The answer, in our view, must be in the negative.

294. It follows from all we have said that when we take into account all possible considerations under each of Factors (a), (b) and (c), we must conclude that the overall level of relatedness cannot be said to be sufficient for the two projects to be treated as a single petroleum project under the PRRT Act . We must therefore find against the Applicants.

295. This is not a conclusion which we have drawn easily or lightly. There are two matters in particular which have caused us real concern in making this finding, and it is appropriate to mention them here.

296. The first relates to the terms of s. 20(1)(a), and the physical isolation of these petroleum projects. We have, in our considerations under Factor (a), effectively accepted that in order for there to be a high degree of relatedness under this head, there must be a connection between the operations and facilities themselves. An interdependence between their supporting services will certainly result in some relatedness, but to a much lesser degree, and will in any event be likely to derive from the fact that there is a common operator. This is where the difficulty arises. For given that similarity alone is irrelevant under s. 20, the only possible connection between the operations and facilities themselves which could be taken into account under Factor (a) would be a physical one, whether by way of pipeline or some other physical means.

297. The necessity that there be a physical connection between the facilities in order to achieve a high level of relatedness under Factor (a) was one of the Respondent's major submissions. It was strongly resisted by the Applicants upon the basis that it was much too restrictive. In particular, the Applicants urged, this creates an unrealistic hurdle in relation to projects, such as these, which are in remote locations. Given the isolation of these fields, the distances between them and their relatively low yield, it would have been economically impracticable for there to have been any physical connection between them. It follows that they, and any similarly located projects, would be debarred by these essentially geographic features from ever establishing a substantial degree of relatedness under Factor (a).

298. We have considerable sympathy for this argument. Or to be more precise, we have sympathy with the difficulties faced by those undertaking projects in remote locations under the terms of this legislation. For it is correct that, in the absence of some physical connection between the projects, the only relationship which would ever be likely to exist between the "operations and facilities" as described in paragraph 19(4)(a) and subparagraphs 19(4)(b)(i), (ii) and (iii) would be one of similarity. And if, as here, there were a high degree of relatedness between the supporting services, facilities and amenities referred to in subparagraphs (iv) and (v), that relatedness would be very likely to derive from the fact that there was a common operator, and thus be subject to the difficulties discussed above.

299. That, however, is the scheme of the legislation, and we are bound to apply it as it stands. It does not prevent geographically remote projects from obtaining a combination certificate under s. 20, but it means that they would have to show a sufficient degree of relatedness under Factor (c) as well as Factor (b). Interestingly, the Jabiru and Challis Projects appear in retrospect to have fulfilled this requirement. Not only is there a 100 per cent commonality of ownership between them under Factor (b), but it is likely that there is a common aquifer between them, thus leading to a real level of relatedness under Factor (c). Indeed it is only in relation to Factor (a) that, as the evidence has emerged, the relatedness of Jabiru and Challis on the one hand and Jabiru/Challis and Skua on the other, derive from similar considerations.

300. We return here to our second concern relating to our overall finding in this case. This arises from the history of the matter, and particularly from the fact that our decision here is contrary to that which was reached by the earlier Tribunal. All the material which was before that Tribunal was also before us, and a great deal more as well. Much of the additional material was provided by the Applicants. Indeed from a factual point of view, the Applicants could be forgiven for thinking that its case had strengthened by the time it came before us, particularly in relation to Factor (c). That two contrary decisions can be reached in these circumstances is a matter of considerable regret. It has led us to examine very carefully the bases upon which we have reached our findings here. Having done that, we have no choice but to reach the conclusion which we regard as the correct one in the circumstances. And in our view, the scheme of the legislation is such that a finding adverse to the Applicants must be made, regrettable as this is given the history of this matter.

