Q&A with Apex Energy

Tom Fontaine Speaking at the CSG Community Forum

Tom Fontaine Speaking at the CSG Community Forum

At the public CSG forum held in Thirroul on August 21st 2011, Stop CSG Illawarra (SCSGI) attempted to engage the APEX/Ormil Energy Joint Venture in meaningful debate about community concerns over planned CSG mining on the Illawarra Escarpment. On September 9th 2011 we followed this up with an open letter to APEX directors and executive management containing 9 questions relating to issues and concerns raised at the meeting. None of the questions posed should have presented any challenge to an informed and committed party.

On 21 October 2011, almost 7 weeks later, we received their reply. In posting the response here we provide the opportunity for you to judge whether this represents the level of constructive and engaged community response to be expected from a company holding CSG exploration rights in and around our vital water catchment areas.

Apex’s response ignores evidence of the potential risks associated with CSG mining – the basis of our campaign’s (reasonable) request for a halt to CSG mining whilst these issues are properly investigated – or why this risk might be of particular concern to the community when CSG mining is to occur in and around the important Sydney Water Catchment areas of the upper escarpment. Instead they prefer to apply their energies to trying to discredit SCSGI.

The full questions and answers are published below, along with our comments on the responses. You can find the original response letter from Apex here.

SCSGI Question 1:

APEX was invited to provide a panelist for the forum as the holder of PELs 442 & 444. Therefore, can the company please explain why it elected (in a last minute change) to send Mr Tom Fontaine, who is neither a director nor an officer of APEX? Also (as Ormil is only a minor shareholder through the JV) can the company please confirm that the board of APEX formally authorised Mr Fontaine to act on its behalf at the forum.

Apex Response:

PEL 444 and PEL 442 are controlled by a joint venture between Apex Energy NL (Apex) and Sydney Basin CBM Pty Ltd (SBCBM) with respective interests at present of 80% and 20%. SBCBM is 100% owned by Ormil Energy Ltd (Ormil). Apex and SBCBM have appointed Ormil Operations Pty Ltd (Ormil Ops) to be the farmin Operator. Tom Fontaine is the Managing Director of both Ormil and Ormil Ops and so it was felt that it was appropriate for Tom to engage with the Illawarra public.

Our Comment:

The letter was signed by the CEO of APEX and so we accept the representation as authoritative. Ormil is also principle funder of APEX’s exploration programme with whom it has a Farmin And Purchase Agreement.

SCSGI Question 2:

Why is APEX so sure that none of the wide ranging risks associated with production CSG mining, identified by world renowned research institutes (such as those of Cornell, Duke and Tyndal), are relevant to PELs 442 & 444, especially given the nature and location of the sites in and around the drinking water catchments?

Apex Response:

Please be specific. There is no evidence of ‘wide ranging risks’ associated with CSG. Listing random universities is not evidence.

In addition, the Cornell report relates to Shale Gas not CSG. The Lock the Gate Alliance, as you are aware, has been exposed by the NSW Government in its attempts to influence people adversely in relation to CSG by manipulating the Cornell report. The Cornell findings relate to Shale Gas and NOT CSG therefore you should refrain from referring to it.

Our Comment:

We disagree, please refer to the following links:

a) Incidents: carcinogens, well blowout, earthquakes, fire, well blowout, well blowout, contaminated water, mismanagement

b) Australian Expert Opinion: National Water Commission, Atkinson, Doctors for the Environment, National Toxics Network, Environmental Defender’s Office, Hunter Central Rivers Catchment Management Authority, Van Ogtrop

We address the issue of the relevance of shale gas to CSG in Q5 below

SCSGI Question 3:

Given that APEX has now stated publicly that it will not use hydraulic fracturing, why does its application include for borehole AI16, a) a Type 3 bore hole with the option to use ‘Conventional methods (Hydraulic fracturing or fracing)’ and b) the following statement “It is expected that the coal seams will need to be stimulated in order to increase permeability”

Apex Response:

Apex’s position on hydraulic fracturing has been made very clear via the home page on its web site. Apex has held this position since 2008 and continues to do so. This position has been stated repeatedly by Apex at many public forums and has not changed.

