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Regulations on Decommissioning

Regulations on DecommissioningPetroleum Decommissioning Regulations in Cambodia, Myanmar, Thailand, and Vietnam

Tilleke & Gibbins, our corporate member, has shared that a series of perhaps unrelated drivers have resulted in a renewed emphasis on decommissioning obligations within the energy industry, from government mandates for renewable energy to the end-of-life of many oil and gas concessions and product-sharing contracts around Asia and throughout the world. These circumstances have spurred governments and oil and gas interest holders to begin the robust debate on decommissioning obligations and related processes and security arrangements.

In this article, we compare the regulations governing oil and gas decommissioning in Cambodia, Myanmar, Thailand, and Vietnam—a region in which this context has become especially consequential for investors, operators, and governments and their regulators.

Thailand

Thailand’s oil and gas decommissioning obligations are defined in two main legal documents: the petroleum concession agreement relevant to that concession block and the current form of the PSC, and sections 80/1 and 80/2 of the Thailand Petroleum Act as amended in 2007 (along with implementing ministerial regulations), which applies to both the concessionaire and the PSC contractor.    

The 2007 amendments to the Petroleum Act include provisions requiring the concessionaire and PSC contractor to submit a decommissioning plan for the government’s approval, provide cost estimates, and offer financial security to guarantee decommissioning liabilities. Operators must also propose the decommissioning of properties no longer in use. In addition, operators must transfer assets with remaining useful life to the government upon concession or PSC expiration, as directed by the government.   

Concession agreements generally state that the “Concessionaire shall deliver up to the Government of Thailand free of charge” all remaining assets, and that “the properties which are not useable shall be removed by Concessionaire in accordance with the Government’s instruction.” They also typically state that, during the last five years of the concession, the operator is not to remove assets without prior approval.

There is substantial uncertainty around the decommissioning liabilities and costs associated with assets transferred to the government under Ministerial Regulation 22, issued in 2016. These regulations place burdens on concessionaires or PSC contractors to transfer usable assets back to the government but to retain decommissioning liabilities for those transferred assets. This has raised much uncertainty, principally surrounding two matters:

  • The responsibility and liability of the concessionaire or PSC contractor to complete the decommissioning of assets that have been transferred to the government
  • The obligation of the concessionaire or PSC contractor to provide security to cover the transferred asset decommissioning costs under the Petroleum Act and Ministerial Regulation 22, when such security was not stipulated in the concession agreement or the PSC at the time of its execution. On the largest oil and gas assets in Thailand, the companies and the government are likely to either seek clarification of these ministerial regulations or reinforce existing positions on them

Decommissioning under the PSC Model and under the Current Concession Agreement   

Clause 10(16) of the PSC requires the contractor to dispose of or transfer property and remit proceeds to the Department of Mineral Fuels. Clause 19(2) goes on to stipulate that property procured by the state must be returned.

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