BANGKOK--Thailand's PTT Exploration and Production, a subsidiary of state-owned energy conglomerate PTT, won a bid to explore and produce gas from two blocks in the Gulf of Thailand, beating the only competitor Chevron (Thailand) Holdings.
Energy Minister Siri Jirapongphan said the cabinet has approved the result of the bid, which gives PTTEP the right to operate gas exploration and production in the Erawon and Bongkot gas blocks.
"PTTEP offers the best benefit for the Thai government," said Siri.
He said PTTEP offered to sell gas produced from the two gas blocks at 116 baht ($3.55) per one million British Thermal Unit to the government. That is well below the 165 baht per one million BTU from the Erawan block and 214.26 baht per one million BTU from the Bongkot block the government now pays.
The Erawan gas block is currently operated by Chevron, while the Bongkot gas block is operated by PTTEP. The Erawan and Bongkot concessions are due to expire by 2022 and 2023 respectively.
Industry officials and analysts expressed doubt that PTTEP can indeed sell at such a level without taking a hit to its profits, particularly if global oil prices continue to rise.
"PTTEP offers at very low price and that means PTTEP would not gain massive profit as we expected earlier although it wins the right to run the two gas blocks, which will help increase the company's production capacity substantially," said an analyst at Asia Plus Securities.
PTTEP CEO Phongsthorn Thavisin said the company has strong experience in operating deepsea gas blocks which gives it economies of scale, so that it can sell at a discount that will benefit the country. Siri had said that will help the government save 550 billion baht over the next 10 years.
"Being an operator in the Bongkot and Erawan fields will bring about more effective cost management from the operational synergy in the Gulf of Thailand and economy of scale from combined work scope such as procurement and logistics among both fields," said Phongsthorn in a statement.
The energy ministry will sign contracts with PTTEP in February that will allow the company to run the gas blocks for 20 years. The contracts can also be extended by another 10 years.
Chevron expressed its disappointment about losing the bid but said it respects the decision of the Thai government.
"Our talented Thai personnel have made a significant contribution to the energy security of the Kingdom of Thailand over more than half a century and should be proud of their achievements," said Pairoj Kaweeyanun, president of Chevron.
PTTEP shares closed down 6.72% at 125 baht apiece on the Stock Exchange of Thailand, which declined 1.22%.