Chevron, Thailand in Dispute Over Decom Tab

September 26, 2019

© Theerapong / Adobe Stock
© Theerapong / Adobe Stock

U.S. energy major Chevron Corp has opted to continue negotiations with Thailand rather than seek arbitration to resolve a dispute over who should pay for removing offshore oil and gas platforms, the company told Reuters on Wednesday.

Thailand wants Chevron to pay the full decommissioning costs for infrastructure at the Erawan gas field, which it is due to hand over to Thai state oil firm PTT Exploration and Production Pcl in April 2022 when its concessions expire.

Those costs have been estimated by one local newspaper at up to $2.5 billion.

The dispute has implications for other international energy companies such as France's Total SA and Japan's Mitsui & Co, which also have stakes in offshore energy concessions in the Gulf of Thailand.

"We have agreed to temporarily suspend the arbitration process to allow more time for resolution discussions," a Chevron spokesman told Reuters.

He said the company had been "encouraged" by the Thai energy minister's efforts to come to an agreement, but added that arbitration was still a possibility "within weeks" if talks do not succeed.

A spokesman for Thailand's energy ministry on Wednesday said he could not comment on the talks with Chevron.

Minister of Energy Sontirat Sontijirawong said in July he wanted to resolve the dispute as a matter of urgency to avoid an arbitration process, but that the issue was complicated.

The dispute arose in 2016 when Thailand retroactively enforced a new energy ministry regulation requiring gas field operators to pay the costs of decommissioning all assets they have installed even if they no longer operate those assets.

Chevron argues that under the terms of its initial contracts from 1971, it is only liable for infrastructure that is no longer deemed usable before it hands over the field to another operator.

The new law would require Chevron to pay the future costs of decommissioning all the infrastructure it has installed at the Erawan field, including still usable assets it will transfer to PTTEP free of charge.

Chevron told Reuters in July that moving to an arbitration process provided for by the 1971 contracts was a possibility.

The company had objected to a June request by Thailand's energy ministry to pay the full decommissioning cost of all its assets in the Erawan field upfront.

Neither Chevron nor the ministry would disclose the amount of the requested payment when asked by Reuters. However, local newspaper Thansettakij has reported it as around 75 billion baht ($2.5 billion), citing industry sources.

Retroactive law
Other operators in Thailand are watching the dispute closely in case it changes their future liabilities for assets in Thailand.

"Total will particularly be tracking the developments between Chevron and the government... since it will set a precedent that the government could apply to it," said Readul Islam, research analyst at Rystad Energy.

Chevron won the concessions to operate four blocks constituting the Erawan gas field, Thailand's second largest, from 1972 to 2012, after which the contracts were extended for 10 more years.

Chevron lost out to PTTEP, a unit of the state-owned PTT Pcl , in a bidding round for the new concession in December.

Foreign investors in Thailand in other industries were also concerned about what precedent the case might set for the sanctity of their contracts.

"It will snowball, as it's not just Chevron," said Kornkasiwat Kasemsri, director of the Energy and Resources Policy Research Center at Thailand's Rangsit University.

"What decision is made in this case could affect other cases to follow."

($1 = 30.9400 baht)

(Reporting by Patpicha Tanakasempipat. Editing by Kay Johnson, Simon Webb, Marguerita Choy and Jan Harvey)

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