Bidding Bidding ProceduresProcedures

Mr. Krairit NilkuhaMr. Krairit NilkuhaDeputy Director Deputy Director GeneralGeneralDepartment of Department of Mineral FuelsMineral Fuels11 August 200511 August 2005

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Petroleum under the new lookPetroleum 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

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Application RequirementsApplication Requirements

1. Completely filled the Thai version DMF/P1 application form (attachment 3);

2. Documentary evidences which help prove applicant’s fulfillment of 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

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Required Documentary Evidences

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.

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FORM FOR PETROLEUM EXPLORATION OBLIGATION PROPOSAL

We, the applicant, propose the following expenditure obligations and physical work obligations for petroleum exploration in the exploration block number……………………. to be prescribed in the concession as follows: (a) During the First obligation period: First year 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$ Second year 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$

-2- Third year 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 others purposes to benefit the exploration under the concession. (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 above is less than estimated, the applicant is entitled to spend the unspent residue for others purposes to benefit the exploration under the concession.

The Proposal FormThe 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.

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Bidding ScheduleBidding 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.

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.

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14

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The Bidding ProceduresThe Bidding Procedures

Consequent Submission Month16th - 15th of the following month

82 BLKSOffering for bid

X BLKSBeing applied

Pre-QAssessm

ent Process

82-X+A+BBLOCKS

PASS FAIL= B

FAIL= A

Bidding Evaluation Process

Y BLKSBeing applied

A+B

X-A

ConcessionsGranted

PASS = D

Pre-QAssessm

ent Process

PASS

FAIL = F

FAIL= E

E+F

Y-E

ConcessionsGranted

PASS = H

Exploration Blksavailable for bid

First Submission MonthNow - 15th Aug 2005

Last Submission Month: 16th – 30th 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.

C C

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The Evaluation CriteriaThe 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 pointsthe amount of expenditure obligations and physical work obligation

2. Special advantages 20 points

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.

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The Bidding Procedures at SummaryThe 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

Rules in consideration1. Applicants qualification &

credential2. 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.

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4

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Underlining Terms and Conditions (1)Underlining Terms and Conditions (1)Contract Terms

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 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 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.

Concession SystemConcession System

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Underlining Terms and Conditions (2)Underlining Terms and Conditions (2)

Royalty Sliding scale royalty

Fiscal Terms

Monthly Sale Volume Rate(Barrel 103) (%)

0 – 60 5.0060 – 150 6.25

150 – 300 10.00300 – 600 12.50

> 600 15.00

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

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Differences from the last 18th RoundDifferences from the last 18th 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 proportion • Putting 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

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Petroleum Law under reformation 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 :

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For Further InformationFor Further Information

Petroleum Concession SectionBureau 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.thTEL : (662) 791-8361FAX : (662) 791-8369E-mail address : bid19@dmf.go.th