Born from the same root, why do you rush to boil each other?

— A Commentary on the Dispute Over Coal and Coalbed Methane Mining Rights

Raising the issue

Coal Mine A has been identified by a qualified institution as a high-gas mine. Company A is the holder of the mining rights. To extract and comprehensively utilize the coalbed methane, Company A has commissioned its affiliated Company B to conduct pre-extraction of coalbed methane from the underground mine. Meanwhile, Company C holds exploration rights for coalbed methane, and the mining area of Coal Mine A partially overlaps with the exploration area covered by Company C’s coalbed methane exploration rights. Company C has entered into a cooperative exploration and development contract with Company D to carry out exploration and development activities within the coalbed methane exploration area.

Later, Companies B and C accused Company A of infringing upon their legitimate rights and interests. For the time being, we will not delve into the legal relationships between Companies A and B, or between Companies B and C. Instead, this article primarily explores the legal provisions governing coalbed methane mining rights and coal mining rights, as well as strategies for avoiding conflicts of interest between these rights.

I. The Main Principles Currently Guiding Policy in Handling the Relationship Between Coal and Coalbed Methane

1 Comprehensive Exploration Principle

In areas where coalbed methane or coal exploration rights have been granted, the exploration right holder shall conduct a comprehensive exploration of both coalbed methane and coal resources within the exploration block’s boundaries, submit a comprehensive exploration report on these resources, and carry out reserve evaluation and filing in accordance with relevant regulations.

2 The principle of sampling after extraction

In coal planning and production areas, the “extract first, then mine” and “integrated coal and gas extraction” approaches are implemented. Ground-based and underground joint extraction of coalbed methane resources is encouraged. Coal mining can only commence once the coal seam’s gas content has been reduced below the prescribed standard. In coal exploration areas, the “gas first, then coal” approach is adopted, with priority given to surface development of coalbed methane resources.

After investigation, if the conditions for large-scale surface extraction are met, the coal exploration right holder shall, in accordance with the principle of “extract gas first, then coal,” jointly prepare a comprehensive development and utilization plan for both coal and coalbed methane. The holder shall then, in compliance with the law, apply to the Ministry of Natural Resources for a coalbed methane mining right and request the delineation of the mining area for the coal mining right. Once surface extraction has reduced residual coalbed methane to below the national standard, the original coal mining right holder may, based on the integrated development and utilization plan for coal and coalbed methane as well as the delineated mining area, submit an application for a coal mining right, obtain a mining permit through the legally prescribed procedures, and subsequently apply for the cancellation of the original coalbed methane mining right.

The holder of a coalbed methane exploration right shall not extract coal or other mineral resources under the guise of coalbed methane exploration. During the validity period of the coalbed methane exploration and mining permits, the land and resources administration department shall not establish new mining rights within the block’s boundaries—unless the parties involved have signed a safety production agreement with the coalbed methane rights holder regarding surface operations such as sand and gravel extraction. Where conditions are suitable for large-scale surface extraction, the coalbed methane exploration rights holder shall, in accordance with the principle of taking into account subsequent coal mining, select an appropriate production process, draw up a rational development and utilization plan for coalbed methane, and apply to the Ministry of Natural Resources for a coalbed methane mining right in compliance with the law. If, after assessment, a block does not meet the conditions for large-scale surface extraction or if the coalbed methane content falls below the national standard following surface extraction, the coalbed methane rights holder shall promptly go to the Ministry of Natural Resources to complete the cancellation procedures for the coalbed methane mining rights block, submit geological data in accordance with relevant regulations, and simultaneously submit a report on the comprehensive exploration costs invested in coal. The land and resources administration department shall, through a competitive bidding process, legally grant paid transfer of coal mining rights in blocks where coalbed methane rights have been relinquished. The original coalbed methane rights holder may participate in the bidding and shall be given priority under otherwise equal conditions. The applicant who wins the coal mining right shall, while paying the coal mining right fee to the state as required, also compensate the original coalbed methane rights holder for the comprehensive exploration costs invested in coal. The land and resources administration department shall carry out the registration procedures for the coal mining rights in accordance with the law.

3 Principle of Mutual Understanding and Accommodation among Right Holders

In areas where coal mining rights have been established but coalbed methane (CBM) mining rights have not yet been granted, if exploration reveals that the conditions are suitable for large-scale surface development of CBM, the relevant CBM exploration or extraction permits shall be obtained in accordance with the law. The holder of the coal mining rights may carry out CBM development either independently or through cooperative arrangements.

