Cabinet OKs rules for exploration and production deals

Cabinet OKs rules for exploration and production deals

Nod seen as milestone towards bidding round

A PTTEP platform in the Bongkot offshore gas block in the Gulf of Thailand. Criteria approved on Tuesday by the cabinet will be applied to the 21st round of petroleum bidding if the Council of State clears them.
A PTTEP platform in the Bongkot offshore gas block in the Gulf of Thailand. Criteria approved on Tuesday by the cabinet will be applied to the 21st round of petroleum bidding if the Council of State clears them.

The cabinet on Tuesday gave the nod to four ministerial regulations that will set criteria for production-sharing contracts (PSCs) and service contracts (SCs) as alternatives that would allow society as a whole to benefit from the petroleum business.

The move would also pave the way for the government to proceed with opening the 21st round of bidding for oil and gas exploration and production (E&P), a crucial aspect of the national energy plan.

According to Kobsak Phutrakul, assistant minister to the Prime Minister's Office, the four ministerial regulations will be submitted later to the Council of State for vetting and are expected to come into force by October.

The criteria will be applied to the 21st round of petroleum bidding, he said.

According to Mr Kobsak, the ministerial regulations will call for SCs if an oilfield could potentially produce more than 300 million barrels of oil per oilfield or 4 million barrels per oil well.

Likewise, the rules will mandate SCs if a gas field could potentially produce more than 3 trillion cubic feet of natural gas or 40 billion cubic feet per gas well.

Any oilfields or gas field with an average petroleum possibility of more than 39% will by required by the ministerial regulations to apply for PSCs.

Areas that have an average petroleum possibility of less than 39% will apply the concession system.

The Energy Ministry said the areas that have high potential for reserves are the gas fields and oilfields of the Gulf of Thailand, with up to 50% possibility of having oil and gas, followed by the northern and central areas (31%) and the Northeast (14%).

Mr Kobsak said the winning operators who use PSCs are required to pay a royalty fee at a rate of 10% of the total production to the government, deducting from proceeds available from the sale or distribution of total petroleum output.

The contracts for E&P are stated at 38 years, comprising six years of exploration and a one-time expansion not to exceed three years.

Production is required not to exceed 20 years and can expand only one time in 10 years.

On June 17, the Petroleum Act and the Petroleum Income Tax Act were both enacted, amending their predecessor laws. The amendments to both statutes entered into force on June 23.

The amendments had been anticipated for introducing PSCs and SCs as an alternative to the government instruments for opening bids on oil and gas E&P in Thailand.

Previously, the concession system was the sole means by which oil and gas could be explored for or produced in Thailand.

The new model is expected to severely limit management control of petroleum companies, as government takes control of key production and exploration decisions.

Petroleum and gas E&P in Thailand have operated under a concession system since drilling began in the country in 1969. The system assured the Erawan and Bongkot gas fields a dominant position in the natural gas market for more than 30 years.

New players and new corporate structures will make their way into the market for the first time in 2022 and 2023, when the concessions for Chevron and PTTEP, respectively, expire.

Several Chinese and Middle Eastern firms have expressed interest in participating in the government's bidding process.

Switching is not mandatory, but it carries certain advantages. The new PSC system will reduce the state's share of exploration and production revenue to 68% from 70%.

Onshore Andaman players will remain on the concession system. Gulf of Thailand players, in contrast, will change to the PSC system.

The establishment of the new system was in part prompted by yellow-shirt leaders who campaigned against ousted prime minister Thaksin Shinawatra, and by extension the privatisation of PTT Plc, for a decade.

The 30-billion-baht IPO of PTT in 2001 was widely credited with allowing the state enterprise to climb out of debt.

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