KrisEnergy LTD - Appendices A To C

APPENDIX A INDUSTRY OVERVIEW All the information and data presented in this section, including the analysis of the
global oil and gas market has been provided by our energy industry consultant, Wood Mackenzie. Wood Mackenzie has advised that the statistical and graphical information contained herein is drawn from its database and other publicly available sources. In connection therewith, Wood Mackenzie has advised that: (i) (ii) (iii) certain information in Wood Mackenzies database is derived from estimates or subjective judgments; the information in the databases of other data collection agencies may differ from the information in Wood Mackenzies database; and while Wood Mackenzie has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.
Wood Mackenzies methodologies for collection of information and data are proprietary, and therefore the information discussed in this section, may differ from that of other sources. The information and data presented in this section has not been independently verified and neither we not the Joint Issue Managers, Global Coordinators, Bookrunners and Underwriters make any representation as to the accuracy or completeness of such data or any assumptions relied upon thereon. See ForwardLooking Statements and Experts which are included elsewhere in this offering document. I. Global Oil and Gas Market Overview
Global and regional reserves1 Global reserves by region Wood Mackenzie estimates total global commercial oil and gas reserves at approximately 1,422 billion boe2 (as of Q4 2012A), with the Middle East region accounting for 40% of the total, followed by the Russia and Caspian region (20%), North America (14%), and Asia Pacific (8%).
700,000
Commercial Oil and Gas Reserves by Region
45% 40% 35%
Remaining Reserves (mmboe)
600,000
500,000
30% 400,000 300,000 200,000 10% 100,000 5%
25%
20% 15%
0
Middle East Russia and Caspian Gas
Source: Wood Mackenzie
0%
North America Asia Pacific Africa Latin America Europe
Liquids
% of Global Reserves
Using Wood Mackenzies methodology, commercial reserves are broadly equivalent to proven and probable reserves. In particular, Wood Mackenzie considers commercial reserves to be fields which are currently in production, under development or regarded as probable developments. Fields under development are fields where the development plan has been approved by the government authorities and the field participants have made the final investment decision for the project to proceed. Probable developments are discoveries where reserve estimates have been sufficiently provedup and any development plan would be economically viable. Wood Mackenzie would expect probable developments to be either on-stream or under development within a five-year timescale. This includes both conventional and unconventional commercial reserves such as shale gas, tight oil, and oil sands.
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Global oil and gas demand Crude oil demand by region Global oil demand has risen since 2009A, with Wood Mackenzie projecting oil demand to continue increasing from 27,726 mmboe in 2013F to 29,789 mmboe in 2018F, equating to a 1.4% average annual growth rate. Despite demand cooling in Europe and North America, development in the rest of the world looks set to drive this overall growth in global oil demand. In particular, Wood Mackenzie expects that the volumetric demand for oil in Asia Pacific will surpass the total increase in demand from the rest of the regions, with 1,226 mmboe of additional demand expected from 2013F to 2018F, or an average annual growth rate of 2.5%. China and Japan are currently the largest oil demand centers in Asia, but this is set to change as India is projected to overtake Japan as second largest oil market in Asia by 2015F. Demand in China and India is driven by the transport sector; and these two countries provide the majority of the growth through 2018F.
35,000 30,000
Crude Oil Demand by Region, 2005A-2018F
5% 4% 3% 2%
Oil demand (mmboe)
25,000
20,000 1% 15,000
0% 10,000 5,000 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F South America Russia and Caspian North America Middle East -1% -2% -3%
Europe
Asia Pacific
Africa
Yr-on-Yr Growth
Gas demand by region In Wood Mackenzies view, gas looks set to take on a greater role globally, with gas demand expected to steadily increase into the future, from 19,625 mmboe (111 tcf) in 2013F to 23,105 mmboe (131 tcf) in 2018F, equating to an average annual growth rate of 3.3%. The main regions that contribute to this rise (volumetrically) are Asia Pacific, Middle East, and North America, with gas demand in Asia Pacific growing at an average of 6.9% per year between 2013F and 2018F. China is the largest gas market in Asia and the fastest growth center in the region through the 2013F to 2018F period. India, although slightly behind Japan in terms of current demand, is estimated to grow at an average 3.2% per year through the end of the decade.
25,000
Gas Consumption by Region, 2005A-2018F
8% 7%
Gas consumption (mmboe)
20,000
6%
5%
15,000
4% 3%
10,000
2%
1%
5,000 0% -1% 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F South America Europe Russia and Caspian Asia Pacific North America Africa Middle East Yr-on-Yr Growth -2%
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Global oil and gas production Crude oil production by region Based on Wood Mackenzie estimates, global oil production is set to rise from 31,105 mmboe in 2013F to 33,341 mmboe in 2018F, at an average annual growth rate of 1.4%. This is led by the projected growth in production in the Middle East and North America. In the Asia Pacific region, oil production between 2013F and 2018F is set to remain steady. The impact of unconventional oil production will be felt acutely in North America. Tight oil production in the United States is expected to increase from 1.5 million b/d in 2012A to 4.1 million b/d in 2020F. Tight oil production is also expected to increase in Canada from around 230,000 b/ d in 2012A to 450,000 b/d in 2020Fbut Wood Mackenzie expects a level of tight oil production of only 260,000 b/d by 2020F outside of North America.
40,000
35,000
Oil Production by Region, 2005A-2018F
8%
6% 4% 2% 0% -2% -4%
Oil production (mmboe)
30,000 25,000 20,000 15,000
10,000
5,000 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F South America Europe Russia and Caspian Asia Pacific North America Africa Middle East Yr-on-Yr Growth
Gas production by region Wood Mackenzie expects a 3.5% average annual increase in global gas production, from 19,527 mmboe (111 tcf) in 2013F to 23,195 mmboe (132 bcf) in 2018F. While the regions of North America and Russia & Caspian are expected to continue maintaining their positions as the leading producers of gas globally, Asia Pacific is expected to grow its gas production at an annual average rate of 8.1% between 2013F and 2018F, outperforming other regions.
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While the combination of hydraulic fracturing and horizontal drilling enabling commercial hydrocarbon flows from tight reservoirs has revolutionized North American energy, particularly shale gas to date, it will take time for other regions to enjoy similar success. Wood Mackenzie acknowledges the shale gas potential in Europe, Latin America, China, the Middle East, and elsewhere. However, issues such as the absence of a supportive regulatory regime, early geological understanding, low local pricing, lack of infrastructure access and low service sector capability are throttling the pace of growth. Consequently Wood Mackenzie does not anticipate that shale gas growth in other regions will make a material impact on either supply or pricing, until after at least 2018F.
25,000
Gas Production by Region, 2005A-2018F
8% 6% 4%
Gas production (mmboe)
20,000
15,000 2% 10,000
0%
5,000
-2% -4%
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F South America Europe Russia and Caspian Asia Pacific North America Africa Middle East Yr-on-Yr Growth
II.
Crude Oil and Natural Gas Pricing
Crude oil pricing Key global benchmarks: Oil Outlook From 2013F to 2018F, the growth in non-Organization of Petroleum Exporting Countries (OPEC) production is projected to be keeping OPEC spare crude oil productive capacity between five and seven million barrels/day. Prices are lower in 2018F on a real basis than projected for 2012F. Widening OPEC spare capacity through much of the decade will cause oil prices to decline on an annual average basis with Brent falling to a low for 2016 of US$90.00 per barrel real, or US$99.82 per barrel on a nominal basis. From the low in 2016F, Brent is expected to rise to an annual average of US$93 per barrel in real terms in 2018F. The late decade upward turn is based on the strength in oil demand growth and the need to provide incentives for producers to invest, due to the increasing marginal breakeven price of probable developments. In the period to 2018F, Wood Mackenzie estimates oil will have a protected market share because of the reliance on oil in the transport and the petrochemical sectors. Policies and technologies under development at present to reduce oil use are projected to have an impact and are reflected in the demand forecast. But Wood Mackenzie expects a lag before widespread adoption. It is not until after 2020 that more dramatic impact from alternative technologies and fuel efficiency gains is expected.
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Historical and forecast crude oil pricing
180
Brent
160
140
120
US$/bbl
100 80 60 40
20
0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
Real (2012$/bbl) Nominal ($/bbl)
Source: 2005A-2012A historical data--Thomson Datastream; 2013F-2018F forecast--Wood Mackenzie
Thomson Datastream has not provided its consent, for the purposes of Section 249 of the Securities and Futures Act, to the inclusion of the information cited and attributed to it, in this offering document and is thereby not liable for such information under Sections 253 and 254 of the Securities and Futures Act. While we, the Over-allotment Option Grantor and the Joint Issue Managers, Global Coordinators, Bookrunners and Underwriters have taken reasonable actions to ensure that the relevant information from the relevant source has been reproduced in its proper form and context, neither we, the Over-allotment Option Grantor and the Joint Issue Managers, Global Coordinators, Bookrunners and Underwriters nor any other party has conducted an independent review or verified the accuracy or completeness of the relevant information.
Brent-West Texas Intermediate (WTI) Differential From late 2010A, the historical differential between Brent and WTI has undergone a major shift, with WTI pricing at a steep discount to Brent a remarkable shift, given that Brent traditionally traded at a slight discount (approximately US$1.50 per barrel) to WTI, based on Brent being of slightly inferior quality to WTI. The shift in the relationship between these two marker crude oils is structural, with landlocked US domestic light sweet crude growing in volume and experiencing challenges placing itself in a demand constrained domestic refining system, while waterborne light sweet Brent-linked grades are able to trade more freely in international markets. Wood Mackenzie sees the evolution of the Brent-WTI differential as largely driven by three critical factors:
Refinery demand for light crude oil Logistics Competition between growing volumes of domestic light crude and waterborne crude imports.
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Wood Mackenzie expects the differential will start to narrow only after 2020, driven by a flattening of the domestic crude oil production profile, and through growing volumes of domestic light sweet production entering markets on the east and west coasts, as mentioned above, Wood Mackenzie does not foresee the differential returning to its historical relationship.
180 160 140 120
WTI
US$/bbl
100
80
60
40
20
0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
Real (2012$/bbl) Nominal ($/bbl)
Source: 2005A-2012A historical data--Thomson Datastream; 2013F-2018F forecast--Wood Mackenzie
Brent-Dubai differential The availability of light sweet crude has increased during 2012A. Growing domestic supply in the US has reduced demand for US crude imports from West Africa. The resumption of crude exports from Libya has also resulted in increased supply of light sweet crude. This has contributed to narrower price premiums for light sweet crudes versus heavier, more sour, crudes. This has been reflected in the discount for Dubai crude versus Brent which narrowed significantly in 2012A after having been very wide in 2011A. The value of heavier more sour crudes has been supported by sanctions against Iran and Syria which have forced many refiners to look for alternative sources for replacement grades of similar quality.
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Wood Mackenzie forecasts that the global crude slate will get lighter through 2017. As a result Wood Mackenzie expects the price premium for light sweet crudes such as Brent to narrow. Over the same period, investments are being made to increase coking capacity at refineries. This will increase demand for heavier crudes similar to Dubai and their value is expected to increase relative to lighter sweet crudes. Wood Mackenzie estimates that the Brent-Dubai differential will narrow through 2017A. After this time, the proportion of heavy crude in the global crude slate starts to grow and, together with increasing outright prices, this leads Wood Mackenzie to forecast that the Brent-Dubai differential will widen again.
180 160 140 120
Dubai
US$/bbl
100
80
60
40
20
0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
Real (2012$/bbl) Nominal ($/bbl) Source: 2005A-2012A historical data--Thomson Datastream; 2013F-2018F forecast--Wood Mackenzie
The key light sweet benchmark crudes in the Asia-Pacific region are Minas and Tapis. Both of these crudes traded at 4% to 5% premium to Brent in 2012A. Natural gas pricing Overview of regional pricing dynamics
20 18 16
Global Gas Spot Prices (real 2012A terms)
US$/mmBtu, Real (2012A)
14 12 10
8
6 4 2
0
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
HH
NBP
Japan
Asia Oil Indexed Contract
Source: 2005A-2012A Oil Indices--Thomson Datastream, 2005A-2012A NBP--Argus, Others and all forecast 2013F-2018F--Wood Mackenzie
None of Thomson Datastream and Argus has provided its consent, for the purposes of Section 249 of the Securities and Futures Act, to the inclusion of the information cited and attributed to it, in this offering document and is thereby not liable for such information under Sections 253 and 254 of the Securities and Futures Act. While we, the Over-allotment Option Grantor and the Joint Issue Managers, Global Coordinators,
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Bookrunners and Underwriters have taken reasonable actions to ensure that the relevant information from the relevant source has been reproduced in its proper form and context, neither we, the Over-allotment Option Grantor and the Joint Issue Managers, Global Coordinators, Bookrunners and Underwriters nor any other party has conducted an independent review or verified the accuracy or completeness of the relevant information.
18 16
Global Gas Spot Prices (nominal)
US$/mmBtu, Nominal
14
12
10 8 6 4 2 0
2005A
2006A
HH
2007A
2008A
2009A
NBP
2010A
2011A
2012A
2013F
2014F
2015F
2016F
2017F
2018F
Japan
Asia Oil Indexed Contract
Source: 2005A-2012A Oil Indices--Thomson Datastream, 2005A-2012A NBP--Argus, Others and all forecast 2013F-2018F--Wood Mackenzie
None of Thomson Datastream and Argus has provided its consent, for the purposes of Section 249 of the Securities and Futures Act, to the inclusion of the information cited and attributed to it, in this offering document and is thereby not liable for such information under Sections 253 and 254 of the Securities and Futures Act. While we, the Over-allotment Option Grantor and the Joint Issue Managers, Global Coordinators, Bookrunners and Underwriters have taken reasonable actions to ensure that the relevant information from the relevant source has been reproduced in its proper form and context, neither we, the Over-allotment Option Grantor and the Joint Issue Managers, Global Coordinators, Bookrunners and Underwriters nor any other party has conducted an independent review or verified the accuracy or completeness of the relevant information.
The prevailing premium that LNG suppliers enjoy in Asian markets is a consequence of the lack of proximate supply to meet demand, requiring distant LNG from suppliers in Norway and Trinidad & Tobago to meet demand. Wood Mackenzies view is that this tightness will persist until at least 2017F and, subject to the pace of growth of new LNG presently under construction in Australia, possibly longer. Most LNG delivered into Asia is supplied under long term contracts is indexed to oil rather than priced at spot. And while some term LNG supply has been agreed on a Henry Hub (HH) basis, oil indexation is likely to remain key to price formation of LNG in Asia for some time, and certainly through 2018F. The floor price to incentivise new LNG supply into the market is estimated in the US$1112/mmbtu range. In many Asian markets the price of indigenous gas is subject to local considerations; see individual country overviews for Indonesia, Thailand, Vietnam, Cambodia, and Bangladesh. In recent years there has been an increasing convergence of local gas prices and regional LNG prices with imported LNG increasingly setting the price ceiling for contract negotiations. While HH prices in the US have averaged around US$3.75/mmbtu for the last three years Wood Mackenzie expects prices to rise through the medium term to encourage new supply into the market for growing demand to be met. Growing demand will come from the industrial renaissance in the US, from fuel displacement in power, residential and transport and from LNG exports. Wood Mackenzie estimates LNG export from the US will start in 2016, from the Sabine Pass liquefaction facility on the US Gulf Coast.
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III.
South East Asia Regional Oil and Gas Market Overview
Reserves and resources by country3

