Unocal cuts price of sales gas to Thailand's PTT

April 22, 2002
Yielding to prolonged political pressure, Unocal Corp. has agreed to cut the price of natural gas it sells to PTT PLC, the partially privatized Thai energy firm.

Yielding to prolonged political pressure, Unocal Corp. has agreed to cut the price of natural gas it sells to PTT PLC, the partially privatized Thai energy firm.

The reduction, by about 5¢/Mcf of gas or 2% of the prevailing wellhead prices, will cost the US energy firm 12-13 billion baht ($272-295 million) in lost revenue for its Thai gas sales over the next 10 years.

The firm's board of directors at its Mar. 26 meeting half-heartedly endorsed the discount as recommended by Tom Fisher, Unocal's vice-president for commercial affairs, who recently made a number of negotiation rounds in Bangkok with Industry Minister Suriya Juengrungruangkij and PTT executives.

Randy Howard, president of subsidiary Unocal Thailand, said the agreement allows the firm to continue a long-term relationship with the kingdom, where it has operated for more than 30 years.

Fisher was given the task of dealing with the sensitive Thai gas issue because Unocal's Thailand natural gas business contributes significantly to its total worldwide revenue.

Unocal is the largest natural gas producer in Thailand, delivering about 1 bcfd from its 13 fields in the Gulf of Thailand, which accounts for about a third of the kingdom's overall indigenous gas supplies.

The discount covers natural gas supplies from gas sales agreements (GSA) 1, 2, and 3 that account for 82% of the daily contract minimum for the Unocal-operated fields in Thailand.

Current average wellhead price of all gas produced by Unocal is about $2.45/Mcf, at the midpoint of costs for gas that PTT buys from various sources.

According to Unocal, the effective date of discount for GSA 1 (Erawan field) is July of this year and for GSAs 2 and 3, October. The accord enables Unocal to extend its gas sales agreement for Erawan by 51/2 years to 2012.

Oil project tradeoff?

Unocal was widely believed to have yielded to pressure to provide the discount partly in exchange for Suriya's agreement to approve a license to produce crude oil from the company's Yala field, also in the gulf.

Yala will be instrumental to Unocal's plan to double crude oil production from its gulf concessions to as much as 18,000 b/d this year.

Suriya has intentionally held up the approval, supposedly to be routine, ever since Unocal submitted the application in September 2000. As of presstime, no approval had been granted, and it is not clear how soon Yala production could start, pending approval from the Industry Ministry.

Yala is part of what Unocal refers to as the "big oil" project that includes Plamuk, Surat, and Kaphong fields. Unocal Thailand began its first crude oil production in Thailand in August 2001 under a $280 million, 6-year development plan.

But Howard denied that Unocal's agreement to give a discount was partly in exchange for the Yala production license. "It is not related to the gas price negotiation,'' he insisted.

He said the company targets as much as $4.3 billion in gross capital expenditures in Thailand over the next 10 years. Howard added that the accord also enables Unocal to proceed with capital investments needed to develop additional resources in Erawan, Baanpot, and Dara gas fields.

The minister has repeatedly said the discount from the Unocal gas price will be passed on to the Thai public in the form of a reduced electricity tariff. About 70% of electricity supply in Thailand is generated by natural gas.

Howard said Thailand's natural gas resources give the kingdom a definite competitive advantage in producing electricity as well as providing additional benefits to Thailand through royalties, taxes, and domestic employment.

Unocal holds a 70% net working interest in concessions covered by GSA 1 and a 62% net working interests in those under GSAs 2 and 3. Coconcessionaires are Mitsui Oil Exploration Co. of Japan and PTT Exploration & Production PLC, an affiliate of PTT.