Water waste ... a coal seam gas operation site in the Pilliga.

Coal seam gas wastewater operation site in the Pilliga. Photo: Jacky Ghossein

Gas giant Santos' NSW branch could be slapped with hundreds of thousands of dollars in fines after it admitted to failing to report contamination and excessive salt levels at a drilling site in the state's northwest.

Santos NSW has pleaded guilty to four charges relating to failures by the site's operator, Eastern Star Gas, to report contaminated water leaks and lodge environmental management documents, the NSW Land and Environment Court heard on Wednesday.

The charges concern its Pilliga forest coal seam gas (CSG) operations.

Each offence carries a maximum penalty of $110,000, plus potential legal costs of the same amount, but this is likely to be reduced by the company's early guilty plea.

The company failed to report a leak of 10,000 litres of contaminated water from a treatment plant after an electronic switch connected to the pipeline failed.

The water was about half as salty as sea water and killed more than 70 per cent of the trees in the affected zone, prosecutor Stephen Rushton SC said.

Watching closely

"Communities across NSW are watching this ruling closely, as this court case exposes the reality of the water pollution and environmental damage associated with coal seam gas," said Naomi Hogan of the Wilderness Society, who attended the court session on Wednesday.

"The damage considered in this case was just from a handful of wells, yet now residents of North West NSW are facing Santos plans for 850 production wells across the Pilliga and Narrabri areas," Ms Hogan said.

"Communities are acutely aware of the water pollution risks of coal seam gas and will certainly be looking for Justice Preston to hand down a strong deterrent, as the impacts to water and land from this rogue industry are serious," she said.

Ms Hogan said it had been up to a local farmer to report the coal seam gas brine spill to the media on 2 January 2012 before any action was taken by Santos.

Clean up

Santos NSW undertook a $1.4 million rehabilitation project on the area, the court heard.

The company, though, failed to detail cases when its salt concentrations exceeded the threshold in environmental management reports.

Given it was the first prosecution of its kind, the gas company should be made an example of to deter others from concealing similar environmental damage, Mr Rushton said.

He said edited notes and emails suggested senior management knew about the leaks - which happened before Santos took over the group, formerly known as Eastern Star - but chose not to alert the board.

He said if Santos NSW had reported the leak on time, it's possible tighter conditions would have been imposed.

The fact the company eventually made a report should make "no difference whatsoever", he added.

Culture change

There had been a notable change in corporate culture at the gas producer since the Santos takeover in late 2011, in a bid to move away from such "legacy issues", defence lawyer Dean Jordan argued.

Nevertheless, he said the group acknowledged the seriousness of the offences and wanted to make a full public apology.

He argued Santos NSW should receive a sentence discount for assisting authorities - a suggestion Justice Brian Preston rejected.

"All they've done is what they should've done," he said.

Santos bought Eastern Star in November 2011. A spokesman for the company said incidents that were the subject of Wednesday’s court proceedings "occurred some months, and in one case years, before Santos took over ESG’s operations and related to the Bibblewindi water treatment plant".

"In December 2011, after acquiring ESG, Santos shut down all operations in permits PEL 238 and PAL 2 near Narrabri, including the Bibblewindi water treatment plant which was subsequently removed," the spokesman said.

"After taking over ESG operations, a thorough review and upgrade of all infrastructure and work practices was undertaken by Santos, and around $17 million has been spent on the rehabilitation of various sites in the Pilliga, covering more than 40 hectares," he said.

Outside court, environmentalists held Christmas-themed signs reading "More Santa, Less Santos" and "All We Want For Christmas is Clean Water".

Justice Preston will sentence Santos NSW at a later date.

AAP with Fairfax Media