Delivering the judgment this morning, Justice Richard Button said as the state government's move was not made according to law it should be overturned. He ordered costs be paid to Metgasco.
The company said it would review the Supreme Court's decision in detail before providing a detailed response, but previously indicated it would seek damages over the Office of Coal Seam Gas' decision to revoke its drilling permit in the face of widespread public protests while the Titan Energy Services contracted rig was on the road to the drillsite.
The damages claim could exceed $10 million.
Metgasco says it has spent $120 million over 10 years successfully drilling more than 50 wells to define its CSG resource in the Clarence Moreton Basin, as well as a significant conventional and tight gas potential in the Greater Mackeller structure.
The company secured environmental approval in early 2013 to drill the Rosella-1 well and follow-up on promising results from the Kingfisher-1 discovery well.
Metgasco says it conducted a community consultation program specific to the well, but just weeks after approving the environmental plan the OCSG suspended the approval to drill on the basis that the company failed to comply with NSW government community consultation guidelines - despite not previously expressing any concerns.
Metgasco had secured a drilling location on the land of a farmer who supported the planned well; however, around 2000 protestors moved in amid concerns about the impact of CSG drilling.
Metgasco claimed the OCSG acted in bad faith and asked for the decision be reviewed by an independent party.
It said the government did not have the right to take such action under the Petroleum Onshore Act and that the OCSG had not followed its procedures.
The OCSG and NSW government declined to review their decision. Metgasco began Supreme Court proceedings in June last year, culminating in this morning's decision.
Metgasco says that it has widespread support for the development of the Casino CSG field in the nearby towns of Casino and Grafton, and that coastal communities will not be affected by its operations.
Metgasco has been contacted for comment.
The NSW government is yet to respond to the decision.
Metgasco shares halved from $0.088 when drilling was halted, and recovered 16% to $0.065 in trade this morning.
