Compensation – is it time to shift the way we think?

Maloney Field Services Director Jamahl Waddington.

Maloney Field Services Director Jamahl Waddington.

Land access has emerged as one of the gas industry’s greatest and most public challenges over the past five years. Despite dramatic improvements, a great deal still needs to be done by industry, industry associations, suppliers and regulators to stay up to speed with the evolving issues facing the sector. A key area for improvement that may require a paradigm shift in thinking focuses on compensation, and – more specifically – how we assess compensation.

Australia is a substantial LNG producer exporting $10.5 billion worth of LNG per annum up from $3.2 billion in 2004. By current estimates, Australia could be the world’s biggest exporter of LNG by 2020. Demand has never been greater for our natural resources.

Exploration and production is at unprecedented levels and is forecast to increase exponentially on the back of the developing world’s growing appetite for our resources. To meet this growing demand, exploration and production will need to rise significantly across onshore Australia, with ever increasing encroachment into communities and onto more intensive land uses.

A paradigm shift in assessing compensation

Compensation remains one of the burning issues in most negotiations, however, it is time for the gas industry in general to take a paradigm shift in thinking in relation to compensation and the way it is dealt with.

Compensation has been assessed throughout Australia for many decades, for as long as infrastructure has been constructed within private property. No matter the type of infrastructure, or the jurisdiction in which it is built, the underlying principles and fundamentals remain constant – that is, the landholder or anyone having an interest in land, and therefore entitled to receive compensation, should not be worse off as a result of the scheme or the project. This principle applies in all cases, regardless of whether a strip of land is being acquired for a rail corridor, an easement for a high-voltage transmission powerline, or an interest in land to establish and develop a CSG field.

Standard formulae linked to the number of wells based on land use classification, or a standardised rate per metre of seismic surveys, is often not reflective of the true impact the project or scheme will have on the property and the landholder. Each property has a different underlying land value, different usage and different productive capacity. Therefore the impact on each property is different, and a standard model or matrix will never truly accurately reflect the impact. The application of a valuation-based approach is therefore the only suitable and equitable way to assess fair and reasonable compensation.

Landholders are individuals, not numbers

Under the various Energy Acts in Queensland, the introduction of the Land Access Code in October 2010 – which is currently under review – has introduced some clarity on Conduct and Compensation Agreements. However, there is no ‘one size fits all’ approach to assessing compensation. In our experience valuing thousands of interests for all types of different infrastructure across Australia each year, Maloney Field Services has found that early consultation and engagement – not models and matrices – are key to effective compensation assessment.

The individual nature of each rural enterprise needs to be assessed, and careful consideration needs to be given to the true impact of the operation. No one likes to be treated as a number. Landholders are all individuals and
deserve to be treated as such, particularly in negotiations regarding access to private property and assessing compensation.

Preparation, research and overall market knowledge is paramount prior to even meeting with landholders. It therefore follows that to get compensation right, we need to have qualified experts. The only professionals that possess the required skills and expertise to act in this area are specialist valuers who practice in this field on a daily basis.

With the level of activity proposed over the next decade, landholder disputes will only increase, and the early engagement of specialist valuation advisors will become an essential part of the negotiation process.

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