METGASCO has commenced legal action in the Supreme Court of New South Wales against the NSW state government after negotiations between the two broke down.

Negotiations started after the Supreme Court found that the NSW Office of Coal Seam Gas had failed to give Metgasco proper notification of its decision, made in May 2014, to suspend its drilling licence over PEL 16.

Talks had centred on a potential compensation payment and the future of Metgasco’s three Northern Rivers licence areas, before the company suspended the talks in early September.

Instead, the company is seeking damages from the NSW government in relation to the drilling program suspension and a judicial review to have PEL 426 renewed and for the award of a production licence on PPLA 9.

Metgasco chief executive Peter Henderson said this was not his company’s preferred course of action, adding that it had sought compensation without the need for court action.

“[The company] is happy to resume goodfaith discussions with government in this respect, but not at the expense of having to indefinitely suspend its business activities,” he said.

Metgasco will also aim to conclude contractual agreements for a seismic acquisition program to the west of Lismore and for the drilling of the Rosella conventional and tight gas project, he said.

“Details of the seismic and drilling programs will be issued over the next few months as contract details, including drilling rig choice and availability, are concluded,” Mr Henderson said

“We expect the government will provide all necessary police protection to allow the lawful activities to be undertaken safely and securely and we were given assurances in this respect as part of our discussions with government.”

Metgasco recorded a $3.8 million loss in the 2014-2015 financial year in its annual report, saying that negotiations with NSW over its three gas exploration licences would determine the company’s future.

This was an improvement on the $85.9 million loss in 2013-2014, brought on in part by an $81 million impairment on exploration and evaluation expenditure.