How a gas field off Sydney’s wealthy northern beaches has split the federal government

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How a gas field off Sydney’s wealthy northern beaches has split the federal government

By Anne Hyland

In business circles David Breeze would be considered small fry. He’s a director of a number of tiny speculative resource and biotechnology companies. And yet, the 68-year-old Perth investment banker, company director and serial litigant, has managed to grab the attention of Prime Minister Scott Morrison, divide the federal Coalition, and trigger outrage and alarm in some of the wealthiest parts of the country, from Palm Beach, north of Sydney, to Vaucluse in the city’s east.

David Breeze has worked in Perth financial circles for several decades, advising he says on more than $250 million in capital raisings and deals. Breeze is also a veteran of corporate battles. He’s been caught up in board coups, involved in nearly a dozen legal battles with fellow company directors and staff, across multiple courts and the Fair Work Commission. The latter upheld Breeze’s sacking of his secretary for misconduct.

Earlier this month, Breeze lost his latest legal battle in the Administrative Appeals Tribunal. He was trying to stop the federal government’s Industry Innovation and Science Australia body from revoking ASX-listed investment vehicle MEC Resources’ status as a pooled development fund, which meant it was recognised as a venture capital fund and its income was taxed at 15 per cent.

David Breeze is behind one of the most controversial proposed gas developments in Australia.

David Breeze is behind one of the most controversial proposed gas developments in Australia.Credit: YouTube

MEC Resources is the biggest shareholder in Advent Energy, which is behind one of the most controversial proposed gas developments in Australia.

Advent holds the only exploration title to drill and explore for gas in the seabed off the NSW coast, in an area that stretches from Sydney’s North Head to Newcastle. The company is pushing ahead with plans to drill a well 26km off the NSW coast, tendering for equipment and services, and a project manager.

The gas exploration area, which is located no further than 50km off the NSW coast, is known by its title name, Petroleum Exploration Permit 11 or PEP11. It covers an enormous area of 4574 square kilometres, and runs parallel to the state’s pristine beaches, popular tourist destinations, past some of the country’s most expensive residential real estate, and a number of blue-ribbon federal electorates.

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Breeze says the proposal to drill and explore for gas off the NSW coast is a project of “potential national significance”. But it is also a project that has already been opposed by the Prime Minister Scott Morrison, who in March and this month said he didn’t support it. In a radio interview earlier this month, Morrison said it should “give people a lot of comfort that the Prime Minister is not supportive” of it.

Liberal MPs Jason Falinski, Dave Sharma and Lucy Wicks have also expressed their opposition. Yet, the ultimate decision on the project rests with federal Resources Minister and National Party member Keith Pitt.

Since February, Pitt has been considering whether to grant a two-year extension to PEP11, and has refused to rule it out. “As the decision maker on PEP11, I am taking into account all relevant facts in this matter,” says Pitt. “As community groups and stakeholders expect, I will give all views the consideration they deserve before announcing my decision.”

Independent MP Zali Steggall, who holds the seat of Warringah, once a Liberal party stronghold held by former prime minister Tony Abbott, says the issue of PEP11 is “toxic” in every coastal electorate that it stretches past, including those of Jason Falinski and Lucy Wicks. Warringah has a number of beachside suburbs, such as Manly and Curl Curl.

In October, Steggall introduced a bill in federal Parliament to revoke the PEP11 licence, but it was defeated by the government, and among those who voted against it were Morrison, Falinski, Sharma and Wicks. “When I brought on the vote, you had Jason Falinski saying you can’t do it this way because then the government is going to incur a damages claim because the company is proceeding. And the irony is with the continued delay in cancelling this license, the damage claim potentially keeps increasing because the company can argue they are taking steps in the reasonable expectation that their license is going to be approved.”

Independent MP Zali Steggall says the proposal to drill gas off the NSW coast between Newcastle and Sydney is a “toxic” issue in every coastal electorate that it stretches past.

Independent MP Zali Steggall says the proposal to drill gas off the NSW coast between Newcastle and Sydney is a “toxic” issue in every coastal electorate that it stretches past.Credit: Alex Ellinghausen

Falinski says he voted against bringing a debate on straight away on the bill before having had a chance to consider it and take advice on whether it would open the taxpayer up to claims of compensation.

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He remains opposed to PEP11. “This company has had nearly 20 years to explore and try and find what they say is there. They haven’t and therefore the permit should be cancelled, and certainty returned to our coasts.”

Steggall believes that PEP11 has become a bargaining chip that the federal Nationals are using against the federal Liberal Party. “Keith Pitt is using it as a negotiating bargaining tool with the Nationals in relation to climate policy, and getting more support for coal and gas, which is what the Nationals want by making life very difficult for the Liberal MPs like Jason Falinski and Dave Sharma.”

Steggall has no evidence to support this claim but says why else would a cabinet minister not listen to his Prime Minister, who has expressed opposition to the project. Pitt refutes this: “Unfortunately, much of the debate on this issue has been hijacked by wildly inaccurate claims and this is another example.”

Industry observers also question why the government is allowing debate to continue on this project, and delaying a decision, given the angst and potential electoral damage it can cause ahead of next year’s federal election.

