CHAPTER
11
PETROLEUM
INDUSTRY
Historical background Searches for oil in Thailand were first made in 1921. At that time, petroleum
activities were solely within the Government sector. In the beginning,
exploration of petroleum was conducted by the Military Fuel Division which
discovered the first oil field known as Bo Thon Kham in northern Thailand.
Subsequently, a number of other oil fields were discovered, but their
operations were not very productive.
Attempts to attract foreign
investors for petroleum exploration was initiated in 1960. Subsequently, the first
foreign oil company was granted a petroleum exploration permit by virtue of the
Minerals Act then prevailing as the exploration and mining of minerals included
petroleum.
For the purpose of promoting
petroleum exploration and production and to attract more investors, Thailand
enacted the Petroleum Act and Petroleum Income Tax Act in 1971, after its
ratification of the Convention on Continental Shelf and the first United
Nations Convention on the Law of the Sea. The Petroleum Act was amended in 1973,
1979, 1989 and 1991. The 1991 amendment exempts machinery and equipment from
import taxes.
The Petroleum Act Under the Petroleum Act, petroleum includes crude oil, natural
gas, natural gas liquid, by products and other naturally occurring hydrocarbons
in a free state, whether solid, semi‑solid, liquid or gaseous, and all
heavy hydrocarbons which can be recovered in situ by thermal or chemical
processes, but does not include coal, oil shale or other kinds of rocks from
which oil can be extracted by application of heat or chemical process.
The Petroleum Act regulates the
conduct of petroleum operations, including exploration, production, storage,
transport, sale, or disposal of petroleum undertaken anywhere in Thailand,
including the areas of the continental shelf over which Thailand has
jurisdiction.
Petroleum exploration and production
grants to private investors are in the form of concessionary contract wherein
the concessionaire pays to the government royalties, special remuneratory
benefits and tax in consideration for the concession granted. In addition, the
concessionaire may offer to the government special advantages that are normally
in the forms of scholarships, training, grants to government agencies or
educational institutions, signature and production bonuses, or state
participation in the concessionaire's equity. Concession agreements are to
modelled on a draft contained in a ministerial regulation.
Under the previous provision, the
price of the exported crude oil is based on the most up‑to‑date
method of quality valuation, giving due regard to the posted price of
comparable crude oil in the Persian Gulf, geographical locations, of the point
of export and the point of purchase, including market outlets and
transportation costs. The price is thus notified unilaterally by the
concessionaire without state intervention. However, under the last amendment to
the Petroleum Act, the government is empowered to rectify the notified price of
the exported crude oil.
Exploration and production regime
Exploration blocks and areas A petroleum concession may cover an area of not more than five
exploration blocks provided that the aggregate areas of such exploration blocks
shall not exceed 20,000 square kilometers. For exploration blocks having water
depth in excess of 200 meters, the Minister of Industry shall have the power to
award a concession in a number of exploration blocks and the total area thereof
as the Minister deems appropriate.
Exploration period The exploration period must not exceed six years from the date of
granting of such concession with a possible extension for three years. Such
exploration period is divided into three obligation periods. The first period
is the first three years of the term, the second is the remaining petroleum exploration
period after the first period and the third is the period of the renewal of the
petroleum exploration period, if such period has been renewed. The
concessionaire is required to fulfil certain work and expenditure obligations
within the exploration period.
During the exploration period, the
concessionaire may produce petroleum with approval from the competent
authority, provided that the concessionaire demonstrates that a commercial well
has been discovered and the production area has been correctly defined.
Relinquishment At the end of the fourth year, 50% of the exploration area must be
relinquished except for exploration blocks that are more than 200 meters deep,
of which only 35% need be relinquished. At the end of the exploration period if
an extension is not applied for, the entire area remaining is relinquished.
Where an extension is sought, a further 25% of the area must be relinquished
except for exploration blocks that are more than 200 meters deep, of which 40%
must be relinquished. At the end of the renewed period, the concessionaire must
relinquish all the remaining area. However, the concessionaire may be entitled
to reserve 12.5% of the exploration area for a period not exceeding five years
for further exploratory work, provided that the concessionaire has the right to
produce petroleum from that area after the exploration period has ended.
Production period The production period must not exceed twenty years from the day
following the end of the exploration period, notwithstanding any petroleum
production undertaken during the exploration period. The production period may
be extended for a further period of not more than 10 years.
Fiscal regime Since the last amendment to the Petroleum Act and the Petroleum Income
Tax Act, the Thai fiscal terms have become more attractive and suitable. Three
main pillars in the fiscal regime are:
2. Petroleum income tax, presently at the rate
of 50% of net income.
3. Special remuneratory benefits.
Revised 1 December 2006