35,000
Remaning Reserves (mmboe)
Commercial and Technical Oil and Gas Reserves by Country, 2012A
30,000 25,000 20,000 15,000
10,000
5,000 0
Commercial Liquids
Technical Liquids
Commercial Gas
Technical Gas
As of Wood Mackenzies latest estimates from Q4 2012A, the South East Asian region holds about 60,922 mmboe of commercial and technical oil and gas reserves3. The bulk of the reserves are located in Indonesia and Malaysia, which contribute 29,547 mmboe (48%) and 15,414 mmboe (25%) to the regional total, respectively. In South East Asia, 80% of commercial and technical reserves are gas, demonstrating the strong regional bias toward gas. Demand and production (historical and forecast) Crude oil demand
2500
South East Asia Oil Demand, 2005A-2018F
9% 8% 7%
Oil demand (mmboe)
2000
6% 1500
5%
4%
3% 1000 2% 1% 500 0%
-1%
0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Vietnam Brunei Darussalam Singapore
-2% Cambodia Thailand Yr-on-yr change% Myanmar Philippines Indonesia Malaysia
Technical reserves are defined as reserves that have been discovered but are currently not considered commercial. This may be due for example to low levels of recoverable reserves, perceived technical difficulties with a development, low product quality or the lack of available markets (e.g. stranded gas deposits).
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In Wood Mackenzies view, oil demand in South East Asia is on an overall upward trend, with demand expected to reach 1,837 mmboe in 2018F, a 2.8% average annual increase from 2013F. Indonesia is the largest market for oil in South East Asia, driven by transport requirements, although Vietnam will be the fastest growing oil consumer through 2018F, with an average annual 8.8% growth rate, followed by Cambodia and Myanmar at 5.2% and 3.4%, respectively.
10% 9% 8% 7% 6%
Average Annual Increase in Oil Demand by Country, 2013F-2018F
5% 4%
3% 2% 1% 0% Vietnam
Cambodia
Myanmar
Indonesia
Brunei Darussalam
Thailand
Philippines
Malaysia
Singapore
Gas demand
1200
South East Asia Gas Demand, 2005A-2018F
16%
14% 12% 10% 8%
Gas demand (mmboe)
1000 800
600
400 200 0
6%
4% 2%
0%
-2% -4%
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
Vietnam Singapore Cambodia
Myanmar Thailand Yr-on-yr change%
Indonesia Philippines
Malaysia Brunei Darussalam
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Gas looks set to take on greater importance for South East Asia in the coming years, as Wood Mackenzie expects the region to see an average 4.1% annual increase in regional gas demand from 884 mmboe (5,021 bcf) in 2013F to 1,081 mmboe (6,140 bcf) in 2018F. Indonesia, Malaysia and Thailand are the top three drivers of this gas demand volumetrically; Vietnam is the fastest growing gas demand center through 2018F with a 5.5% average annual growth rate.
6% 5% 4%
Average Annual Increase in Gas Demand by Country, 2013F-2018F
3%
2% 1% 0% Vietnam Myanmar Indonesia Malaysia Singapore Thailand Philippines Brunei Darussalam Cambodia
Crude oil production

1200 1000
South East Asia Oil Production, 2005A-2018F
4% 3%
Oil production (mmboe)
2% 1% 0%
800 600 400
-1% -2%
-3%
-4%
200
0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
-5%
-6%
Brunei Darussalam Malaysia Thailand

Cambodia Myanmar Vietnam
Indonesia Philippines Yr-on-yr change%
Wood Mackenzie projects oil production in South East Asia to decline slightly between 2013F and 2018F, from 879 mmboe to 838 mmboe. The largest decrease in production comes from Vietnam, while Malaysia is expected to replace Indonesia as South East Asias largest oil producer in 2018F. Other countries in the region are also expected to see a drop in oil production, including Indonesia, Thailand and Vietnam.
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Gas production
1600
South East Asia Gas Production, 2005A-2018F
8%
Gas production (mmboe)
1400 1200 1000
6%
4% 2%
800
0% 600 400 200 0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F -2%
-4%
-6%
Brunei Darussalam Malaysia Thailand

Cambodia Myanmar Vietnam
Indonesia Philippines Yr-on-yr change%
Gas production in South East Asia is on the rise. Myanmar and Vietnam are both projected to significantly increase their gas production rates from 2013F to 2018F, with average annual growth rates of 9.7% and 5.5%, respectively. Regionally, gas production will increase at an average annual rate of 2.5% through 2018F, with the largest producer, Indonesia, growing at an average annual rate of 1.3%.
2,000 1,800
South East Asia Oil Supply-Demand, 2005A-2018F
2,000 1,800
1,600
1,600
1,400 1,200 1,000
Oil (mmboe)
1,400 1,200 1,000
800
600 400 200 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Oil Production (mmboe) Oil Demand (mmboe)
800
600 400 200 -
1,600
South East Asia Gas Supply-Demand, 2005A-2018F
1,600
1,400
1,400
1,200 1,000 800 600
Gas (mmboe)
1,200 1,000 800 600
400
200 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Gas Production (mmboe)
400
200 -
Gas Demand (mmboe)
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Oil and gas prospectivity of region