In areas where coalbed methane mining rights have already been established, if coal mines are scheduled to be built within the next five years according to the national coal development plan, in accordance with the principle that coalbed methane development should serve coal development, measures such as cooperation or adjustment of the scope of coalbed methane mining rights should be adopted to ensure the needs of coal resource development and to effectively exploit and utilize coalbed methane resources. For areas where coal mining is planned to begin after five years, the principle of “prioritize gas extraction before coal mining” must be strictly adhered to, and seamless coordination between gas and coal extraction operations must be ensured.

Mining right holders who have legally obtained coal mining licenses and are extracting coalbed methane by surface extraction within the boundaries of their mining area shall, in accordance with the law, retroactively obtain coalbed methane mining licenses. For those conducting underground coalbed methane recovery and utilization, no separate coalbed methane mining license is required; however, they must take effective measures to continuously improve the level of coalbed methane recovery and utilization.

4 The principle of supporting comprehensive exploration and mining of coalbed methane resources by coal-producing enterprises when mineral rights overlap.

2007 On April 17, the Ministry of Natural Resources issued the “Notice on Strengthening the Comprehensive Exploration and Mining Management of Coal and Coalbed Methane Resources” (Guotu Zifa [2007] No. 96), which emphasized: “Prior to the issuance of this notice, if there is an overlap in exploration and mining rights for coal and coalbed methane and no agreement has been signed, the two parties shall negotiate to establish cooperation or sign a safety production agreement, and carry out comprehensive exploration and mining of coal and coalbed methane according to the principle of ‘extracting gas first, then coal.’ Within six months after the issuance of this notice, if the two parties fail to reach a cooperation agreement, the natural resources administration department will mediate based on relevant regulations and the actual work volume already invested in exploration and mining. If the parties agree to mediation, the overlapping blocks will be deducted, and the party that has invested in the deducted blocks will receive compensation from the other party. If mediation fails, the natural resources administration department, in accordance with the spirit of the ‘Notice forwarded by the General Office of the State Council regarding the integration of mineral resource development’ (Guobanfa [2006] No. 108), will support coal enterprises operating within nationally planned coal mining areas to conduct integrated exploration and mining of coalbed methane resources, adhering to the principle of integrating coal and gas extraction and giving due consideration to both coal and gas production.”

II. Manifestations of Overlap Between Coalbed Methane and Coal Mining Rights

1 Coal exploration rights and coalbed methane exploration rights

This situation may arise when coal exploration rights established earlier by the provincial land and resources authorities overlap in terms of exploration areas with coalbed methane exploration rights established later.

2 Coal mining rights and coalbed methane exploration rights

This situation is similar to the case mentioned above.

3 Coal mining rights and coalbed methane mining rights

The examples above are merely illustrative; in practice, given the large number of stakeholders involved, the legal relationships are highly complex. For instance, does the holder of coalbed methane exploration rights collaborate with foreign investors on exploration activities, or does it cooperate with domestic private enterprises? Similarly, does the holder of coal mining rights engage in entrusted management of coal mines, or delegate the extraction of coalbed methane to specialized institutions?

III. Analysis of the Causes of Conflicts Between Coalbed Methane and Coal Rights

1 Coalbed methane is associated with coal, and the fluidity of the gas resource is the internal factor that causes conflict between the two.

Coalbed methane, commonly known as "gas," is primarily composed of the flammable gas methane. It is found in coal seams within coal mines and represents a gas resource that occurs jointly with and is intimately associated with coal—making it an unconventional natural gas. Not all coal mines contain gas, and the mere presence of gas does not automatically necessitate the establishment of a coalbed methane mining right. Generally speaking, after... Identify high-gas mines and coal and gas outburst mines, During coal mining, even a slight mishap in the handling of coalbed methane can trigger a mine disaster. However, if new technologies are employed to extract it from coal seams, this hazardous gas can be turned into an asset and used as a substitute for natural gas. According to the "Regulations on Prevention and Control of Coal and Gas Outbursts," coal mining is permitted only when the coal seam gas pressure is below 0.74 MPa or the gas content is less than 8 m³/t—the critical thresholds.

For mines prone to gas outbursts, it is not only the right but also a legal obligation of coal mining right holders within their own mining areas to establish a permanent surface gas drainage system to extract underground coalbed methane. Taking Figure 2 as an example, if there are no large-scale coalbed methane resources in the intersecting area, there will be little dispute between coal and coalbed methane mining right holders. However, if the intersecting area is rich in coalbed methane, the drainage activities undertaken by one party could lead to the loss of coalbed methane resources for the other party, thereby objectively infringing upon the latter’s right to exploit coalbed methane in non-intersecting areas.