None of the conditionally approved boreholes within the Apex Illawarra project include provisions to carry out hydraulic fracturing.

Apex has identified that it expects that some form of gas flow stimulation will be required for any future Illawarra production drill sites not related to coal mine distressed zones. Stimulation of gas flow can be done in many ways depending on prevailing conditions including:

  • Horizontal directional under-balanced drilling
  • Horizontal directional over-balanced drilling
  • Zero radius drilling
  • Tight radius drilling

Stimulation refers to any process used to alter permeability to increase gas flow including the methods summarised above.

Production is outside the scope of the current Apex Illawarra Project.

Our Comment:

Once again, we note that Apex fails to respond to our request for a guarantee. This confirms SCSGI’s concerns over future use of fracking, or similar stimulation, if not during exploration then in the production phases – either by the APEX/Ormil JV, or by a major producer such as (AGL or Origin) if rights are sold on.

We see the latter as the most likely outcome, hence their unwillingness to enter into a binding agreement on the use of fracking – a widely used practice in CSG production. Indeed, Apex’s own documents explain that some of the exploration wells will require:

1. Conventional methods (Hydraulic fracturing or frac’ing)
2. Zero Radius Drilling
3. Combination of the above.

Our concerns are born out in research by Duke University showing methane levels 17 time higher in water wells around fracking sites and fracking induced earthquakes.

SCSGI Question 4:

Is APEX now prepared to enter into an unconditional binding commitment not to use hydraulic fracturing, or similar stimulation techniques, at any of its PEL sites in the Northern Illawarra; and if not, why not?

Apex Response:

Apex’s position on hydraulic fracturing is clear as has been detailed on the home page of its web site for quite some time.

Will your organization enter into an unconditional binding commitment to only state facts?

Our Comment:

See our comments in Question 3 above.

SCSGI Question 5:

APEX asserted in its presentation that Gas is cleaner than coal. Is the company
aware of Research by the Nicholas Institute for Environmental Policy Solutions at Duke university in the US, that the greenhouse emissions effect of unnatural gas mining (i.e. shale gas and CSG) is at best = to coal over a 100 year period and substantially worse over a 30 year period? How does it align its representation to this research, or is it confusing CSG and LPG?

Apex Response:

Thank you. This question makes our point about the inaccuracy of the information you propagate. So much of your ‘information’ relates to shale gas in the US which has no technical or practical relevance to our CSG project. The public can do their own research and will find for themselves that your organization is making false claims. Please refer to this recent news article.

Apex is not sure what unnatural gas mining refers to. However, it is widely recognised worldwide that there are substantial benefits to the burning of natural gas over coal. This places natural gas as a tremendously advantageous bridging energy source to take the world towards total renewable energy production.

There are multitudes of sources of information regarding the fact that natural gas is a cleaner energy source including NSW Government web sites such as:

There is no doubt at all that gas is cleaner burning than coal. Some common sense is appropriate. How can lifecycle gas emissions be predicted for facilities not yet constructed? Why would any natural gas producer allow large amounts of its valuable commodity to escape to the atmosphere without putting measure in place to control such escape?

Our Comment:

SCSGI rejects the claim of being misleading and have never contested that natural gas produces less Co2 at point of burn. However, studies have identified that the lifecycle impact of methane emissions mean that shale gas mining has a greater greenhouse gas foot print than coal over a 20-30 year period. Marius Kloppers, the CEO of BHP, in defending shale gas as safer than CSG, confirms the technologies and techniques applied to shale and CSG mining are very similar.