3,000
Yet-to-Find Commercial and Technical Reserve Volumes
Total Yet-to-Find (mmboe)
2,500 2,000
1,500 1,000 500 0 Brunei Indonesia Malaysia
Liquids
Myanmar
Gas
Thailand
Vietnam
Based on Wood Mackenzies projections, the total yet-to-find (YTF) volume in South East Asia is 14,614 mmboe, of which 5,512 mmboe is liquids and 9,102 mmboe (52 tcf) is gas.4 Indonesia, Malaysia and Myanmar are highly prospective for gas reserves, while Vietnams YTF liquids volume is the highest in the region at 1,868 mmboe.
Wood Mackenzie bases its YTF resource on the potential from the discovery of conventional oil and gas new fields. Unconventional resource potential is excluded from the scope of reporting, as is the potential from upgrades and extensions on existing discoveries. Wood Mackenzie uses a projected creaming curve to derive the assumption of YTF potential in a basin. The curve is generated using best fit of a hyperbolic trend to historic data on cumulative reserves by cumulative exploration wells. The curves trajectory is also an assumption of reserves that will be discovered per exploration well. The overall basin YTF assumption is constrained by Wood Mackenzies forecast of exploration well numbers to 2030F. This YTF assumption is intended to be a broadly realistic input to Wood Mackenzies future economics evaluation, and is not a substitute for a geologically-constrained resource assessment. Basin coverage excludes Cambodia.
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Exploration successes and discoveries by country In recent years, the region has seen a mixed trend in discovered volumes, with an average 1,417 mmboe discovered per year since 2005A.
2000
Discovered volume (mmboe)
1800
Discovered Volume by Country, 2005A-2012A (Commercial & Technical Resources)
1600
1400 1200 1000 800 600 400 200 0 2005A Brunei Cambodia 2006A Indonesia 2007A Malaysia 2008A 2009A Myanmar 2010A Philippines 2011A Thailand 2012A Vietnam
Malaysia-Thai JDA
On a country-by-country perspective, Malaysia has had the largest volumes discovered since 2005A, with 4,808 mmboe of conventional resource. In Indonesia, 2,187 mmboe of conventional resource has been discovered since 2005A, with Vietnam following at 1,981 mmboe in the same period. The Malaysia-Thailand JDA, however, has enjoyed the greatest exploration success rate of 61% during this period, followed by Malaysia at 54% and Thailand at 51%.
5000
Discovered Volume by Country and Exploration Success Rates
100%
90% 80% 70% 60%
Discovered volume (mmboe)
4500 4000 3500 3000
2500 2000
1500 1000 500 0
50% 40%
30% 20% 10% 0%
2005A
2006A
2007A
2008A
2009A
2010A
2011A
2012A
Success rate
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Major players active in the region

Remaining reserves (mmboe)
10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -
Oil and Gas Reserves in SE Asia by Company, 2012A (Commercial and Technical Reserves)
JOGMEC
ConocoPhillips
CNOOC Ltd
Murphy Oil
Eni MOGE
Based on total remaining reserves as estimated by Wood Mackenzie at Q4 2012, the top three players in South East Asia are Petronas, Shell and Chevron. Petronas has double the remaining reserves of Shell.
Average WI Production 2007A-2012A ('000 boe/d)
1000
900 800 700
Average WI Production in South East Asia 2007A-2012A
600
500 400 300
200
100 0
PERTAMINA
Murphy Oil
Hess Corporation
PETRONAS
ConocoPhillips
INPEX Corporation
ExxonMobil
JX Nippon Oil & Energy Corp
PetroVietnam
CNOOC Ltd
By production, Petronas, Chevron and Shell are the largest in the region, based on the average total working interest production from 2007A-2012A. Petronas averaged approximately 910,000 boe/d, as compared to Chevrons 774,000 boe/d and Shells 560,000 boe/d over the period.
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Zarubezhneft
Brunei Government
Mitsui & Co
Chevron
PTTEP
Total
Shell
Talisman
BP
Petronas
INPEX Corporation
PetroVietnam
ExxonMobil
Chevron
PTTEP
Brunei Government
Hess Corporation
Energi Mega Persada
PERTAMINA
Talisman
BP
Shell
Total
E&P expenditure
E&P Spend by Country, 2003A-2012A (nominal)
35,000
30,000
E&P Spend (US$M)
25,000 20,000 15,000
10,000
5,000 0 2003A Brunei 2004A Cambodia 2005A Indonesia 2006A Malaysia 2007A 2008A 2009A Myanmar 2010A Philippines 2011A Thailand 2012A Vietnam
Malay/Thai JDA
According to Wood Mackenzie estimates, E&P expenditure has more than doubled in the past 10 years (on a nominal basis) from US$15,418 million in 2003A to US$32,301 million in 2012A. The top two countries by E&P spend in 2012A are Indonesia (US$10,705 million) and Malaysia (US$10,184 million). In estimating the overall E&P expenditure, Wood Mackenzie includes the exploration spend, capital expenditure and operating expenditure associated with each country. Please note that the E&P spend estimate for Cambodia does not include capital expenditure and operating expenditure, and that the E&P spend for the Malaysia/Thailand JDA does not include exploration spend.
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IV.
Overview of Key Countries Oil and Gas Industry
Indonesia Overview
96E 99E 102E 105E 108E
THAILAND
6N 6N
NSO Arun LNG Plant ARUN GEBANG JOA RANTAU KAMBUNA
KAKAP
MALAYSIA TEMBANG
Medan 3N 3N 6S 3S 0 Bangka Belitung PUSRI Plaju Palembang Prabumulih

32 "g as ou 32 to th " g Te a Su s ga m to lG at C ra ile e - W go de es n tJ av a
Natuna Sea
N ESIA IN DO Y SIA MA LA
Simeulu
28" gas pipeline to Singapore
Nias
CENTRAL SUMATRA FIELDS
MALACCA STRAIT PSC DURI Steamflood Indah Kiat Riau Andalan
SINGAPORE
Pekanbaru
Batam
28"
INDONESIA Sumatra
Tanahbala
u ri d "D o 28 a mf lo st e
Siberut
Sakernan GPP
Grissik GPP Sipura Pagai Utara 3S
Indian Ocean
Pagai Selatan
SOUTH SUMATRA FIELDS

MUSI
Java Sea
Labuhan Maringgai
PAGARDEWA S
Enganno
Lampung Regas (u/c) Nusantara Regas Satu
6S
km 0200400 100 96E 99E 102E 105E
Java
Source: Wood Mackenzie 108E
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Indonesias recent hydrocarbon industry has highlighted two dominant trendsdeclining oil production, and rising gas output. Since 2005A the Indonesian government has increased the number of new exploration blocks on offer across the country in a bid to spur a wave of new discoveries. So far, no major success stories have emerged, as the average size of hydrocarbon discoveries in Indonesia has remained low since early 2000A. However, with an increasing number of frontier exploration wells in the West Papua area set to be drilled in the period 2013F-2014F, major discoveries could still be on the agenda.
110E 112E 114E 116E
Java Sea
Bawean Island
6S
Kepodang (Muriah PSC) BAWEAN PSC Fields WEST MADURA/ POLENG Rembang UJUNG PANGKAH
KETAPANG PSC Fields

planned Planned West Java LNG
Tuban 18" Semarang CEPU AREA Madura to Tambak planned 28" gas Gresik Cirebon Lorok Surabaya East Java Cepu Distribution System OYONG BD Porong Mojokerto Surakarta BRANTAS PSC Fields Grati Jogjakarta 8S
14 "
PAGERUNGAN Kangean (Kangean PSC)
MALEO
28" East Java gas Pagerungan-Gresik
TERANG Sirasun, Batur
Bali
Indian Ocean
10S
km 0100200 50 110E 112E 114E Source: Wood116E Mackenzie
A-18
10S
8S
East Java
Leles Pulp Mill
6S
Most liquids and gas production is sourced from the well-explored basins of Sumatra, Java and East Kalimantan. Given the maturity of the core producing areas within these regions, it is inevitable operators will have to develop new reserves in more challenging and remote locations throughout Indonesia. Moreover, many within the industry and the Indonesian government also believe that it is more likely future hydrocarbon discoveries in frontier regions will be predominantly gas-based.
115E 116E 117E 118E 119E
BUNYU Bunyu Methanol Plant MALAYSIA Sarawak

3N
TARAKAN
" 10
3N
2N
INDONESIA Kalimantan
1N
Kaltim: Fertiliser Plant KPA Ammonia Plant KPI Ammonia Plant Bontang LNG Plant
0
Bangka/Aton WEST SENO

0 km 100 1S
Equator
Santan Oil Terminal SEMBERAH BADAK Tanjung Batu, Samarinda SANGA SANGA HANDIL Senipah Oil Term inal Balikpapan Refinery PECIKO Lawe-Lawe
115E 116E
TUNU Gula NUBI/SISI Gandang Gendalo

118E
1S
SEPPINGAN
117E
Ma
kas sar S
Gada
trai
25 119E
50
A-19
1N
2N
Oil and gas reserves/resources Indonesia has 29,547 mmboe of remaining commercial and technical oil and gas reserves. Gas accounts for a significant portion of Indonesias petroleum reserves (contributing 85% on a commercial and technical basis, and 76% on a commercial basis only), and continues to be a primary energy source for Indonesia. The largest remaining gas reserves in Indonesia are in Sumatra, West Papua, Natuna Sea and East Kalimantan.
Indonesia Commercial and Technical Oil and Gas Reserves (mmboe), 2012A 2,531 1,988
17,189
7,839
Commercial Liquids
Technical Liquids
Commercial Gas
Technical Gas
Prospectivity and recent discoveries

Indonesia Yet-to-Find Commercial and Technical Reserve Volumes
3000
2500 2000
1500 1000 500

