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Bidding Procedures Mr. Krairit Nilkuha Deputy Director General Department of Mineral Fuels 11 August 2005.

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Presentation on theme: "Bidding Procedures Mr. Krairit Nilkuha Deputy Director General Department of Mineral Fuels 11 August 2005."— Presentation transcript:

1 Bidding Procedures Mr. Krairit Nilkuha Deputy Director General Department of Mineral Fuels 11 August 2005

2 - 2 - Petroleum under the new look Development of Crude Prices : January 1995 – June 2005 Sources : Platts Sources : The Economist, 30 April 2005 “The world should forget about cheap oil.” Hugo Chavez, President of Venezuela, March 2005

3 - 3 - Application Requirements 1.Completely filled the Thai version DMF/P1 application form (attachment 3);Thai version DMF/P1 application form 2.Documentary evidences which help prove applicant’s fulfillment of qualifications required by law; qualifications required by law 3.10,000 Baht application fee for each exploration block at bid 4.The proposed exploration program and special advantages filled in the Proposal Form (attachment 5); (in separated sealed envelope; which will be returned unopened to applicant if he fails to pass pre-qualification assessment) “Exploration Program and Special Advantage” Exploration Program and Special Advantage

4 - 4 - Required Documentary Evidences (1)Documentary evidence proving the existence of the company; (2)Evidence showing the power of attorney to sign on behalf of the applicant company; (3)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) 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.section 24 of the Petroleum Act B.E. 2514

5 - 5 - The Proposal Form : The proposed exploration program (a) During the First obligation period: First year Second year Third year (b) During the Second obligation period: 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$ 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. 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.

6 - 6 - Bidding Schedule The 19 th bidding round for concession right is given on 1 st July 2005, and will be valid for 1 year. Applications should be submitted within the 15 th of each submission month which runs from 16 th to 15 th of the following month. Thus, there are 12 submission rounds which the first rounds will ended on the coming Monday 15 th of August 2005, and the last one will be ended on Friday 30 th of June

7 - 7 - The Bidding Procedures Consequent Submission Month 16 th - 15 th of the following month 82 BLKS Offering for bid X BLKS Being applied Pre-Q Assessment Process 82-X+A+B BLOCKS PASS FAIL= B FAIL= A Bidding Evaluation Process Y BLKS Being applied A+B X-A Concessions Granted PASS = D Pre-Q Assessment Process PASS FAIL = F FAIL= E E+F Y-E Concessions Granted PASS = H Exploration Blks available for bid First Submission Month Now - 15 th Aug 2005 Last Submission Month : 16 th – 30 th Jun Any applied block still being under this evaluation process will not be made available for bid. 82-X+A+B -Y+E+F 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. C C

8 - 8 - The Evaluation Criteria Stage 2 : In selecting the prospective concessionaires, each application will be graded and compared under the following grading system. 1.Petroleum exploration program and 80 points the amount of expenditure obligations and physical work obligation 2.Special advantages20 pointsSpecial advantages The consideration of the petroleum exploration program will be based on the conformity of the amount of proposed physical work with 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. Stage 1 : As the prerequisite qualifications, the Department will first consider the applicant’s qualifications and credential.prerequisite qualifications

9 - 9 - The Bidding Procedures at Summary Receiving application packages before submitting to Petroleum sub-committee in considering concession applications for consideration. The sub- committee opens the packages and evaluates applications with supporting information presented by DMF technical staffs.* The Minister awards concession agreement to the selected companies. Petroleum Committee evaluates prospective concessionaires in each applied block as recommended by the Sub-committee. Minister of Energy selects prospective concessionaires as recommended by Petroleum Committee before submitting for cabinet approval. Concession Agreement as prescribed in Ministerial Regulation Ministerial Regulation Rules in consideration 1.Applicants qualification & credential 2.Suitable exploration proposals and special advantages: Exploration obligation 80 points Special advantages 20 points * 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

10 Underlining Terms and Conditions (1) Contract Terms Contract Period (years) Exploration3 + 3 (with 3 years extendable) Production20 (with 10 years extendable) starting immediately after the end of the exploration period. Contract Area Exploration BlockAs 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 is 50% at the end of year 4 and another 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 AreaIn 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. Concession System