SCSGI Question 6:

APEX contends that it intends, in conjunction with its JV partner, to carry out production CSG mining in the Northern Illawarra, yet it was claimed by Tom Fontaine that the JV does not currently have any plans on how it will do so. Therefore;

a) How can APEX reasonably expect the local community to have any confidence in its ability to do so? And

b) How is this statement consistent with the assertions of its Chief Operating Officer who said in meetings with SCSGI members, that the company knows the area extremely well and understands how to safely mine the CSG?

Apex Response:

As we have stated many times, these first few wells are to determine if there is any potential for commercial gas. We can’t make plans for something until we know if it exists.

If we find potentially commercial gas, the approval process starts again before any production can commence. This again will involve considerable technical work, approved by independent experts and numerous government agencies with community consultation.

Coal and natural gas has been exploited in the Illawarra region for many years quite safely and successfully. These activities including the drilling of over 2000 local boreholes have provided a tremendous amount of data that is relevant to Apex and the JV in the ongoing feasibility studies.

Our Comment:

We consider this an unsatisfactory response as production methods are well known and their effects need to be taken into account before commencing exploration. If production methods are unsuitable on the Illawarra Escarpment, then exploration should not proceed.

SCSGI Question 7:

APEX is a minimally capitalised, Non Liability company that is subcontracting much of the exploration activity. Please explain why the company operates behind this structure and what it means in context with its responsibility to the Government, community and ability to remediate any environmental mishaps that may arise.

Apex Response:

The commercial arrangement that Apex has entered into is common industry practice. Woodside Petroleum, Santos and most Australian oil and gas companies have started this way.

To avoid further confusion over “No Liability” see the following definition;

Definition – No Liability
A no-liability company in Australia (suffix NL) is a company which, under the Corporations Act 2001 (Cth), must have as its stated objects that it is solely a mining company and that it is not entitled to calls on the unpaid issue price of shares. It is a company which is restricted to mining activities and is the only sort of corporation which is entitled to this form of liability, given the sometimes financially risky business of mining. Most of the usual rules in the Act apply to no-liability companies, save that a mining company must adopt a constitution. No-liability companies should not be confused with the concept of limited liability.
Source: http://www.investordictionary.com/definition/no-liability

Therefore No Liability refers only to shareholder rights and not OHS or Environmental liability.

Our Comment:

SCSGI accepts APEX’s explanation, though does not consider PELs 442 & 444 to be the type of high risk exploration venture the No Liability status was originally designed to encourage.

SCSGI Question 8:

Is the company willing/able to put up substantial financial security deposits as a disaster alleviation contingency?

Apex Response:

The company has more than adequate insurances in place. In addition, the NSW Government requires petroleum licence/lease holders to submit environmental remediation bonds in relation to drill sites.

Our Comment:

We are unable to assess ‘more than adequate insurance’ and SCSGI is concerned that reliance on insurance claims could lead to an ‘Erin Brockovich’ type situation. Our understanding is that environmental remediation bonds are discretionary and only relate to the costs associated with rehabilitating and restoring well head sites (see Santos website) NOT consequential damage. We cannot tell if a bond has been lodged. Under the Farmin Agreement Ormil holds this responsibility and if it was a requirement of the PEL we would expect it to be also posted under ASIC public company disclosure rules. We haven’t been able to find any such reference.

SCSGI Question 9:

Does APEX intend through its current commercial arrangement with Ormil, to be the CSG production operator for PELs 442 & 444; or does it intent selling its rights on to established gas operators based upon the value of the reserves identified – as was the case with Pure Energy (a company in which Mr Fontaine was a co Founder and major shareholder) and several other similar cases with combined valuations of around $2 billion?

Apex Response:

Questions 7 and 8 are concerned that the companies are too small. This question is concerned that the project may be taken over by a company that is too big. We are curious what size company you think might be right?

Our Comment:

APEX avoided answering the question for reasons that are obvious to us: SCSGI fully expects that the JV will sell its rights to PELs 442 & 444 to a major CSG production company (AGL owns production assets including pipelines close by) once it is able to value the deposits through exploration drilling.

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