0
Liquids
Gas
Indonesia is viewed by many as having considerable remaining oil and gas potential, with Wood Mackenzie estimating about 3,665 mmboe of total YTF reserves. This is anticipated to be in the eastern basins, where large areas, both onshore and offshore, remain relatively unexplored. The major problem faced by potential explorers in these basins is the sheer size and remoteness of the areas to be explored. This, in combination with the lack of infrastructure and the harshness of the terrain (many of the prospective onshore areas are in remote jungle regions), makes the logistics of petroleum exploration very difficult. In the last 10 years, the country has seen between 14 to 22 fields discovered per year. The volumes discovered each year has varied considerably, with 2011A seeing a high of 646 mmboe added (mainly from the Asap field in the Bintuni basin and Jangkrik North East field in the Kutei basin). Overall, there has been 3,160 mmboe of discovered volumes from 2003A-2012A.
A-20
Indonesias coal bas methane (CBM) resource potential is estimated in the range of 36 tcf, located in the Barito (9.7 tcf), Kutei (11.1 tcf), and South Sumatra (15.2 tcf) basins. However, there are no commercial CBM operations to date in Indonesia, and these estimates remain highly uncertain until pilot drilling is completed.
Indonesia Recent Discoveries, 2003A-2012A
700
Total discovered volume (mmboe)
600 500 400 15 300 200 100 0 2003A
30
Number of discoveries
700
25 20
10
5
0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A
Historical and forecast oil and gas demand and production Indonesian oil production has been in decline since the turn of the decade, as smaller new oil developments have struggled to replace output from the mature, legacy fields such as the giant Minas and Duri fields in central Sumatra that lie at the heart of the nations liquids output. This decline trend is set to continue, partially offset from 2014F by the ramp-up of production from the 160,000 b/d Banyu Urip field. However, there are few other new oil developments of scale currently planned in the country. Indonesia has been a net importer of oil since 2004A.
700
Indonesia Oil Supply-Demand, 2005A-2018F
600
600
500 400 300 200
Oil (mmboe)
500 400 300 200
100
0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Oil Production (mmboe)
100
0
Oil Demand (mmboe)
A-21
Indonesias overall gas output increased significantly when the Tangguh LNG facility in West Papua started commercial production in mid-2009A. Output from the venture ramped up to plateau rate of 1.2 bcf/d in 2012A. In the future, new supply from developments within the Jambi Merang, Kangean, Madura Strait, Muriah and North Sumatra Block A PSCs will only partially offset declining output from North Sumatra, associated with the aging Arun LNG plant, and falling output from many of the PSCs in East Kalimantan that feed into the Bontang LNG facility.
600 500
Indonesia Gas Supply-Demand, 2005A-2018F
600 500 400 300 200 100 0
Gas (mmboe)
400 300 200 100 0
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
Gas Production (mmboe)
Gas Demand (mmboe)
Indicative crude oil and natural gas pricing Liquids Pricing Traditionally, Indonesia followed the OPEC line when pricing its crude for export, via an official Government Selling Price. In March 1989A, the new Indonesian Crude Price (ICP) formula was introduced and was calculated as a 52-week historic average of the Asian Petroleum Price Index (APPI) for the Minas, Tapis, Dubai, Oman and Gippsland crudes. In October 1999A, the formula for calculating the ICP was changed. It was calculated as 40% of the months average of Platts price assessments, 40% of the months average of Rim Intelligence (RIM) assessments and 20% of the months average of the APPI assessments. This was changed again in 2007A, with the weight of APPI assessments reduced to 5% and Platts and RIM increased to 47.5% each. In 2008A, the Indonesian government removed APPI assessments all together, and henceforth derived ICP prices from 50% of the months average of Platts price assessments, and 50% of the months average of RIM assessments. Natural Gas Pricing Prices for gas exported to Malaysia and Singapore are linked to High Sulphur Fuel Oil (HSFO) prices as quoted on the Singapore market. Domestic gas has historically realised lower value with prices fixed (i.e. flat in nominal terms) for the duration of the contract. However, more recent gas sales contracts incorporate linkages to the Indonesian Crude Price and/or other escalation components, such as ammonia prices. Recently, gas prices for contracts supplying to Java and Sumatra have been revised upwards. Domestic demand, pricing tension and domestic market obligation (DMO) In May 2012A, a number of gas contracts were renegotiated with approval from the then BPMigas (now SKKMigas). This led to a doubling of pipeline gas prices from around US$2-3/mmbtu to US$56/mmbtu. In addition, the first LNG cargo delivered from Bontang liquefaction plant to Nusantara regasification terminal in West Java was also estimated to cost around US$16.0/mmbtu based on an oil price of US$115/bbl.
A-22
This follows from the increase in gas prices for the fertiliser sector as well. With a number of fertiliser gas contracts due to expire in 2012, Wood Mackenzie has seen the range of agreed prices between US$5.0-7.0/mmbtu with an annual escalation clause. This new price benchmark appears to be the standard across Indonesia in all sectors. This is a distinct improvement compared to agreements in the past. It signals a shift in the governments position to allow price increases to reflect the scarcity of the resource and the higher priced alternative of imported LNG. This is expected to encourage more upstream exploration and production, which will lead to development of marginal onshore fields and unconventional gas resources. The 2001 Oil & Gas Law requires upstream operators to provide at least 25% of gas production to fulfill domestic needs, with some recent projects required to allocate up to 40% of output to the domestic market. As DMO is implemented on a case-by-case basis, this creates uncertainties for developers, as they are uncertain what proportion will be allocated domestically and some projects may have to supply up to 100% sales to the local market. In terms of oil production, contracts stipulate that the contractor should supply a DMO quantity based on 25% of the total quantity of crude oil produced, multiplied by its pre-tax profit oil entitlement percentage. Major players active in country
3000 2500 2000 1500
Oil and Gas Reserves in Indonesia by Company, 2012A (Commercial and Technical Reserves)
1000
500 0
JOGMEC
Eni
INPEX Corporation
ConocoPhillips
ExxonMobil
Mitsubishi Corporation
Gas
Energi Mega Persada
Oil
Indonesia has one of the most diverse upstream industries of any country in the world, with over 200 active PSC participants of varying ability and size. In terms of remaining reserves and production, the top 20 companies include US and European majors (Chevron, BP, ConocoPhillips, ExxonMobil, Total, Shell), Indonesian independents (Medco Energi and Energi Mega Persada), international independents (Talisman) and oil companies from Japan (INPEX), China (CNOOC), and Indonesias own state player (PERTAMINA). KrisEnergy has an operated position in 6 blocks in Indonesia, and one non-operated interest in Salamander Energys Glagah-Kambuna Technical Assistance Contract (TAC), a small producing interest that is likely to cease production and/or be relinquished in 2013.
A-23
Genting Oil & Gas
Medco Energi
Petronas Carigali
PERTAMINA
CNOOC Ltd
GDF Suez
Chevron
Talisman
Premier
Shell
Total
BP
Chevron is the leading producer in Indonesia with 457,000 boe/d of average working interest production from 2007-2012. This is driven by its operatorship of the CPI Area, which includes the large Minas and Duri oil developments. Other major players include INPEX and Total, which have significant production through the Offshore Mahakam PSC that supplies the majority of the gas feedstock into the Bontang LNG facility.
500
450 400 350
Indonesia Average WI Production 2007A-2012A
300
250 200 150
100
50 -
INPEX Corporation
Hess Corporation
PETRONAS
CPC
Eni
ConocoPhillips
CNPC
A-24
Kuwait Petroleum Corporation
Kodeco Energy
Medco Energi
ExxonMobil
Chevron
CNOOC Ltd
PERTAMINA
Talisman
PetroChina
Energi Mega Persada
Santos
Total
BP
Thailand Overview
96E 98E 100E 102E 104E 106E
20N
MILITARY OPERATED AREA
MYANMAR
18N 18N
BUNG YA SIRIKIT
LAOS
16N
16N
THAILAND
YADANA SUPH AN BURI FIELDS Lumlukka BANGKOK Samut Prakan
14N
Bangkok
Bangchak Sriracha Thai Oil Esso
YETAGUN
CAMBODIA
g on ek
Rayong
12N 12N
Star RRC Shell TPI

M
Gulf of Thailand
B5/27
Area to be Delimited
B8/32
PHNOM PENH
VIETNAM
Ho Chi Minh
BENCHAMAS
10N
ERAWAN
ARTHIT
MALAYSIATHAILAND JDA
0 50 100 km 200
BONGKOT 96E 98E 100E 102E 104E
Source: 106EWood Macke nzie
Thailands upstream oil and gas production is predominately sourced from two offshore areas in the Gulf of Thailand: the Pattani basin and the Malay basin. The complex structural nature of the offshore geology means no one field or area dominates reserves or outputinstead the majority of production is provided by thousands of separate (but relatively heterogeneous) reservoirs spread across the two basins. Remaining hydrocarbon reserves are dominated by gas, which constitutes three-quarters of remaining reserves. Thailands indigenous gas production is dominated by a number of key offshore projects including Arthit, Bongkot and the 3rd Gas Contract area. Together these fields accounted for more than half of Thailands domestic gas production in 2012A. Other large gas-producing developments include B12/27 and the 1st and 2nd Gas Contract Areas, all operated by Chevron. The largest producing onshore gas field is the Hess-operated Sinphuhorm, which in 2013F is expected to have a sales output of 95 mmcfd. To meet growing demand, Thailands domestic gas supply has been augmented by imported gas from Myanmar and the Malaysia-Thailand JDA. In addition, the first LNG imports were received in 2011A. The LNG regasification terminal has an initial capacity of five million tonnes per annum, and is located at Map Ta Phut, south of Bangkok. A-25
8N
8N
10N
NORTH JARMJUREE MALIWAN TANTAWAN
CAMTHAI OCA
14N
20N
Fang
The largest liquid producing areas are the Chevron-operated B8/32 and Contract 3 areas. Elsewhere liquid production is supplemented by the onshore Sirikit Area (S1), and Coastal Energys Songkhla development in G5/43. Mubadalas G1/48 (Manora) project will add further production from 2014F. Longer-term, liquid production is forecast to decline in line with falling output from the main gas producing fields in the Pattani and Malay basins. Despite a small number of wildcats being drilled, Thailands recent exploration activities have been mainly focused on delineation and step-out exploration and appraisal drilling. A number of small discoveries have been made both onshore and in the Gulf of Thailand in recent years. Following the popularity of the 20th licensing round launched in 2007 (30 blocks were awarded), the Thailand Energy Ministry has announced that it will launch a 21st Licensing Round in 2013, with a total of 22 blocks on offer. Oil and gas reserves/resources
Thailand Commercial and Technical Oil and Gas Reserves (mmboe), 2012A 458
712
2,040 161
Commercial Liquids
Technical Liquids
Commercial Gas
Technical Gas
Thailand has a total of 3,371 mmboe of remaining oil and gas reserves, taking into consideration both commercial and technical reserves. Gas makes up about 74% of the total reserves, on both a commercial, and a commercial and technical basis, underlying its importance to Thailands energy portfolio. To date, the bulk of Thailands petroleum reserves have been discovered offshore in the Gulf of Thailand although the Gulf is now a relatively mature area, it still contains the vast majority of the countrys remaining reserves.
A-26

