21 August, 2017
The Thai government has approved new regulations detailing the criteria for awarding production sharing contracts (PSCs) and service contracts as alternatives to traditional concession agreements under the new Thai Petroleum Act.
Kobsak Phutrakul, assistant minister to the prime minister's office, told the Bangkok Post this week that the regulations are expected to come into force by October. The criteria will apply to the upcoming, and long-delayed, 21st round of bidding for oil and gas exploration and production (E&P), as well as in relation to the expiring Erawan and Bongkot blocks.
This announcement clarifies that the form of petroleum contract will not be an option open to the E&P companies themselves. Rather, different forms of contract will apply to different categories of field.
Service contracts will apply where a field is assessed to have proven reserves plus potential reserves for future production of more than 300 million barrels of oil per field, or four million barrels of oil per oil well, Kobsak said. Service contracts will also be awarded where a gas field has proven reserves plus potential reserves for future production of more than three trillion cubic feet of natural gas or 40 billion cubic feet per gas well. How those calculations will be determined for exploration blocks is not yet clear.
Service contracts generally tend to be less attractive to investors as a much lower reward is typically offered to the contractor. However, we will have to wait until the template form of Thai service contract is published to determine how attractive the proposed terms and conditions are.
In other cases, a "success ratio" criterion will be used to determine the form of contract. For oil or gas fields with a success ratio of more than 39%, a PSC will be used. Where the success ratio of a field is below 39%, the traditional concession system will apply.
To determine the success ratio, Thailand will be split into five petroleum regions (central and northern region, north-eastern region, eastern region, Gulf of Thailand, and Andaman) with data from current blocks in those regions being used to determine the relevant success ratio. According to the Bangkok Post, projects in the Gulf of Thailand are likely to change to the PSC system as they will have a success ratio of greater than 39%, while those onshore Andaman will remain on the traditional concession regime, having a success ratio of lower than 39%.
PSC operators will be required to pay a royalty fee of 10% of the total production to the Thai government, Kobsak said.
For further information, please contact:
Ian Laing, Partner, Pinsent Masons
ian.laing@pinsentmasons.com
