The Albanese government is on track to face its first major test on offshore gas exploration, with the Federal Court likely to overturn a decision by Scott Morrison to kill off a controversial project known as PEP-11 in the lead-up to last year’s election.

Federal Resources Minister Madeleine King and NSW Deputy Premier Paul Toole will now be required to review the application by BPH Energy and Bounty Oil and Gas to explore for gas off the coast of Newcastle, after the companies and the federal government agreed to settle the issue before trial.