“If this was really a viable project that could deliver gas at a sensible price into the market, it would have happened already,” says the Grattan Institute’s energy director Tony Wood, a former Origin Energy executive.

Santos and Ampolex did hold the permit to PEP11 back in 1991 but allowed it to be taken over by Bounty Oil and Gas and Advent Energy in the mid-2000s.

There are other risks for the federal government if it decides not to amend and extend the terms of Advent’s permit. Mainly, that it is being inconsistent on approving gas projects.

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Late last year, the federal government unveiled its policy for a gas-led economic recovery, and also cemented its plan for gas to be the transition fuel to a clean energy future. It promoted the development of five onshore gas basins, including the Beetaloo in the Northern Territory, which is now being explored for gas with the support of some government funding.

“If this was really a viable project that could deliver gas at a sensible price into the market, it would have happened already.”

Grattan Institute’s energy director Tony Wood

The government also announced the intention to build a $600 million gas-fired power station in NSW’s Hunter Valley. A $1.3 billion hydrogen-gas turbine power station is also planned for Port Kembla.

The government’s gas policy has been embraced by companies such as Woodside, which this week announced its decision to proceed with a $16.2 billion oil and gas development off Western Australia’s northwest coast, which will be the biggest of its kind in a decade. Woodside also confirmed its $40 billion merger with BHP’s petroleum division, creating one of the 10 biggest energy companies in the world.

There are concerns among community groups and politicians that new projects such as Woodside’s will raise the country’s greenhouse gas emissions by millions, if not billions, of tonnes, over the coming decades, and at a time when the federal government has committed to meeting net zero emissions by 2050.

But even so, there remains strong demand for gas in many export markets. This week, consultants Wood Mackenzie forecast that Asian demand for gas remained “robust and resilient”, predicting it would rise steadily through to 2050, peaking at just under 140 billion cubic feet per day.

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It’s this gas development activity that has given confidence to David Breeze, who is the executive director of Advent Energy, to pursue a project as controversial as PEP11. Soaring gas demand and prices globally and domestically are another reason underpinning his faith.

But there remain many hurdles, not least of which is funding, given superannuation funds and banks are more reluctant to fund fossil fuel projects. “It’s already clear to the project proponents, whether it’s in the Beetaloo Basin in the Northern Territory or off the coast of New South Wales, that Australia is committed to net zero. That will mean fossil fuel investments will become uneconomic at some point,” says Grattan’s Tony Wood.

Breeze is quick to point out that despite community opposition to the project, it is not near Sydney. He says the potential well where Advent would drill for gas would be located 26km offshore south-east of Newcastle, an area where there has also been significant public opposition to it.

“The area where we’re talking is not within 100 kilometres of Sydney,” says Breeze. “It’s in an area that is recognised as a substantial potential source of gas. Australia has a critical need for gas as a transition fuel to net zero. New South Wales in particular has an even more critical need for gas as it imports 98 per cent of the gas. In addition, there is a need for carbon capture and storage.”

The NSW government has refused to grant a two-year extension to allow PEP11 to be drilled and explored further, but the state government does not have the ultimate say as the field sits in Commonwealth waters.

Advent Energy, which owns 85 per cent of the PEP11 venture through its subsidiary Asset Energy, has drilled in the area before. In 2010, it was permitted to drill a well by a federal Labour government led by Julia Gillard, and a NSW government led by Kristina Keneally. It found no commercially recoverable gas. In reports, Breeze has released forecasts that there is prospective gas of 5.9 trillion cubic feet in PEP11.

The remainder of the PEP11 venture is owned by Bounty Oil and Gas.

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In the past few months, Advent has put out tenders for equipment and services to drill a well 2150 metres into the seabed if it does receive the green light from Pitt’s office and the National Offshore Petroleum Safety and Environmental Authority. Advent has also sought permission to drill more than 3000 metres to explore the opportunity for potential carbon capture and storage in the area.

While Advent has been busy getting companies to tender to provide drilling equipment for a well, it hasn’t as yet submitted its environmental plan. “We have to go through a highly regulated process for consultation and environmental planning,” says Breeze.

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In addition to regulatory hurdles, public opposition, political pressure, and questions around funding, there are other challenges for PEP11, involving a number of the companies invested in Advent. David Breeze is managing director of MEC Resources, which owns 47.6 per cent of Advent.

MEC had its pooled development fund status revoked after it was found by the Administrative Appeals Tribunal to be in breach of its obligations. It has also been voluntarily suspended from trading on the ASX for nearly two years, and will potentially be delisted in January.

In its annual report released this month, MEC said it would require additional funding in the next 12 months to enable it to continue ​as a going concern.

Another shareholder in Advent, is investment advisory group Grandbridge, which has an 11 per cent holding. Breeze is executive director of Grandbridge, which says on its website that it’s listed on the ASX, although the group was delisted in February last year.

Advent Energy’s other major shareholder, BPH Energy (not to be confused with one of Australia’s biggest companies BHP), has a 22.3 per cent stake in Advent.

Breeze is the chair and managing director of BPH Energy, which he says is the primary source of funding for Advent.

Despite these challenges, Breeze is nothing if not patient in waiting for Pitt’s ruling. “We’ll just await their decision in due course.”

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