Thailand Yet-to-Find Commercial and Technical Reserve Volumes
450 400 350 300 250 200 150 100 50 0
Liquids
Gas
Wood Mackenzie estimates that Thailand has 540 mmboe of YTF potential, the large majority of it being gas (77%). In the last 10 years, Thailand has seen discovered volumes of 493 mmboe. The peak of this was in 2009A, with 118 mmboe discovered.
Thailand Recent Discoveries, 2003A-2012A
140
120 20 100 80 60 40 5 20 0 2003A
25
15
10
0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A
Historical and forecast oil and gas demand and production The Defense Energy Department began oil production in Thailand in the late-1950s. However, production remained at relatively low levels until Shell brought the Sirikit field onstream in 1983A. Thailands other main source of indigenous liquid production has been condensate from Chevrons gas fields in the Gulf of Thailand, the first being produced from Erawan in 1981. Liquids production increased steadily during the 2000s, as a result of the Big Oil project, which produces from fields including Benchamas, Plamuk and Yala in the Chevron-operated areas. Higher production from the Bongkot area has also added to Thailands liquid output. In the near to medium-term, the largest liquids producer in Thailand will continue to be Chevron, from the Contract areas and the B8/32 concession (KrisEnergy holds a 4.63% non-operated interest in the B8/32 concession).
A-27
Thailands largest onshore oil producing field has been the Sirikit Area, operated by PTTEP. Current development work is expected to maintain oil production from the Sirikit Area above 25,000 b/d until 2016F.
450 400
Thailand Oil Supply-Demand, 2005A-2018F
450 400 350 300 250 200 150 100 50 0
Oil (mmboe)
350 300 250 200 150 100 50 0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Oil Production (mmboe) Oil Demand (mmboe)
To date, the vast majority of Thailands gas output has come from the Gulf of Thailand, where production started in 1981A from Unocals Erawan field. Chevron acquired Unocal in August 2005A, and became Thailands premier gas producer. As a result of the Asian economic crisis, growth in gas demand was stifled in the late-1990s and Thailand was confronted by an oversupply of contracted gas. An increase in contracted supply from Myanmar in the early-2000s meant limited opportunities for increased domestic supply. However, in the last decade Thailands domestic gas demand has grown strongly. In 2003A, a number of sales agreements for the supply of domestic gas were signed. Incremental supply was secured from existing suppliers such as Unocals B12/27 concession, and in January 2004A, a Gas Sales Agreement (GSA) was signed for the supply of gas from PTTEPs Arthit fields. This was the first new source of gas to be contracted to the Thai market since early-2000. In addition, Unocal secured a Heads of Agreement (HOA) for the supply of additional gas from Contract Areas 1, 2 and 3, in 2006A. The HOA was converted into a full GSA in 2007A and a 10-year extension to the concession agreements was secured. Supply from Arthit started in April 2008A, via the third Gulf of Thailand gas trunk line. Thailand also receives gas from the Malaysia-Thailand JDA, from both the Carigali-PTTEP Operating Company-operated B-17 block and the Carigali-Triton Operating Company -operated A-18 block. A-18 and B-17 are expected to supply 400 mmcfd and 270 mmcfd, respectively, at peak. The sales agreements for A-18 and B-17 have an option to increase supply if demand and reserves allow. First production from the Malaysia-Thailand JDA was achieved in 2008A. In recent years, two major projects have been brought onstream to increase the supply of gas to Thailands domestic market. Chevrons Platong II project began commercial production in October 2011A, whilst PTTEPs Bongkot South development began production in April 2012A. These projects will increase supply capacity by 420 mmcfd and 320 mmcfd, respectively.
A-28
In addition to new domestic developments, or exploration success, piped imports are available from Myanmar and the MTJDA. Since the inception of the LNG regas terminal in 2011A, LNG imports augment the domestic and piped gas supply.
300
250
Thailand Gas Supply-Demand, 2005A-2018F
300
250 200 150 100
Gas (mmboe)
200 150 100
50
0
50
0
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
Gas Demand (mmboe)
Indicative crude oil and natural gas pricing Liquids Pricing Oil is sold at a price referenced to local crudes (e.g. Tapis) or baskets of crude (e.g. Oman blend, Ardjuna and Minas). B8/32 crude is sold at a benchmark to Dubai. Condensate pricing is based on an average of a basket of five crudes and condensates (Berri, Murbau, Seria Light, North West Shelf, Tapis) posted in Singapore, usually at a discount of between 5% and 9%. Gas Pricing Gas sold in Thailand is generally sold at a price dictated by a formula contained within the gas sales agreement. Details of these formulae remain confidential and vary between individual GSAs and suppliers. The formulae reference a variety of indices, the most common of which are as follows:
A basket of Medium Sulphur Fuel Oils from Singapore The Wholesale Price Index in Thailand The US Index of Export Prices The Producer Price of Oil Field Machinery and Tools Index The Baht/US$ Exchange Rate The Inflation Rate Fluctuations in Foreign Currency Exchange Rates
Individual formula may reference only one or a number of these indices. To account for variance of the indices referenced, gas prices are generally adjusted every six months or every year, depending on the terms of the contract. In some cases, the GSA allows for more frequent adjustment in the event that certain indices and factors on which the price is based fluctuate outside a given range. Domestic demand, pricing tension and domestic market obligation Until the end of 2020F, domestic gas supplies will still form a large proportion of the total gas supplied into Thailand. Beyond 2020F, the average price of gas rises rapidly in parallel with the projected LNG imports to meet demand. The cap on gas prices is likely to be set by the price of purchasing LNG in the international market while the theoretical floor would be set by imported coal. However the restriction on building new coalfired power plants limits the effectiveness of the floor as the pricing boundary. A-29
While the Thai contracts do not require a DMO supply, under the terms of the Petroleum Act, should the government determine that Thailand requires additional oil supply, concessionaires may be required to supply petroleum of suitable quality for the purpose of having an adequate supply of petroleum for the demand in Thailand ... each concessionaire shall be required to supply such petroleum in the ratio that his petroleum production bears to total petroleum production in Thailand as shown in the last six months. Where it is deemed a matter of national security, the government can temporarily prohibit the export of all or part of petroleum produced. Major players active in country
1400
1200
1000 800 600 400 200 0
Oil and Gas Reserves in Thailand by Company, 2012A (Commercial and Technical Reserves)
Coastal Energy
Mubadala Development Co
Hess Corporation
METI (Japan)
Mitsui & Co
ExxonMobil
KrisEnergy
PTTEP
Chevron
Tap Oil
Government of Thailand
BG
Tatex Thailand
Total
Carnarvon Petroleum
Hong Kong & China Gas
Gas
Oil
Thailands upstream industry is dominated by two operatorsChevron and state company PTTEP. They manage the largest gas, oil and condensate projects in the country, and are the leading players in terms of both reserves and production. Chevron holds total remaining reserves of 1,156 mmboe, and registered an average WI production from 2007A-2012A of 248,000 boe/d, while PTTEP has remaining reserves of 1,047 mmboe, and produced 202,000 boe/d on an average WI basis between 2007A2012A. Other notable players include MOECO, Total and BG, who predominately participate in nonoperating roles. Hess Corporation operates the Sinphuhorm onshore gas project, while Mubadala, Salamander Energy and Coastal Energy all have small producing oil fields in the Gulf of Thailand. KrisEnergy has a non-operated position in Thailand, partnered with Chevron (operator) and PTTEP in the producing B8/32 fields in the Pattani Basin, as well as a 25% non-operated position in Mubadala Development Co.s G11/48 and G10/48 blocks. G11/48 is approaching Final Investment Decision (FID) and work towards development is ongoing at G10/48.
300 250 200 150
Thailand Average WI Production 2007A-2012A
100 50
-
Salamander Energy
Sophonpanich
Pan Orient Energy
Hess Corporation
Mubadala Development Co
Private Investors
A-30
Defence Energy Dept KunLun Energy Company
Coastal Energy
Tatex Thailand
METI (Japan)
Mitsui & Co
ExxonMobil
Carnarvon Petroleum Choice Plus Holdings
KrisEnergy
Chevron
PTTEP
Total
BG
Salamander Energy
Private Investors
Sophonpanich
Cambodia Overview
The Cambodian upstream industry is still in its infancy compared to the majority of its South East Asian neighbours. The greatest potential is thought to exist in the disputed Overlapping Claims Area (OCA) between Thailand and Cambodia, which could hold up to 11 tcf of gas and over a billion barrels of liquids. However, exploration is on-hold pending resolution of the OCA issue. Interest in Cambodias undisputed offshore waters slowly gained momentum following a series of oil discoveries made by Chevron in Block A in 2004A and 2005A. Exploration acreage was acquired by companies such as PTTEP, Medco Energi, Lundin Petroleum and CNOOC. However, the wells drilled so far have mostly not been successful, and some of these PSCs have since been relinquished. The countrys onshore acreage remains largely unexplored, due to a lack of available data and logistical issues, such as poor infrastructure, access and unexploded war-time ordinance and landmines.
A-31
Oil and gas reserves/resources

Cambodia Commercial and Technical Oil and Gas Reserves (mmboe), 2012A
27
35
Technical Liquids
Technical Gas
Cambodia holds 62 mmboe of technical reserves. No commercial oil or gas reserves have been proven in Cambodia to-date. The results of Chevrons recent appraisal drilling have not been released and Wood Mackenzie continues to categorize reserves in the Pimean Akas, Sirey Sambat, Pisnuka, Sovann Phum and Mealdey discoveries as non-commercial at the current time. Original oil in place reserves on the block were independently certified at 672 million boe in 2011A. CNPA estimates, based on basin level analysis, suggest that Blocks A-F could cumulatively contain up to 3 tcf of gas and 400 million barrels of crude. These figures remain speculative and appraisal results will provide a more substantiated view of the potential in the offshore areas. Prospectivity and recent discoveries
Cambodia Recent Discoveries, 2003A-2012A
50
45 40 35 30 25 20 2 1 1 0 2003A
4
3 3 2
15
10 5 0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A
No discoveries have been made in Cambodia since 2004 and 2005, when Chevron made successful offshore finds in the Khmer basin totaling 62 mmboe (Wood Mackenzie technical reserves estimates). In the near-term, exploration activity is likely to remain predominantly in the offshore area. In recent years, there has been little onshore activity due to the presence of concealed land mines, security risks and environmental concerns. This may change with a renewed interest in exploring Cambodias onshore areas, particularly the Tonle Sap Basin. In addition, PetroVietnam planned to acquire 600 km of 2D seismic over its onshore Block XV during late 2012A/early-2013F. Cambodias offshore sector is likely to see the bulk of near-term exploration, with all the undisputed offshore acreage now fully licensed. Drilling on the Mirach Energy-operated Block D is expected in mid-2013F. A-32
Historical and forecast oil and gas demand and production