2 The separate granting of mining rights to coalbed methane and coal, coupled with the differing levels of these rights, is one of the external factors contributing to their conflict.

Since October 2005, China has adopted a two-tier management system for coal exploration rights and mining rights: both the provincial-level departments of natural resources and the Ministry of Natural Resources have the authority, within their respective jurisdictions, to issue coal exploration licenses and mining licenses. Specifically, for coal exploration projects with an exploration area of 30 square kilometers or more (inclusive), the Ministry of Natural Resources issues the exploration license; for all other projects, the Ministry delegates the authority to the provincial-level people's governments' departments of natural resources to issue exploration licenses. As for coal mines (with reserves of 100 million tons or more, including coking coal mines with reserves of 50 million tons or more) and oil shale deposits of large-scale size or above, the Ministry of Natural Resources issues the mining license; for all other cases, the authority to issue mining licenses is delegated to the provincial-level people's governments' departments of natural resources.

As for coalbed methane, China adopts a first-level management system under the Ministry of Natural Resources—only the Ministry of Natural Resources is authorized to issue coalbed methane exploration licenses and mining licenses. In practice, the holders of coalbed methane mining rights are primarily state-owned enterprises, whereas the holders of coal mining rights are mainly local state-owned enterprises or privately-owned enterprises. Thus, what appears to be a dispute over rights between coalbed methane right holders and coal mining right holders actually masks numerous underlying interests, such as considerations related to local tax revenues.

At this point, in the context of information asymmetry, it is possible for coalbed methane mining rights to be established within the same exploration area after coal mining rights have already been granted—such that the coalbed methane mining rights and the coal mining rights are held by different entities.

3 In cases where coal geological exploration reports are subject to tiered review and filing, while coalbed methane reports are filed directly with the Ministry, the Ministry of Natural Resources finds it difficult to obtain a comprehensive grasp of the basic gas data for high-gas mines and mines prone to gas outbursts.

Currently, exploration licenses and mining licenses issued by provincial-level departments of natural resources and land are reviewed by provincial-level appraisal institutions and then filed for record. In contrast, exploration licenses and mining licenses issued by the Ministry of Natural Resources are reviewed by the Ministry’s Reserve Appraisal Center and the Beijing China Mining Association Consulting Center before being filed for record. This situation gives rise to two key issues: First, there is still no clear regulation regarding who should review integrated exploration reports for coal and coalbed methane, nor to whom these reports should be submitted for filing; second, due to information asymmetry, although the Ministry of Natural Resources serves as the authority responsible for establishing coalbed methane mining rights, it may not always have timely and comprehensive knowledge of the coal-gas conditions involved in mining rights established by provincial-level departments of natural resources and land.

IV. Relevant Recommendations for Resolving Mineral Resource Overlap

1 Eliminate, at the root, any overlap between coalbed methane exploration areas and coal mining areas.

The proposed measures include: First, clearly designate the authorities responsible for reviewing and filing comprehensive exploration reports on coal and coalbed methane. In particular, it should be emphasized that coal mines located in mining areas with high gas concentrations or frequent gas outbursts must submit relevant documentation to the Ministry of Natural Resources for record-keeping, enabling the Ministry to gain a thorough understanding of the coal and gas conditions in coal mines licensed at the provincial level. Second, before applying for exploration rights for coalbed methane, exploration right holders must obtain a risk-sharing cooperation agreement from the prior coal mining right holder in any overlapping areas. If no such agreement can be reached, the overlapping areas shall be excluded from the coalbed methane exploration zones. Third, it is recommended that the authority to issue coalbed methane exploitation permits within mining areas where coal mining rights are granted by provincial authorities be delegated by the Ministry of Natural Resources to the provincial natural resources administration departments, which would then be responsible for issuing such permits and coordinating related matters.

2 Actively mediate among right holders with overlapping mining rights.

First, the land and resources administration department may mediate in accordance with the law. Second, the relevant rights holders may cooperate directly on their own. According to media reports, the “Hua-Lu Model”—a strategic partnership between North China Oilfield Company and Luan Mining Group for coalbed methane extraction—sees North China Oilfield Company serving as the operator, conducting drilling and coal mine gas drainage operations within the cooperative areas under Luan Mining Group. The extracted gas belongs exclusively to North China Oilfield Company, while the gas extraction equipment remains the property of Luan Mining Group. Third, if one party withdraws from the overlapping area, the other party shall provide compensation. Fourth, coalbed methane mining right holders are permitted to contribute their mining rights as capital into coal enterprises, using equity ownership as the link to forge a community of shared interests between central state-owned enterprises and local enterprises.