301. The decision under review is affirmed.

ATTACHMENT "A"

Applicant's Witnesses

•: Mr A F McIntosh, a geophysicist employed in the BHP technical consulting group who, in late 1993, was responsible for producing a regional structural review of the Vulcan sub basin area of the Timor Sea with a view to evaluating the remaining petroleum exploration potential of the sub basin
•: Mr G J DeMaison, a private consultant in International Petroleum Geology and Geochemistry who has had a career extending from 1952 and who worked in the early 1970s conducting Geochemical studies for the Northwest shelf
•: Mr R B DeSouza, the Manager, Naval Architecture/Marine Engineering for Aker Omega Inc. of Texas who was Project Engineer for the sub contractor designing the riser base, riser and yolk structure for the Challis venture FPSO
•: Mr A V Slate a petroleum engineer employed by BHPP
•: Mr P Behrenbruck, currently Petroleum Technical Manager for the Dai Hung Project for BHPP in Vietnam was, at the relevant time, responsible for the establishment and implementation of sub surface development plans and ongoing reservoir management for the Jabiru Challis and Skua projects
•: Mr P J Nicholls, now the senior geophysicist exploration business and development for the Australian/Asian region of BHPP, was previously stationed in the Timor Sea region
•: Dr C J Simmons, the Manager Sub Sea Engineering, BHPP, was responsible for the procurement, manufacture and installation of sub sea production equipment for Jabiru Challis and Skua developments
•: Dr G W Woodhouse, a geochemical associate, employed by BHPP who inter alia, is responsible for interpreting data and organising geochemical programs
•: Professor J M Moldowan, Professor (Research), Department of Geological and Environment Sciences, Stanford University who is an internationally acknowledged petroleum geochemist
•: Mr P J Watson, a petroleum geologist and group exploration consultant employed by BHPP, was the team leader of BHPP's new ventures group at the time it entered into the Timor Sea
•: Professor A K Khurana, Professor of petroleum engineering at the Centre of Petroleum Engineering, University of New South Wales
•: Mr W G Allinson, Vice President of the Economics Division (Sydney) of Petro consultants Australasia Pty Ltd, a petroleum economist
•: Mr N Ferguson, currently the Vice President, Asset Team Australia-Indonesia Zone of Co-operation and formerly Vice President, Field Development and Joint Ventures in the employ of BHPP

Respondent's witnesses

•: Mr C S Robertson, now a freelance petroleum exploration consultant and previously head of the Petroleum Resources Assessment Branch of the Bureau of Mineral Resources (now the Australian Geological Survey Organisation ("AGSO"))
•: Dr R E Summons, a chief research scientist, Marine Petroleum and Sedimentary Resources Program, AGSO, leads a team of scientists to research their currents and distinctive nature in Australia and the South East Asian and Pacific Regions
•: Mr M P Hitchen, the assistant secretary, Exploration and Development Branch, Petroleum Division of the Department of Primary Industries and Energy, is the departmental officer responsible to the Minister for Resources for the administration of s. 20 of the Act
•: Dr G W O'Brien, a Senior research scientist in the Marine Geo-science and Petroleum Geology Program of AGSO, has been project leader for a number of research programs inter alia concerned with the Vulcan Sub-basin
•: Mr J McGhee, group chief executive of the Gaffney Cline and Assoc. Ltd ("Gaffney Cline"), a company that consults and provides advice internationally on aspects of exploration and exploitation of hydrocarbon resources.

Deponents who were not called to give oral evidence but whose affidavits were received into evidence

For the Applicant

Mr B Bourne, a director of Norpac Securities Pty Ltd which holds interests in the Jabiru/Challis joint venture

Mr D Christensen, petroleum engineer and, resident manager and director of Norcen International Pty Ltd

Mr M Woodall, a geologist, employed by BHPP

Mr R G Cowley, a geophysicist, employed by BHPP

Mr B D Lasker, a geophysicist, employed by BHPP

Mr A M Fittall, a petroleum geologist, employed by BHPP

Mr R V Foulds, Manager, Operations and Logistics, for BHPP

Mr E H Stibbs, Project Manager, Griffin Development, for BHPP

Mr R J Brown, Manager, Finance and Administration, for BHPP

Mr P D Hopkins, Facility Supervisor for the Challis FPSO

Mr J A Vine, accountant and Group Manager, Taxation, employed by BHPP

Mr P J Vytopil, resident manager and vice president of Norcen International Ltd

Mr M A Paton, the Darwin-based manager for Jabiru/Challis and Skua joint ventures

