Bidding Procedures Mr. Krairit Nilkuha Deputy Director General Department of Mineral Fuels 11 August 2005
Petroleum under the new look Development of Crude Prices : January 1995 – June 2005 “The world should forget about cheap oil.” Hugo Chavez, President of Venezuela, March 2005 Sources : The Economist, 30 April 2005 Sources : Platts
Application Requirements • Completely filled the Thai version DMF/P1 application form (attachment 3); • Documentary evidences which help prove applicant’s fulfillment of qualifications required by law; • 10,000 Baht application fee for each exploration block at bid • The proposed exploration program and special advantages filled in the Proposal Form (attachment 5); “Exploration Program and Special Advantage” Exploration Program and Special Advantage (in separated sealed envelope; which will be returned unopened to applicant if he fails to pass pre-qualification assessment)
Required Documentary Evidences To prove the fulfillment of required applicant’s qualifications which are addressed under section 24 of the Petroleum Act B.E. 2514, each applicant must submit the documentary evidences altogether with the application form. • Documentary evidence proving the existence of the company; • Evidenceshowing the power of attorney to sign on behalf of the applicant company; • Evidence showing that the applicant commands assets, machinery, equipment, tools and specialists to such an extent that it is capable to explore for, produce, sell and dispose of petroleum • In the event that the applicant’s qualification under (3) is not fulfilled, the guarantee from another company, which has relationship in capital or management with the applicant and possesses all qualifications said above, is required. • In addition, in this bidding round, the proposed bank guarantee is allowed to be submitted as supplementary document in supporting the applicant’s qualification under (3)
Third year (a) During the First obligation period: First year Second year The Proposal Form : The proposed exploration program • Exploration methods, Expenditure • Re-processing of existing seismic data ………. US$ • Geological study ………. US$ • Seismic survey ………. US$ • 2-D with a distance of …………… kilometers ………. US$ • 3-D with a distance of …………… kilometers ………. US$ • Drilling of ………. exploration well(s) ………. US$ • Others (specify) ………. US$ • The minimum expenditure is ………………… US$ (b) During the Second obligation period: In the case the exploration expenditure under the physical work obligations prescribed for the second obligation period (a whole period) is less than estimated, the applicant is entitled to spend the unspent residue for other purposes to benefit the exploration under the concession. In the case the exploration expenditure under the physical work obligations prescribed in each year is less than estimated, the applicant is entitled to spend the unspent residue for other purposes to benefit the exploration under the concession.
Bidding Schedule The 19th bidding round for concession right is given on 1st July 2005, and will be valid for 1 year. Applications should be submitted within the 15th of each submission month which runs from 16th to 15th of the following month. 14 Thus, there are 12 submission rounds which the first rounds will ended on the coming Monday 15th of August 2005, and the last one will be ended on Friday 30th of June 2006. 13 14
The Bidding Procedures Within 30 working days after the 15th of each submission month, each applicant will be informed of the initial status of evaluation of their applications. 82-X+A+B BLOCKS 82-X+A+B -Y+E+F Exploration Blks available for bid Y BLKS Being applied 82 BLKS Offering for bid X BLKS Being applied E+F A+B Pre-Q Assessment Process Pre-Q Assessment Process FAIL= E FAIL= A PASS PASS FAIL= B Y-E FAIL = F X-A + C C Bidding Evaluation Process Any applied block still being under this evaluation process will not be made available for bid. PASS = H PASS = D Concessions Granted Concessions Granted First Submission Month Now - 15th Aug 2005 Consequent Submission Month 16th - 15th of the following month Last Submission Month : 16th – 30th Jun 2006
The Evaluation Criteria Stage 1 : As theprerequisite qualifications, the Department will first consider the applicant’s qualifications and credential. Stage 2 : In selecting the prospective concessionaires, each application will be graded and compared under the following grading system. • Petroleum exploration program and 80 points • the amount of expenditure obligations • and physical work obligation • Special advantages20 points • The consideration of the petroleum exploration program will be based on the conformity of the amount of proposed physical workwith the geological reasons of the exploration block and the amount of proposed expenditure. • The applicants may be invited to appear before the Department to provide clarifications and additional justification for their applications.
