The PA governs the exploration and production of petroleum (natural gas and oil). It is administered by the DMF, formerly under the Ministry of Industry and, since 2002, under the Ministry of Energy.
To date, all natural gas exploration and production has occurred in Thailand by way of petroleum concessions. In 2007, the PA was amended by Petroleum Act No. 6. Four ministerial regulations under the PA and a revised form of petroleum concession were published in 2012.
Thai practice in granting petroleum concessions (for oil and gas exploration and production) was to award them only following publication of an international invitation, usually on at least 45 days’ notice. Applications were evaluated on a points system by the Petroleum Committee, which forwards its recommendations to the cabinet for approval.
Most concession terms and conditions are prescribed in the PA and its regulations. The standard concession form was initially set out in 1972 in Regulation No. 4, which includes only 18 sections. In 1989, a new concession form was prescribed in Regulation No. 17. A new concession form was also prescribed in 2012. In practice, concession applicants are rarely permitted to negotiate changes in its standard terms.
The Petroleum Income Tax Act, BE 2514 (1971), as amended (PITA), prescribes a special income tax regime for exploration and production companies.
2017 Amendments to PA and PITA
The Petroleum Act (No. 7) and the Petroleum Income Tax Act (No. 7) were enacted in March 2017 to establish the PSC and SC contract regimes.
Amendments to section 23 of the PA include the additions that exploration and production of petroleum now require the application for, and the grant of a PSC, SC or concession. The authority to determine which form is appropriate will be vested with the Ministry of Energy, with rules and procedures to be published with the approval of the Council of Ministers.
Amendments to the PA in regard to PSCs include general terms and conditions that are to be inserted in the contract. Significant features of such contracts include the following:
- all actual expenses in petroleum operations are to be borne by the contractor and deducted from production, as detailed in the contract, and in accordance with the work plan and budget approved by the Director-General (such approval is required annually under section 53/4 during the term of the contract). Deductions may not exceed 50 per cent of the total production. If actual expenses exceed 50 per cent in any year, the excess can be deducted in the following year, as long as such expenses for that year do not exceed 50 per cent. Up to 50 per cent of remainder of the total production, after deduction and payment of royalty, shall be shared with the contractor (sections 53/3(1) and 53/3(2(a, b, and c));
- the portion of production owned by the state may either be sold or disposed of by the state, or by the contractor at the state’s request (section 53/3(5));
- ownership of all construction materials, equipment, properties and facilities used in petroleum operations acquired by the contractor is to be vested in the state; and
- certain provisions of Division 3 of the PA on Petroleum Exploration and Production under concessions also apply to PSCs, notably as to grant, renewal and revocation of rights; duration and renewal of exploration and production periods; demarcation, award and relinquishments of exploration blocks; award of production areas; and transfer of rights; and
- the contractor is to pay a royalty of 10 per cent on the total production.
Amendments to the PA in regard to SCs also include general terms and conditions that are to be included in such contracts. Significant features of such contracts include the following:
- remuneration, calculation and payment of remuneration may be made in petroleum production or money, and only upon commercial production (section 55/11(4));
- the term of petroleum exploration and production shall not exceed 30 years, with reasons for early termination to be included in the contract (section 55/11(5));
- rules, procedures, work plan, reporting procedures and conditions of measurement are to be included in the production/exploration contract (section 55/11(6-8);
- like PSCs, SCs require annual approval of a work plan and budget by the state, with expenses for petroleum operations to be borne by the contractor, and total production is to be owned by the state. The state may dispose of or sell any portion of its production, or may request the contractor to do so (section 53/11(1-4));
- money received by the government from the sale or disposal of production is to be first paid as a royalty, with the remainder to be paid as remuneration and expenses under the production/exploration contract. The remainder, if any, is to be remitted to the Treasury (section 53/14); and
- the government is to pay a royalty of 10 per cent on the petroleum produced (section 53/17).
For the adoption of the PSC form, the PITA has likewise been amended. Under its section 65-quatervicies, a company that is a party to a PSC must pay income tax of 20 per cent of the net profits from the petroleum business. The PITA does not mention SCs. Thus, a party to such a contract is subject to the general income tax under the Revenue Code of 20 per cent.
In March 2018, the Ministry of Energy adopted Ministerial Regulation Re: Form of Production Sharing Contract, BE 2561 (2018), which prescribed the PSC form. As of 31 December 2018, the government has not published form SC (three forms of SC are mentioned in the 2017 amendments to the PA).
The right to produce natural gas in the Bongkot and Erawan fields after the current concessions expire was auctioned in late 2018. The winning bidders, which were PTTEP for the Bongkot field and a joint venture of PTTEP and Mubadala Petroleum for Erawan field, will produce the two fields under a PSC regime from 2022 and 2023.
The Ministry of Energy determines regulatory policies governing the production, transmission, distribution and supply of natural gas, based on advice and recommendations of the Petroleum Committee and the DMF. The ERC has a role in policies governing transmission, distribution and supply of natural gas. The ERC has also announced a 20-year (2011-2030) Energy Efficiency Development Plan, which will eventually require large-scale businesses in the natural gas industry to implement energy conservation promotion measures to encourage customers to reduce energy use by specified minimum standards, as opposed to voluntarily engaging in such activities, as has been the previous practice. See question 8.
Back to top