Fiscal reforms threatens Thailand’s upstream outlook

Independent analysis by Wood Mackenzie show that the Thailand’s upstream outlook is at risk from fiscal reform as the public say that tougher fiscal policies may not benefit Thailand in the end. As changes create uncertainty and does not incentivise investment, it may risk future exploration activity in Thailand – an already mature petroleum province with a weak supply outlook.

Craig McMahon, Wood Mackenzie’s head of APAC Research, explains, “Thailand’s recent production growth has been offset by weak exploration performance. As a result, it has replaced less than 25 percent of the 2.3 billion barrels of oil equivalent (boe) reserves produced in the last decade. At current production levels, our analysis shows commercial reserves would be exhausted within nine years. During this timeframe, Thailand’s upstream sector will generate $125 billion in revenue, but to boost recovery and maximize the benefit of its oil and gas resources beyond this, there is a need for Thailand to encourage investments into the upstream sector.”

Under Thailand’s current fiscal terms (Thai III), the country operates a concession regime, consisting of a sliding scale royalty paid to the government based on production, a specified (50 percent) petroleum income tax applied to profits, and a special-remuneratory-benefit windfall profit tax. Based on a 250 billion cubic feet (Bcf) gas field in shallow water (less than 1,312 feet or 400 metres) in a medium cost environment – a standard field-type for offshore Thailand – Thailand’s government takes a 67 percent share of oil and gas profits under current terms. This exceeds the global average share of 58 percent.

Taking all things into consideration, Wood Mackenzie’s recommendation is for Thailand to consider any fiscal changes in the context of its upstream sector’s overall attractiveness. After 2023, Thailand risks a rapidly declining production outlook. Meanwhile, concessions expiring in 2023 currently account for more than 65 percent of Thailand’s production. Therefore, Craig concludes, “While the government is coming under pressure to make fiscal terms tougher and increase its share of profits, if Thailand is to attract the necessary investment to sustain production, the priority should not be to create more barriers for investors. Instead, as we have been saying, Thailand moves in the right direction by progressing the delayed 21st licensing round to ensure further acreage is fully explored and offer clarity on extensions of the expiring concessions.”