The Bidding Procedures at Summary Concession Agreement as prescribed inMinisterial Regulation • Rules in consideration • 1. Applicants qualification & credential • Suitable exploration proposals and special advantages: • Exploration obligation80 points • Special advantages20 points Receiving application packagesbefore submitting to Petroleum sub-committee in considering concession applications for consideration. The Ministerawards concession agreement to the selected companies. 5 1 Minister of Energyselects prospective concessionaires as recommended by Petroleum Committee before submitting for cabinet approval. The sub-committeeopens the packages and evaluates applications with supporting information presented by DMF technical staffs.* 4 Petroleum Committeeevaluates prospective concessionaires in each applied block as recommended by the Sub-committee. 2 3 * Within 30 working days after the 15th of each submission month, each applicant will be informed of the initial status of evaluation of their applications.
Underlining Terms and Conditions (1) Contract Terms Concession System • Contract Period (years) • Exploration 3 + 3 (with 3 years extendable) • Production 20 (with 10 years extendable) starting immediately after the end of the exploration period. • Contract Area • Exploration Block As defined in the bid announcement, each concessionaire can hold up to 5 exploration blocks with a total area of not exceeding 20,000 sq km. • Area relinquishment is50% at the end of year 4andanother 25% at the end of year 6 • Production Area With commercial discovery, production area will be delineated and production can start right away even in the exploration period. • Reserved Area In the case the production area is declared, 12.5% of the original exploration area can be reserved for further exploration for another period of 5 years after the end of the exploration period.
Royalty on petroleum produced from deep water Andaman Sea and some certain areas selected by the government will be only 70% of the shown rate. Underlining Terms and Conditions (2) Fiscal Terms Royalty Sliding scale royalty Monthly Sale Volume Rate (Barrel 103) (%) 0 – 60 5.00 60 – 150 6.25 150 – 300 10.00 300 – 600 12.50 > 600 15.00 Petroleum Income Tax • 50% of net profit of the company and no ringfence for cost deduction. • Royalty and SRB paid can be treated as tax deductible expenses. • Special Remuneratory Benefit (SRB) is designed to work as windfall profit tax which will only imposed if; • All capital cost (plus special reduction) are recovered, and • Annual revenue becomes drastically high compared with the investment. SRB Incentives Exemption of any other corporate taxes, duties and taxed on imported equipment and materials.
Differences from the last 18th Round Key differences 1. Documentary evidences required in evaluating applicants’ pre-qualifications • Besides applicants’ reputation, experience and financial strength, proposed bank guarantee is also welcomed to be submitted as a supplementary document for the pre-qualification evaluation process 2. Changing grading proportion • Putting higher weight on the petroleum exploration program and the amount of expenditure obligations and physical work obligation 3. Applicants’ opportunities to appear before the Department • Giving applicants’ opportunities to provide clarifications and additional justification for their applications 4. Removal of succeeding applicants’ requirement in registering a Thai limited company with the fully-paid registered capital of 100 mil. baht • As an adequate control is already put in place.
Petroleum Law under reformation • To reduce workflow and hence improve cycle time for approval process • To enhance and stimulate E&P activities • Increase fairness • Incentive in developing marginal and also declining fields • To bring more clarification on directions in operating in compliance with the regulations set by law Objectives of the Law Reform :
For Further Information Petroleum Concession Section Bureau of Petroleum Operation and Coordination, Mailing address : Department of Mineral Fuels, Shinawatra Tower III, 24th Floor, 1010 Viphavadi-Rangsit Road, Bangkok 10900 THAILAND Website : www.dmf.go.th TEL : (662) 791-8361 FAX : (662) 791-8369 E-mail address : firstname.lastname@example.org