For the Respondent

Dr E E Nunn, Director of Energy, Department of Mines and Energy for the Northern Territory Government

H E L North, at the relevant time, a senior geo-scientist with Gaffney Cline and Associates

Mr P A Benton is a petroleum engineer with Gaffney Cline and Associates

N A Stanbury, a commercial consultant with Gaffney Cline and Associates

Mr A J Waite, a petroleum inspector with the Northern Territory Department of Mines

Mr J R Kjar, Director, Development Section, Exploration and Development Branch, Department of Primary Industry and Energy

Dr M A Ethridge, a partner in a geo-science consulting firm and formerly a principal research scientist at the Bureau of Mineral Resources

Mr S C Cave, an engineer and Executive Director of the Australia Indonesia Joint Authority for the Timor Gap Zone of Co-operation.

Counsel for the Applicant:	Mr G Nettle QC with Ms M Sloss
Solicitor for the Applicant:	Arthur Robinson and Hedderwicks
Counsel for the Respondent:	Mr H Berkley QC with Ms D Mortimer
Solicitor for the Respondent:	Australian Government Solicitor

[1]

BHP Petroleum (Timor Sea) Pty Limited v Minister for Resources (1994) 49 FCR 155 at p. 159

[2]

Ibid. per Beaumont J pp 173-174

[3]

49 FCR 155

[4]

Ibid. per Beaumont J at p. 177. Emphasis added

[5]

Ibid. per Jenkinson J at p. 158

[6]

Ibid. per Jenkinson J at pp. 158-159

[7]

Ibid. per Heerey J at p188

[8]

Exhibit JM 2 to Affidavit J. McGhee, 4 June 1996

[9]

Ibid. at p. 3

[10]

Ibid. p. 4

[11]

'T 3' at p. 1, emphasis added. By way of background, exploration permit number AC/P4 issued under the PSL Act, from which production licences AC/L1 (Jabiru Field) and AC/L2 and AC/L3 (Challis and Cassini fields) were excised, was previously known as exploration permit number NT/P26. On 19 March 1986, this permit was renewed for a period of five years and renamed AC/P4.

[12]

'T 3' at p. 2

[13]

Ibid at p. 3

[14]

'T 7' at p. 2

[15]

49 FCR 155 at p. 188

[16]

Mr RB DeSouza was the Project Engineer for the sub contractor designing the riser base, riser and yolk structure for the Challis Venture FPSO

[17]

Affidavit P. Behrenbruch, 27 September 1995, para.11. Mr P. Behrenbruch made similar comments in his evidence before this Tribunal, Transcript p.307

[18]

p. 3.3 of Exhibit JM 2 to Affidavit J. McGhee, 4 June 1996

[19]

Affidavit R.J. Brown, 29 September 1995, para. 16

[20]

Ibid. para. 10

[21]

Mr N Ferguson was formerly the Vice President, Field Development and Joint Ventures, BHPP

[22]

Affidavit C.J. Simmons, 28 September 1995, para. 17

[23]

Ibid at para. 22

[24]

Affidavit N. Ferguson, 29 September 1995, para. 25

[25]

Affidavit E.H. Stibbs, 29 September 1995, para. 28. Mr E.H. Stibbs is a Project Manager with BHP.

[26]

p. 4 of Exhibit AKK3 to Affidavit A. K. Khurana, 30 October 1995

[27]

Ibid. at p. 37.