18 16
Cambodia Oil Supply-Demand, 2005A-2018F
18 16 14 12 10 8 6 4 2 0
Oil (mmboe)
14 12 10 8 6 4 2 0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Oil Production (mmboe) Oil Demand (mmboe)
Oil/Liquids There is currently no oil production in Cambodia. Chevrons Block A discoveries offer the best potential for near-to-medium term oil production (shown in the chart above, although this production is contingent on the resolution of fiscal terms). Gas There is currently no gas production in Cambodia. Chevrons Mealdey discovery offers the best potential for near to medium-term gas production. Cambodia does not have a gas market yet, with no infrastructure built to date. Domestic demand, pricing tension and domestic market obligation The government of Cambodia with one calendar quarters notice has the right to require the contractor to sell its proportion of net petroleum output to the Ministry in order to meet internal demand in the country. Major players active in country
24 20 16
Oil and Gas Reserves in Cambodia by Company, 2012A (Commercial and Technical Reserves)
12
8 4 0
MOECO
KrisEnergy
Chevron
Gas
Oil
A-33
LG-Caltex Oil
CNPA
There are currently 16 companies active in Cambodias non-disputed acreage. Wood Mackenzies estimates of technical reserves for Cambodia consist of the Block A discoveries; Chevron (operator) and MOECO share the highest portion of the technical reserves, at 17.7 mmboe each. Vietnam Overview
Vietnam has two core producing basins, the Cuu Long and Nam Con Son basins, both located off the countrys south coast. The Cuu Long Basin, located nearer to the shore, contains the giant Bach Ho oilfield, which is now in terminal decline, plus a number of other oilfields. Gas from nearby developments is routed through the Bach Ho gas facilities and piped onshore to market. The Nam Con Son Basin is mostly gas prone, and is home to the Lan Tay/Lan Do project, which supplies around half of Vietnams gas. A number of new oil fields have been developed in recent years predominantly by smaller players. There are also two large gas developments expected onstream in the next five years: the Chevronoperated Block B project in the Malay Basin, and the PetroVietnam-operated Hai Thach/Moc Tinh in the Nam Con Son Basin.
A-34
As part of plans to develop the center of the country, the Dung Quat refinery was commissioned in early-2010A. To secure long-term gas supplies, Vietnam is currently considering building a LNG regasification terminal in the south of the country. In August 2011A, it was announced the country would hold its first licensing round since 2007A. Nine blocks were offered in the Nam Con Son, Cuu Long and Malay basins, with bids to be submitted by January 2012A. Interest in the gazetted blocks was disappointing, with only a handful of blocks awarded. However, there has been a healthy number of adhoc awards in the past few years. Oil and gas reserves/resources
Vietnam Commercial and Technical Oil and Gas Reserves (mmboe), 2012A
1,055 1,633
764
1,320
Commercial Liquids
Technical Liquids
Commercial Gas
Technical Gas
Vietnam holds about 4,772 mmboe of total remaining reserves, with 62% of this being gas reserves, or, if taken on a commercial basis, 56%. Due to low gas prices and a lack of infrastructure, a large portion of Vietnams gas reserves has remained undeveloped. The majority of oil reserves have been discovered in the Cuu Long Basin. The basin is generally oilprone, with some associated gas. Bach Ho, the first and largest oil and gas producing field in the basin, has been in production since 1986A. The Rang Dong, Su Tu Den and Ruby fields, with total 2P reserves of over 500 million barrels of oil, are some of the key fields that have come onstream in the last 10 years. Recent discoveries such as the Te Giac Trang in Block 16-1, and Su Tu Trang in Block 15-1, are expected to offset the production decline from Bach Ho. The majority of Vietnams non-associated gas reserves can be found in the Nam Con Son Basin. Arguably the countrys most significant offshore gas finds to date are the TNK-BP-operated Lan Tay/ Lan Do fields in Block 06-1. Recoverable gas reserves from the block are estimated to be in the region of 2.15 tcf (plus additional technical reserves). Significant gas discoveries have also been made in the KNOC-operated Block 11-2 and Blocks 5-2 and 5-3, which were relinquished by BP in early-2009. With a growing gas market in south Vietnam, Wood Mackenzie expects other gas reserves in the basin to be developed in the near to medium term. The Nam Con Son Basin also has oil potential, as proved by Premier Oils Chim Sao, Dua and Ca Rong Do discoveries. Chim Sao was brought onstream in October 2011A, and Dua is expected to start production in 2014F. The Malay Basin can broadly be divided into the southern oil and associated gas fields and the northern fields which are generally gas prone. Chevron has made several large discoveries in the basin including the Kim Long, Ca Voi and Ac Quy fields. The reserve potential of these fields is estimated at around 4 tcf, and first commercial gas sales are expected in 2017F at the earliest. Talismans Cai Nuoc field in Block 46, and its Song Doc oil field in Block 46/02 are the only two producing fields in the basin.
A-35

Vietnam Yet-to-Find Commercial and Technical Reserve Volumes
2000 1800
1600
1400 1200 1000
800
600 400 200
0
Liquids
Gas
In terms of prospectivity, Wood Mackenzie estimates total YTF potential in Vietnam to be 2,425 mmboe of liquids and gas. The Nam Con Son Basin is thought to have some oil upside, while deepwater exploration in the Song Hong and Phu Khanh Basin may prove up new plays. Taking a look back in the last 10 years, Vietnam has had 49 field discoveries, with 2,696 mmboe discovered in total, or an average 55 mmboe of reserves per discovery since 2003A. Not included in the above chart is the CBM potential in the Red River Delta basin, which has a high degree of uncertainty around its estimates. A number of studies on the basin estimate the GIIP to range between 6 to 14 tcf. Wood Mackenzie estimates Red River resource potential at 6.6 tcf.
Vietnam Recent Discoveries, 2003A-2012A
700
600 500 400 6 300 200 100 0 2003A
12
10 8
2
0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A
A-36
Historical and forecast oil and gas demand and production Production started from the Su Tu Den field in 2003A, and peak daily production of around 79,000 b/d was achieved in 2004A. However, field output declined fairly rapidly soon after. New oil production began from the Song Doc, Phuong Dong, Ca Ngu Vang and Su Tu Vang fields during the latter half of 2008A, leading to an increase in liquids production in 2009A. Nonetheless the impact of these new fields has been muted by the accelerated decline of the mature Rang Dong field and poorer than expected performance from Su Tu Vang.
250
Vietnam Oil Supply-Demand, 2005A-2018F
250
Oil (mmboe)
200
200
150
150
100
100
50
50
0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Oil Production (mmboe)
Oil Demand (mmboe)
Vietnams gas production has risen since 1995A, when the Bach Ho field began supply to the Ba Ria power plant. Rates increased further in 2002 following the construction of the 399 kilometre Nam Con Son pipeline from the Lan Tay field to Dinh Co. The spare capacity of this line has allowed for nearby gas fields to be developed and tied-in. A second Nam Con Son pipeline has been approved, and is scheduled to be completed around mid-2015F. Wood Mackenzie expects that the Hai Thach/Moc Tinh project will utilize the pipeline after an initial period of around 18 months and anticipates the project will supply into the existing Nam Con Son Pipeline.
80 70
Vietnam Gas Supply-Demand, 2005A-2018F
80 70
Gas (mmboe)
60
50 40 30
60
50 40 30
20
10 0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Gas Production (mmboe)
20
10 0
Gas Demand (mmboe)
Indicative crude oil and natural gas pricing Liquids Pricing Liquids price is generally at a premium to that of Brent on the world market. All crude sold to third parties is valued at the net realised price, at the point of delivery received by contractor. A-37
Natural Gas Pricing The gas price used for fiscal purposes is the realised sales price. Gas from the Block 46 (Cai Nuoc) PSC and the PM3 CAA area, a portion of which is currently supplied to Vietnam, is sold at a price which is linked to the price of Medium Sulphur Fuel Oil in Singapore. Other gas currently sold to domestic users in Vietnam is not linked to any index. Domestic demand, pricing tension and domestic market obligation Gas prices in Vietnam have historically been very low, which has hampered development of gas fields. However, there are signs prices are rising, and this has prompted Chevrons much-delayed gas project (Kim Long, Ac Quy, and Ca Voi fields, together estimated at 3.8 tcf of gas) in the Malay Basin to progress, although Chevron and PetroVietnam are yet to agree a final, enhanced gas price for the project. Recently, however, PV Gas has been increasing the price of gas sold to industries and fertiliser plants. Gas is sold to their subsidiary, PetroVietnam Low Pressure Gas Distribution company (PGD) which then distributes gas to industries via its onshore pipeline network. Gas sold to PGD has risen from US$8.35/mmbtu to US$10.55/mmbtu. Similarly, gas prices to fertiliser plants in Phu My and Ca Mau has increased by 40% from US$ 4.59/mmbtu to US$6.43/mmbtu. However, gas sold to the power sector has not seen the same levels of increase. As the power sector still consists of 80% of the total market, pricing reform in this sector will be needed to attract upstream investments. Moves to increase gas prices for the industry and fertiliser sector may filter upwards, allowing PV Gas to contract gas supplies at higher prices that will allow operators to pursue higher cost developments. While there is no domestic market obligation for oil, an oil export duty was introduced in the postSeptember 1993 PSC terms on any of the contractors profit oil and cost recovery oil exported. This is currently 4%. For PSCs signed after 2009, Wood Mackenzie understands an export duty of 10% applies. Major players active in country
1800 1600 1400
Oil and Gas Reserves in Vietnam by Company, 2012A (Commercial and Technical Reserves)
1200
1000 800 600 400 200 0
SOCO International
INPEX Corporation
Petronas Carigali
PetroVietnam
Zarubezhneft
ExxonMobil
Mitsui & Co
SK Energy
Gazprom
Talisman
Perenco
Chevron
Idemitsu
Premier
PTTEP
ONGC
KNOC
AAR
Gas
Oil
A-38
BP
State oil company PetroVietnam is the dominant player in the country, having stakes in all projects. Chevron is the leading International Oil Company in terms of reserves volume through its gas project in the Malay Basin. Petronas Carigali has a sizeable technical reserves portfolio across the country, while Perenco has a large volume of technical reserves in the Cuu Long Basin. Production-wise, PetroVietnam has the highest average working interest production from 2007A-2012 of 162,000 boe/d.
180 160 140
Vietnam Average WI Production 2007A-2012A
120
100 80 60
40
20 -
SOCO International
ConocoPhillips
PetroVietnam
Zarubezhneft
PETRONAS
SK Energy
Geopetrol
Talisman
Daesung
Perenco
A-39
Hyundai
Premier
PTTEP
Santos
ONGC
KNOC
AAR
LG
BP
Bangladesh Overview
88E 90E Chattak Niko 92E Kailastila Chevron Block 1 Open Block 2A Open Block 2B Open Block 13 Open Patharia Bapex Petrobangla
25N
Block 11 Bapex
Bibiyana Chevron
Block 3A Open Block 3B Open
Block 12 Open
INDIA
Block 4A P ad Open m
DHAKA Block 6A Block 6B Open Open
Titas Petrobangla
Block 14 Open Moulavi Bazar Chevron
a ur ip INDIA Tr
Kasalong Bapex Block 22A Open
BANGLADESH
Block 4B Open Khulna
Block 9 Tullow/ Niko Begumganj Petrobangla
Semutang Petrobangla
23N
Kolkata
Block 5 Open
Block 7 Open Shahbazpur Petrobangla
Block 10 Open
Feni Niko
Bapex
Sundalpur Petrobangla
Patiya
Jaldi
Kutubdia Petrobangla SS-01 Open SS-02 On Offer SS-03 On Offer
16 Santos
Block 22B Open
SS-04 On Offer SS-09 On Offer
MYANMAR
21N
Dhirubhai 20
Bay of Bengal
Dhirubhai 11
SS-06 On Offer
SS-07 On Offer
SS-08 SS-10 On Offer On Offer
Dhirubhai 40
SS-11 On Offer
Active PSC - Onshore Active PSC - Offshore Blocks on offer
40
80
88E
km 160
90E
DS-16 On Offer 92E Source: Wood Mackenzie
Bangladeshs hydrocarbon industry is dominated by natural gas, which provides its main source of energy. However, in recent years, demand for gas has grown faster than supply, leaving the country facing gas shortages. The state oil and gas company, Petrobangla, is the dominant producer in the country, but funding issues have constrained its ability to develop further reserves in the near term. Chevron is the main international player in Bangladesh, operating the Bibiyana, Jalalabad and Moulavi Bazar fields, which provide almost 50% of the countrys gas production. The Bibiyana field is expected to produce over 1 bcfd of gas, once constraints have been removed from the national transmission system. To alleviate this problem, the first of three planned compressor stations was commissioned at Muchai in May 2012. In mid-2011, Petrobangla signed a contract with ConocoPhillips to explore two deepwater blocks awarded to the company during the 2008 licensing round. Bangladeshs offshore areas are largely untested and if successful, this would present another avenue to meet the supply shortages. The resolution of the maritime boundary dispute with Myanmar in March 2012 now allows ConocoPhillips to carry out exploration activity on the entire area of block DS-08-11.
A-40
MY AN
DS-08-10 DS-08-11 ConocoPhillips ConocoPhillips
DS-12 On Offer
AR
Shwe Phyu SHWE
21N
23N
k Si ta pa Sita un d h ar
25N
Block 8 Bapex
Netrakona
s nge Ga
thi Bh agira
a J amu n
laim ia C I nd Bangladesh Claim
Oil and gas reserves/resources

