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Workers walk next to the Santos infill gas drilling rig outside Moomba, South Australia May 17, 2012. Confidence in Australia's coal seam gas industry, one of the nation's brightest economic prospects, has begun to flicker. For the first time since energy firms kicked off $50 billion of projects to drill for gas in the region's rich coal deposits less than two years ago, there is a consensus emerging among industry executives and experts that plans are well off track. Picture taken May 17, 2012. To match insight AUSTRALIA-GAS/RISKS Reuters/Rebekah Kebede

The illegal cancellation of Metgasco's gas licence at Bentley on the north coast of NSW has put the company at loggerheads with the NSW government following claims that the two parties have failed to reach an understanding over millions of dollars worth of compensations. The company is planning to sue the NSW government and preparing to resume drilling work at the controversial site.

Industry, Resources and Energy Minister Anthony Roberts declared in May that the government would not appeal the Supreme Court ruling on the issue that the termination of the licence for drilling was unlawful, sparking talks on the compensation. The order came even before the police were sent to the site to disperse protesters and break a blockade.

Protesters have been campaigning against the drilling at Bentley as it would be detrimental for land and water. But the suspension decision, which was announced without prior warning, caused Metgasco share prices to fall drastically. The 40 percent fall recovered to an extent after the government’s decision that it would not appeal the ruling.

The option that was given the most importance during the negotiations required the government to buy out three drilling licences for the north coast. Over the past decade, the company has shelled out about AU$120 million on north coast drilling licences. Around AU$80 million of that amount has been capitalised, which kept an avenue open for the company to accept a settlement figure.

“Negotiations with the NSW Government have not resulted in a settlement of the matters between Metgasco and the government,” Metagasco informed the stock market on Tuesday. It also said that negotiations with the NSW government over the three Northern Rivers licenses areas have been put on hold accordingly, and that it is now preparing to initiate court actions over the damages it suffered.

"Metgasco would have preferred to settle its claim for 2014 suspension damages with the New South Wales government out of court and is happy to resume good-faith discussions with government in this respect, but not at the expense of having to indefinitely suspend its business activities," said Managing Director of Matgasco, Peter Henderson.

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