11 Underlining Terms and Conditions (2) Royalty Sliding scale royalty Fiscal Terms Monthly Sale VolumeRate (Barrel  10 3 )(%) 0 – – – – > 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. 50% of net profit of the company and no ringfence for cost deduction. Royalty and SRB paid can be treated as tax deductible expenses. Petroleum Income Tax 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 Exemption of any other corporate taxes, duties and taxed on imported equipment and materials. Incentives

12 Differences from the last 18 th Round 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 3. Applicants’ opportunities to appear before the Department 4. Removal of succeeding applicants’ requirement in registering a Thai limited company with the fully-paid registered capital of 100 mil. baht 2. Changing grading proportionPutting higher weight on the petroleum exploration program and the amount of expenditure obligations and physical work obligation Giving applicants’ opportunities to provide clarifications and additional justification for their applications As an adequate control is already put in place. Key differences

13 Petroleum Law under reformation 1.To reduce workflow and hence improve cycle time for approval process 2.To enhance and stimulate E&P activities Increase fairness Incentive in developing marginal and also declining fields 3.To bring more clarification on directions in operating in compliance with the regulations set by law Objectives of the Law Reform :

14 For Further Information Petroleum Concession Section Bureau of Petroleum Operation and Coordination, Mailing address : Department of Mineral Fuels, Shinawatra Tower III, 24 th Floor, 1010 Viphavadi-Rangsit Road, Bangkok THAILAND Website : TEL : (662) FAX : (662) address :

15 APPENDIX

16 Section 24 of Petroleum Act B.E.2514 Section 24. An eligible applicant shall: (1) be a company or companies, and (2) command assets, machinery, equipment, tools and specialists to such extent that he shall be capable to explore for, produce, sell and dispose of petroleum. In the event that the applicant does not possess all the qualifications under sub-paragraph (2) hereof, it shall be required to have another company which the Government finds reliable and which possesses all qualifications under sub-paragraph (2) hereof and which has relationship in capital or management with the applicant, guarantee that such company shall make available to the applicant assets, machinery, equipment, tools and specialists to such extent that the applicant shall be capable to explore for, produce, sell and dispose of petroleum.

17 Special Advantages In offering special advantages, the applicant must propose in its special advantages to make use of services on transport vehicles, road construction and other relative to petroleum activities from contractors, or to materials and tools available in Thailand – THE LOCAL CONTENT REQUIREMENT - Examples of other forms of special advantages to be proposed;  Scholarships, training, or supporting fund for petroleum development in Thailand  State participation after discovery  Etc.

18 The Announcement of the bid winner Once the applicants being evaluated as the prospective concessionaires, and the awarding of the concession for the right in petroleum exploration and production is announced;  the Department officer has informed the successful applicant by written notice, at the address given by the applicant, of the date, time and place for affixing its signature to the concession  For the applicant, being evaluated as successful bidder, who fails to appear and affix its signature within the designated time without justifiable ground, it shall be deemed that the successful applicant no longer wishes to become a concessionaire and the said applicant shall not be entitled to claim for damage or for any rights from the Government.

19 Provisions for Royalty Reduction Under the Petroleum Act, some provisions for reduction of royalty taken from petroleum revenue are already provided as follows: 1. Section 99 Section Section 99 bis. Section 99 bis. 3. Section 99 ter. Section 99 ter.

20 Provisions for Royalty Reduction section 99 of the Petroleum Act Section 99. The rate of royalty under this Act may be reduced temporarily by not exceeding thirty per cent in accordance with the rules and procedures prescribed in the Ministerial Regulation to suit circumstances or the state of petroleum production.

21 Provisions for Royalty Reduction section 99 bis. of the Petroleum Act In order to foster and expedite the exploration and/ or development of petroleum resources in certain areas within any exploration block or production area of the concessionaire, where the geological conditions are unfavorable and which are not under the exploration or production plans of the concessionaire, the Minister, upon the advice of the Committee, shall have the power to grant a royalty reduction to the concessionaire by making an agreement with the concessionaire so as to encourage the concessionaire to explore and /or develop such area in accordance with the plans which the Department of Mineral Fuels shall prescribe in accordance with the agreement so to be made. In providing the Minister with the advice for reduction of royalty under paragraph 1, the Committee shall pay due regard to the geological conditions and petroleum potential of such areas, statistical data on petroleum exploration and production expenses for the areas having similar geological conditions, domestic demand for petroleum products, the price sensitivity for petroleum products in the market and other advantages and disadvantages which the nation would realize from the expedition of petroleum exploration and resource development. The royalty to be reduced under this Section shall be either the royalty derivable from the petroleum operation already undertaken by the concessionaire in the exploration block or production area, or the royalty that will be derivable from the petroleum production in the area or areas which the Department of Mineral Resources prescribed in its plans; and such reduction shall not exceed thirty per cent of the amount of royalty payable by the concessionaire on all the petroleum produced from the exploration block and the production area located within such exploration block, or not exceeding thirty per cent of the amount of royalty which will be derivable from the petroleum production conducted within the area so prescribed by the Department of Mineral Resources, whichever the case may be; while the period to be granted for reduction shall not exceed four years as from the date of execution of the agreement, or the date on which the Director- General approved the prescription of production area under Section 42 for each of the production area within the areas prescribed in the plan of the Department of Mineral Resources, as the case may be. Such agreement made with the concessionaire may include any conditions or terms as may be appropriate for the case.