Bangladesh Commercial and Technical Oil and Gas Reserves (mmboe), 2012A
754 30
1,643
Commercial Liquids
Technical Liquids
Commercial Gas
Technical Gas
Wood Mackenzie estimates 2,426 mmboe of remaining commercial and technical oil and gas reserves in Bangladesh. Reserves are dominated by gas, with commercial and technical gas reserves amounting to almost 99% of Bangladeshs total reserves. The majority of the technical gas reserves are likely to be made commercial at some stage in the future but their development remains hampered either by lack of Petrobangla funding or development approval. Bangladeshs liquids reserves were boosted by the discovery of the Bibiyana gas/condensate field in 1998A, where it is estimated that total remaining commercial liquid reserves are around 16 million barrels. Prospectivity and recent discoveries
Bangladesh Yet-to-Find Commercial and Technical Reserve Volumes
700
600 500 400 300
200
100
0
Liquids
Gas
A-41
Total YTF in Bangladesh is estimated at 635 mmboe, of which 100% is gas. In the last 10 years, 7 fields have been discovered, with combined volumes of 152 mmboe. The fields are all in the TripuraCachar-Bengal basin, with the biggest two, Bangora and Lalmai, both discovered by Tullow in 2004A.
Bangladesh Recent Discoveries, 2003A-2012A
120 3
80 2 60 1
40
20 0 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A
Historical and forecast oil and gas demand and production Oil Oil production in Bangladesh occurred between 1987A and 1994A, when the Sylhet (Haripur) field produced an average of 200 b/d of waxy, low sulphur, 28API oil from the Sylhet-7 well. The pipeline from Sylhet-7 waxed up and production ceased in July 1994, with the field having produced 550,000 barrels of oil. It is understood that there are no plans to bring Sylhet-7 back onstream.
80
70 60
Bangladesh Oil Supply-Demand, 2005F-2018F
80
70 60 50 40
Oil (mmboe)
50 40
30
20 10 0 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F Oil Production (mmboe) Oil Demand (mmboe)
30
20 10 0
Gas Gas production in Bangladesh started in 1960A when the Chattak field was brought onstream and has been steadily rising. Until 1998, Petrobangla had retained exclusive responsibility for all hydrocarbon production in Bangladesh, operating 15 gas fields via its two subsidiaries, Sylhet Gas Fields Limited (SGFL) and Bangladesh Gas Fields Company Limited (BGFCL). Petrobanglas monopoly ended when Cairn brought the Sangu field onstream in June 1998A. Feni and Fenchuganj began production in 2004A. Feni previously produced gas under Petrobangla operatorship but was shut-in during 1998A. Niko took over in 2003A and began production from the field in November 2004A, at a rate of 20 mmcfd. BAPEX brought the Fenchuganj field onstream in May 2004A, at a rate of just under 25 mmcfd. A-42
100
In April 2005A, Chevron brought the Moulavi Bazar field onstream at a rate of around 70 mmcfd. Production was ramped up to 110 mmcfd in July 2005A. Following the commissioning of the Bibiyana field in March 2007A, production from Moulavi Bazar was reduced on account of compression constraints. In 2012A, production from the Bibiyana field averaged 800 mmcfd, and output is expected to peak in 2015F.
160 140
Bangladesh Gas Supply-Demand, 2005F-2018F
160 140 120
Gas (mmboe)
120
100
80 60 40
100
80 60 40
20
0
20
0
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F 2016F 2017F 2018F
Gas Demand (mmboe)
Indicative crude oil and natural gas pricing Liquids Pricing The value of oil/condensate from each production area is determined on the basis of market value comparable to APPI. The price of locally produced LPG is linked to the international price of kerosene on a BTU basis. Natural Gas Pricing For the upstream companies, there is no fixed gas purchase price. In the 1990s, Cairn and Occidental were involved in protracted negotiations over the price that Petrobangla would pay. Under the 1993 Petroleum Policy, the pricing for associated gas is on a cost plus basis. For non-associated onshore gas, the price is indexed to 75% of the price of HSFO 180 CST freeonboard (f.o.b.) Singapore, less negotiated discounts. Offshore gas pricing is 25% higher than for onshore, equivalent to 93.75% HSFO, again less negotiated discounts. Floor and ceiling prices for HSFO, negotiable by PSC, are applied to ensure price competitiveness of domestic gas. Under the 1997 Model PSC, the floor and ceiling prices for HSFO were set at US$70/tonne and US$120/tonne respectively (equivalent to around US$1.31/mcf and US$2.25/mcf onshore and around US$1.73/mcf and US$2.97/mcf offshore, with the above linkage index considered). Under the 2008 Model PSC, offshore gas pricing for Type-A blocks was unchanged from the 1997 Model PSC. However, the price for Type-B blocks was indexed to 100% of HSFO. In 2009, Cairn announced that it has been given the rights to freely market gas from its Block 16 (nonSangu areas) with the buyers. The price for each calendar quarter is calculated based on the arithmetic average of the daily APPI price quotations, for the six months ending on the last day of the second month preceding the quarter. Domestic demand, pricing tension and domestic market obligation (DMO) Bangladesh currently has no DMO stipulated in its contracts. Petrobanglas financial constraints have prevented it from doing much exploration or developing its technical reserves, which Wood Mackenzie A-43
estimates to be more than 4 tcf. Insufficient pipeline capacity, as well as low pipeline pressure, also constrained the delivery of natural gas to the rising demand. Southern Bangladesh has particularly suffered from gas shortages after production from the Sangu field declined rapidly since 2006. The government has been rationing gas supplies since 2009 and estimates existing unmet demand to be about 5 bcm. Due to ongoing reform of fiscal terms, new blocks licensed from 2013 onwards will achieve higher gas pricing, depending on location and water depth. Major players active in country Bangladeshs oil and gas industry is dominated by state company Petrobangla and its subsidiaries, with total reserves of 1,600 mmboe. Chevron also holds a key position with almost 700 mmboe of reserves, through its operatorship of the Bibiyana, Moulavi Bazar and Jalalabad gas fields, acquired via its 2005 acquisition of Unocal.
1800 1600 1400 1200 1000
Oil and Gas Reserves in Bangladesh by Company, 2012A (Commercial and Technical Reserves)
800
600 400 200 0
Niko Resources
Government of Bangladesh
Gas
Oil
Several other international companies hold reserves in the country, although on a much smaller scale. Niko Resources operates the Feni and Chattak fields, under a joint venture agreement with Petrobangla subsidiary Bangladesh Petroleum Exploration and Production Company (BAPEX). It also holds reserves in the Bangora field, operated by Tullow Oil. Santos reserves are held in its Sangu Area fields. In October 2010, Cairn Energy announced that it had sold its interest in Bangladesh to Santos, marking Cairns departure from Bangladesh. Petrobangla also holds considerable technical gas reserves, which remain undeveloped due to a lack of funding.
A-44
Halliburton
Tullow Oil
Chevron
Santos
In mid-2012, Tullow announced its intention to sell its assets in Bangladesh as part of a wider realignment strategy, although to date this has not yet occurred.
180
160 140 120
Bangladesh Average WI Production 2007A-2012A
100
80 60
40
20 -
Niko Resources
Petrobangla operates a number of fields in Bangladesh through its three subsidiaries. A large proportion of these fields are currently producing, and combined they contribute an average of 167,000 boe/d. However, many of Petrobangla-operated fields are mature and in decline, and the company has been unsuccessful in adding new reserves through exploration, primarily due to financial constraints. Chevron is the largest international producer in Bangladesh, and increased production at the Bibiyana field 144,000 boe/d in 2012A, taking its total production from its three fields to over 147,000 boe/d. The Bibiyana field is now the swing producer in Bangladesh and will supply the rise in Bangladeshi gas demand going forward. In 2012A, Chevron commissioned a compressor station at Muchai which has increased capacity by around 80 mmcfd on the North-South pipeline.
For and on behalf of Wood Mackenzie Asia-Pacific Pte Limited
Date: July 1, 2013 Name: Vijay Krishnan Designation: Managing Director
Government of Bangladesh
A-45
Cairn Energy
Halliburton
Tullow Oil
Chevron
Santos
[THIS PAGE INTENTIONALLY LEFT BLANK]
APPENDIX B REGULATION SUMMARY OF RELEVANT BANGLADESH LAWS AND REGULATIONS The following laws and regulations would be applicable to us upon completion of the acquisition of TBL: Regulatory bodies The Energy and Mineral Resources Division was created under the Ministry of Power, Energy and Mineral Resources and it has been entrusted with the responsibilities to formulate all policies related to natural gas, liquid petroleum and mineral resources. Bangladesh Energy Regulatory Commission (the BERC) was established under the Bangladesh Energy Regulatory Commission Act, 2003 (BERCA 2003) to create an atmosphere conducive to private investment in the generation of electricity, transmission, transportation and marketing of gas resources and petroleum products, to ensure transparency in the management, operation and tariff determination in the above mentioned sectors and to protect consumers interest and to promote the creation of a competitive market in Bangladesh. Bangladesh Oil & Gas Corporation and Bangladesh Mineral Development Corporation were merged into a single entity, called Bangladesh Oil, Gas & Minerals Corporation (BOGMC), by the Bangladesh Oil, Gas & Minerals Corporation Ordinance 1985 (Ordinance 1985). Through a partial modification of the Ordinance 1985, the BOGMC was renamed as Petrobangla and given the authority to hold the shares of the companies in Bangladesh which are formed for the purpose of exploration and exploitation of oil, gas and mineral resources in Bangladesh. Among its various other functions, Petrobangla is empowered to produce and sell oil, gas and mineral resources. Petrobangla also executes production sharing contracts with other oil, gas and mineral resources exploration companies for the exploration of oil and gas resources in Bangladesh. Laws and regulations framework applicable to petroleum, gas and other mineral resources The Petroleum Act, 1934 (PA 1934) is one of the underlying statutes which contains provisions on the import, transport, storage, production, refining, blending or reclaiming by recycling, distribution and marketing of petroleum and other inflammable substances in Bangladesh and lays down the penalties for contravention of any provisions of PA 1934. The Petroleum Rules 1937 (Petroleum Rules), amongst others, lays down the provisions on importation, transportation, storage of petroleum in