AUSTRALIA—SOVEREIGN RISK AND THE PETROLEUM INDUSTRY

Abstract

Australia has rejoiced in its reputation for having low sovereign risk and corresponding rating, for decades. This reputation was bruised in the first decade after the High Court introduced Native Title into Australian law by the legislative response of the then Government, but has since recovered, and enjoys the world’s lowest country risk rating, and shares the worlds best sovereign risk rating with the USA. A number of government precipitated occurrences in recent times, however, raise the question: for how long can this continue?This paper tracks the long history of occasional broken resource commitments—for both petroleum and mining interests—by governments at both State and Federal level, and the policies which have driven these breaches. It also discusses the notorious recent cancellation of a resource lease by the Queensland Government, first by purporting to cancel the bauxite lease and, after legal action had commenced, by a special Act of Parliament to repeal a State Agreement Act. This has raised concerns in boardrooms around the world of the security of assets held in Australia on a retention, or care and maintenance basis.The paper also looks at the cancellation of the offshore prospecting rights held by WMC, with no compensation. This was a result of the concept that rights extinguished by the Commonwealth, with no gain to the Commonwealth or any other party do not constitute an acquisition of property, thereby denying access to the constitutional guarantee of ’just terms’ supposedly enshrined in the Australian Constitution where an acquisition has occurred.Some other examples are the prohibition on exploration in Queensland national parks last November. This cost some companies with existing tenures a lot of money as exploration permits were granted, but then permission to do seismic exploration refused (Victoria). Several losses of rights occurred as a result of the new Queensland Petroleum and Other Acts Amendment Act after investments have been made.Changes in fiscal policy can also impact on project viability, and some instances of this are considered.This paper also explores ways these risks can be minimised, and how and when compensation might be recovered.