22 Provisions for Royalty Reduction section 99 ter. of the Petroleum Act For the area which its geological conditions indicate that the production of petroleum from such area would require a very high expenditure, the Minister, upon the advice of the Committee, may award concession for that area with provision on royalty reduction on the petroleum derivable when production commences in such area in respective with the volume of petroleum to be specified in the concession; provided that the size of the area under such concession shall not exceed two hundred square kilometers and the reduction of royalty shall not exceed thirty per cent of the amount of royalty payable while the period the concessionaire would be granted with royalty reduction shall not exceed three years from the date the Director- General granted his concurrence for the prescription of production area under Section 42 for each production area. In providing the advice of the Committee under paragraph 1, the rules as set out in paragraph 2 of Section 99 bis shall apply, and the awarding of concession under this Section shall be exempt from the limitation on the number of exploration blocks or aggregate area of exploration blocks in awarding concessions under Section 28. In the prospectus for applications for concession under paragraph 1, the Department of Mineral Resources shall prescribe the amount of minimum expenditure obligations and/or physical work obligations for petroleum exploration which the applicant for concession shall have to comply with if the Government awards him the concession with reduction of royalty under this Section."

23 Concession Agreement In exercise of the power conferred by the Petroleum Act B.E. 2514, THE MINISTER OF ENERGY (hereinafter called "the Minister") with the approval of the Council of Ministers, awards this Concession to , a juristic person established under the laws of having its head office at represented by who has the power to sign on behalf of the Company (hereinafter called "the Concessionaire") with the following provisions of the Concession: CLAUSE 1DEFINITIONCLAUSE 10 SURFACE RESERVATION FEE, ROYALTY, SPECIAL REMUNERATORY BENEFIT AND INCOME TAX CLAUSE 2EXPLORATION BLOCKCLAUSE 11 OBLIGATIONS AND DUTIES OF THE CONCESSIONAIRE CLAUSE 3PETROLEM EXPLORATION PERIODCLAUSE 12SANCTITY OF FUNDAMENTAL PROVISIONS CLAUSE 4 OBLIGATION IN PETROLEUM EXPLORATION CLAUSE 13SETTLEMENT OF DISPUTES CLAUSE 5PETROLEUM PRODUCTION PERIODCLAUSE 14REVOCATION CLAUSE 6SPECIAL ADVANTAGESCLAUSE 15TERMINATION OF THE CONCESSION CLAUSE 7 STORAGE AND TRANSPORT OF PETROLEUM CLAUSE 16WAIVER CLUASE 8 ASSISTANCE TO THE CONCESSIONAIRE CLAUSE 17NOTICE CLAUSE 9 ARTICLES EXEMPTED FROM TAX AND DUTY CLAUSE 18MISCELLANEOUS Ministerial Regulation No. 17

24 The Bidding Procedures Consequent Submission Month 16 th - 15 th of the following month 82 BLKS Offering for bid X BLKS Being applied Pre-Q Assessment Process 82-X+A+B BLOCKS PASS FAIL Bidding Evaluation Process Y BLKS Being applied A+B X-A Concessions Granted PASS Pre-Q Assessment Process PASS FAIL = F FAIL= E E+F Y-E Concessions Granted PASS = H Exploration Blks available for bid First Submission Month Now - 15 th Aug 2005 Last Submission Month : 16 th – 30 th Jun 2006 Any applied block still being under this evaluation process will not be made available for bid. 82-X+A+B -Y+E+F 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. A B C D A B C D X B C D B C D B C


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