On June 17, 2017, the Petroleum Act (No. 7) B.E. 2560 and the Petroleum Income Tax Act (No. 7) B.E. 2560 were both enacted, amending their predecessor laws. The amendments to both statutes entered into force on June 23, 2017. The amendments had been anticipated for some time, introducing production sharing agreements (PSAs) and service contracts as alternative host government instruments by which upstream oil and gas producers may invest in Thailand.
Traditionally, the concession has been the sole means by which oil and gas could be explored for or produced in Thailand. Acting similarly to a license, the Thai concession stipulates that petroleum is the property of the state, though ownership transfers to the concessionaire at the wellhead. The amendments to the Petroleum Act do not eliminate the potential use of concessions, but rather provide two new instruments for the Ministry of Energy (MOE) to utilize when contracting with petroleum producers.
Production Sharing Agreements
The MOE will now be permitted to define appropriate blocks to be explored and produced by way of a PSA. Sections 53/1 through 53/8 of the Petroleum Act now outline a number of basic principles relating to PSAs and clauses to be found in the PSA itself, including the following:
- Minimum amounts of capital to be injected by the private oil and gas producer;
- Allocation of ownership interests in produced petroleum between the private oil and gas producer and the Thai state, including provision for the private oil and gas producer to dispose of petroleum on behalf of the state;
- Duty of the private oil and gas producer to submit a plan and budget for approval to the Petroleum Committee before starting the project; and
- Clauses pertaining to management of operations, penalties in the event of noncompliance, and termination of the PSA.
Unlike concessions, under the PSA the Thai state will retain ownership over a portion of the petroleum after it has been produced.
Service Contracts
Similar to PSAs, the MOE will now be permitted to determine appropriate blocks to be exploited via a service contract. Unlike the PSA or the concession, where the private oil and gas producer obtains ownership in some or all of the produced petroleum, produced petroleum under the service contract belongs exclusively to the Thai state. Sections 53/9 through 53/18 of the Petroleum Act outline a number of key aspects of the service contracts to be used in Thailand, including:
- Greater government control over exploration and production decision-making; and
- A maximum duration of three years for any service contract.
Amendments to Petroleum Income Tax Act
The amended Petroleum Income Tax Act accommodates the addition of PSAs to the Petroleum Act and makes other revisions to the taxation regime for upstream producers. Production sharing producers will be taxed at the rate of 20 percent of net profits, subject to other provisions of the Petroleum Income Tax Act. Amendments to the general taxation regime for upstream producers include the ability to deduct certain parent company expenditures on the Thai subsidiary’s behalf, as to be prescribed in further detail in forthcoming Ministerial Regulations.
Conclusions and Looking Forward
The MOE has been granted the authority to prescribe detailed rules relating to PSAs and service contracts by adopting Ministerial Regulations pursuant to Sections 53/1 and 53/9 of the Petroleum Act. As the MOE and its Department of Mineral Fuels determine appropriate blocks where either arrangement would be suitable, we can anticipate form agreements to be prescribed and utilized in practice.
