Effect of exploration block ringfencing concept to the return on investment of petroleum concessionaire in Thailand

Abstract

The study is aimed to identify effects of the Block Ringfencing concept of present Thai petroleum fiscal regime (Thailand III) on the rate of return to the petroleum concessionaire. Study models and various necessary data are designed such that they are suitable for the case of gas fields in the Gulf of Thailand. The effects of various economic parameters i.e. cost change, escalation of cost and price, and capital financing are first investigated. The effect of means of financing (with loan or without loan) the project on rate of return on investment is found to be significant while the effects of cost change and cost and price escalation are less pronounced. The effect of Block Ringfencing concept on rate of return is investigated for the cases with two blocks and two fields, two blocks and three fields, and three blocks and three fields. The results show that economic parameters have some influence on the effect of Block Ringfencing concept on rate of return. Lag time or time interval between development of various fields also has influence on the effect of Block Ringfencing concept. In addition, when different values of K are used for the cases of not using Block Ringfencing concept, different conclusions result. For K values of 2 x 150,000 or 3 x 150,000 for two blocks or three blocks cases, IRR’s for the cases of not using Block Ringfencing concept are higher than IRR’s for the cases of using Block Ringfencing concept. Oppositely, for K value of 150,000 for two blocks and three blocks cases, IRR’s for the cases of using Block Ringfencing concept are higher. Recommendations based on the results of the study are also given.