[28]

Ibid. at p. (iii)

[29]

Exhibit WGA1 to Affidavit W G Allinson, 30 October 1995

[30]

Ibid at p. 38

[31]

J McGhee, Transcript p.1014

[32]

Emphasis added

[33]

p. 20 of Exhibit HELN 1 of Affidavit H.E.L. North, 21 September 1992. See also Affidavit R.B. Brown, 29 September 1995, pp. 3-4

[34]

'T 8' at pp. 4-5

[35]

Attachment "A" is, for all intents and purposes, identical to the list quoted in para. 139 herein

[36]

`T 9' at pp. 4-6

[37]

`T 15' at p. 4

[38]

`T 16' at p. 4

[39]

`T 2' at pp. 7-8

[40]

Ibid. at p. 11

[41]

Hardoplane Pty Ltd v Edward Rushton Pty Ltd [1996] 1 Qd.R 156 at p. 160

[42]

Affidavit P. J. Watson, 16 October 1995, para. 67

[43]

Affidavit G.W. O'Brien, 6 May 1996, para. 4

[44]

Affidavit P. J. Watson, 16 October 1995, para. 67

[45]

Affidavit G.W. O'Brien, 6 May 1996, para. 5

[46]

Affidavit P.J. Watson, 16 October 1995, para. 67

[47]

Affidavit R.E. Summons, 1 May 1996, para. 7

[48]

Petroleum (Submerged Lands) Act 1967, s. 5

[49]

Affidavit A.F. McIntosh, 7 August 1996, para. 2.1.2

[50]

Exhibit BDL3 to Affidavit B. D. Lasker, 29 June 1992.

[51]

Mr G. J. DeMaison is a consultant in international petroleum, geology and geochemistry.

[52]

G.J. DeMaison, Transcript p. 384

[53]

A.F. McIntosh, Transcript p. 761

[54]

Ibid. pp. 760-761

[55]

G.W. Woodhouse, Transcript p. 518

[56]

Ibid.

[57]

Affidavit R. E. Summons, 1 May 1996, para. 8

[58]

Ibid. para. 9

[59]

Exhibit JMM2 to Affidavit J. M. Moldowan, 12 October 1995

[60]

Ibid. at p. 30

[61]

J.M. Moldowan, Transcript p. 465-466

[62]

L. B. Magoon and W. G. Dow "The Petroleum System - From Source to Trap: AAPG Memoir 60", Exhibit 1, page 1

[63]

G.J. DeMaison, Transcript p. 367

[64]

Exhibit GJD2 to Affidavit G J DeMaison, 20 October 1995

[65]

C.S. Robertson, Transcript p. 885; R.E. Summons, Transcript pp. 1088-1089

[66]

Exhibit GJD 2 to Affidavit G. J. DeMaison, 20 October 1995

[67]

Affidavit A. F. McIntosh, 30 October 1995, para. 12

[68]

p. 1-4 Tab 71, Exhibit B: Western Australian Geochemical Study (GeoMark Research and AGFO)

[69]

p. 3 of Exhibit GJD2 to Affidavit G. J. DeMaison, 20 October 1995

[70]

Gaffney Cline Report No. 1, September 1992, Exhibit HELN 1 of Affidavit H.E.L. North, 21 September 1992. Gaffney Cline Report No. 2, May 1996, Exhibit JM 1 of Affidavit J. McGhee, 4 June 1996

[71]

pp. 22-24 in Exhibit HELN 1 of Affidavit H.E.L. North, 21 September 1992

[72]

'T 4' at page numbered 39

[73]

'T 5' at p. 5

[74]

See s. 5 of the PSL Act

[75]

ss. 28 and 38C are identical to each other except in so far as s. 28 relates to rights under permits and s. 38C relates to rights under leases

[76]

Transcript p. 1315

[77]

Exhibit JRK 2,3 and 4 to Affidavit J. R. Kjar, 29 May 1996

[78]

'T 5' at p. 5

[79]

G.W. O'Brien, Transcript p. 935

[80]

Affidavit C.S. Robertson, 29 March 1996, paras. 23 and 24

[81]

Affidavit R.V. Foulds, 22 September 1995, para. 15

[82]

G.J. DeMaison, Transcript p. 352

[83]

J.M. Moldowan, Transcript p. 499

[84]

Ibid.

[85]

J.M. Moldowan, Transcript p. 499

[86]

J.M. Moldowan, Transcript pp. 449-500

[87]

Ibid. at p. 501

[88]

J. McGhee, Transcript p. 989

[89]

Ibid. at p.989-990

[90]

Ibid. at p. 1026

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