Bangladesh. Moreover, the Rules contain provisions on the grant of license for importation, transportation and storage by the appropriate licensing authority. The Petroleum Rules also specify the procedure and requirements for the refining, blending and testing of petroleum and it also provides for special precaution against accidents. The Petroleum Products (Development Surcharge) Ordinance, 1961 (the 1961 Ordinance) provides for the levy and collection of a development surcharge on petroleum products and for matters connected therewith. Every company in Bangladesh shall be responsible to pay to the Government a development surcharge equal to the differential margin in respect of the quantities of petroleum products sold by the company through an installation except for export. The Bangladesh Petroleum Act, 1974 (the BPA 1974) contains provisions on the exploration, development, exploitation, production, processing, refining and marketing of petroleum in Bangladesh. The BPA 1974 specifically states about the powers of the Government, amongst others, to explore, develop, exploit, produce, process, refine and market petroleum, to enter into a petroleum agreement with any person for the purpose of any petroleum operation and to carry out inspections. The BPA 1974 also states about the duties of the persons engaged in petroleum operation in Bangladesh and the penalties for contravening any provisions of BPA 1974. The Bangladesh Petroleum Corporation Ordinance, 1976 was promulgated to establish the Bangladesh Petroleum Corporation and also lays down the functions and management of the corporation and its directors. Gas Safety Rules 1991 provides for the safety of pipelines and specifies about the requirements of design and construction, operation and maintenance of the pipelines. The BERCA 2003 was promulgated to establish the BERC and, amongst others, also provides the provisions on the constitution of BERC, qualification of its members, their functions and powers. Through the BERCA 2003, the BERC was granted investigative powers similar to those of a civil court. The BERCA 2003 also makes provisions for obtaining licenses for engaging in power generation, energy transmission, energy distribution and marketing, energy supply, and energy storage in Bangladesh. B-1
Some of the objectives of the National Energy Policy 2004 include for the ensuring of optimum development of all indigenous energy sources, ensuring sustainable operation of energy utilities, ensuring rational use of total energy sources, ensuring public and private sector participation in the energy sector, etc. Moreover, it provides that environmental issues will be considered for all type of fuels and in each and every step of fuel cycle; namely, exploration, appraisal, extraction, conversion, transportation and consumption. It further provides the pricing policy, petroleum policy, environmental policy and makes provisions for conservation and assessment, supply and augmentation of indigenous resources. The Bangladesh Petroleum Institute was established under the Bangladesh Petroleum Institute Act, 2004. It caters to the training of professionals and technicians engaged in the energy sector. It also conducts the research work to enrich energy and mineral resources of the country. The Bangladesh Energy Regulatory Commission License Regulations, 2006 lays out the procedure for application of license for any person intending to engage in the business of electricity generation, transmission, transportation, marketing, storage, distribution and supply of energy in Bangladesh and it further specifies the conditions for revocation or cancellation of a license. The GA 2010 has been enacted to deal with the distribution, storage, supply, marketing of natural gas and associated liquid hydrocarbon in order to ensure appropriate and proper use of the same within the territory and economic zone of Bangladesh. Environmental laws and regulations The Bangladesh Environment Conservation Act, 1995 provides that no industrial unit or project shall be established or undertaken without obtaining, in the manner prescribed by the Environment Conservation Rules 1997 (1997 Rules), an environmental clearance certificate from the Department of Environment. Moreover, for the purpose of issuance of Environmental Clearance Certificate, the 1997 Rules classifies the industrial units and projects in Bangladesh, in consideration of their site and impact on the environment, into certain categories, such as Green, Orange A and B and Red and also lays down the provisions for making application for an environment clearance certificate by the above categories of industries. Taxation The Income Tax Ordinance, 1984 (ITO) provides for the assessment and levy of tax on income in Bangladesh. Part A of the Fifth Schedule of the ITO provides that where any person carries on or is deemed under an agreement with the Government to be carrying on any business which consists of or includes exploration and production of petroleum, the profits or gains of such person there from shall be computed separately from his income, profits or gains from any other business. Moreover, the sum of payments to the Government and taxes on income in respect of the profits or gains derived from the business or part of the business to which the provisions of this part apply, for any year of assessment, shall be as provided for in the agreement with the assessee. SUMMARY OF RELEVANT CAMBODIAN LAWS AND REGULATIONS Regulatory Body Article 58 of Cambodias Constitution establishes the States ownership over mineral resources and natural resources, as well as other State property, and declares that the control, use and management of State properties will be determined by law. Under the Royal Decree on the Formation of the Cambodian National Petroleum Authority, dated January 22, 1998, the CNPA was established to broadly promote and facilitate upstream and downstream petroleum operations in Cambodia and to enter into contracts with companies on behalf Cambodian Government. Petroleum Regulations The principal law that applies to the upstream oil and gas industry in Cambodia is the Petroleum Regulations 1991, as amended in 1998 and 1999 (the Petroleum Regulations). The Petroleum Regulations prescribe a process for the award of concessions in the form of production sharing contracts, which are referred to as Petroleum Agreements (the PA). If the Cambodian Government approves of the bid, then a PA will be entered into by the CNPA (on behalf of the Cambodian Government) and the contractor. A PA must be signed in substantially the form of the model agreement scheduled to the Petroleum Regulations, subject to any additions or deletions as may be approved by the CNPA. B-2
Under the Petroleum Regulations, the maximum initial exploration period is four years from the effective date of the PA. The duration of the exploration period can be extended twice for periods of up to two years each. The CNPA has the discretion to further extend the exploration period beyond these periods. The Petroleum Regulations also mandate that a contractor must relinquish a certain percentage of the contract area, excluding any area falling under a production area, at certain times. The contractor is required to relinquish 30.0 per cent. of the contract area at the end of the initial exploration period and 25.0 per cent. of the contract area by the end of the first extension of the exploration period. Any remaining areas are relinquished at the end of the exploration period. If petroleum is discovered in the contract area, notice must be provided to the CNPA and if the petroleum is of commercial significance, the contractor must submit an appraisal work program and budget to evaluate the commercial development of the field. If the contractor considers such an appraisal not to be necessary, the contractor can apply directly for a production permit. If the contractor discovers natural gas, the contractor must consult with the CNPA regarding the potential commercial uses of the natural gas. The duration of the production period is 30 years from the effective date of the PA. If commercial production remains possible at the expiration of the production period, the CNPA shall extend the production period for the period of the projected commercial production, but not more than five years. Under the Petroleum Regulations, a contractor is exempt from the payment of all taxes, charges and duties levied under Cambodian law except as follows: (i) (ii) (iii) a royalty of at least 12.5 per cent. on the value of the petroleum sold; annual surface rental; income tax at a rate of 25.0 per cent. to 50.0 per cent. of the net income derived from petroleum operations, which will be set out in a PA; registration charges and service fees payable to the Cambodian Government; and any other taxes or charges as specified in the PA.
(iv) (v)
Aside from the royalty payable to the Cambodian Government and the payment of petroleum costs to the contractor, the balance of petroleum will be allocated between the contractor and the Cambodian Government, in accordance with the PA. The Cambodian Government is also granted the right to participate in any petroleum operations under a PA, to the extent of the percentage interest specified in the PA. If the Cambodian Government participates in petroleum operations, then it must reimburse the contractor its share of the petroleum costs, without interest. The CNPA is also empowered to order one or more contractors to jointly develop an area under a joint operating program if joint development and operation of one or more fields is desirable to conserve petroleum resources and to facilitate development more economically. After the expiry of the PA or after the termination of the PA, the contractor is obligated to restore the area used for petroleum operations, erect barriers to prevent danger to persons or animals and remove structures, equipment and materials, upon the completion of petroleum operations in any area. Petroleum Agreement Under the Petroleum Regulations, a PA shall be signed in substantially the form attached to the Petroleum Regulations as a schedule, with such additions or deletions as may be approved by the Cambodian Government. Accordingly, the CNPA and the contractors have entered into such a PA for Block A in 2002 and further amended the PA in 2004 and 2009. A summary of the key fiscal terms of this PA, as amended, are set out in the table below. If the contractors make a discovery within the exploration area, the contractors may, at any time, prior to the end of the exploration period submit an application to the CNPA for a production permit. The contractors are entitled to apply for a production permit if the discovery is currently commercially viable, or, in the case of natural gas, currently commercially viable or potentially commercially viable in the future. The contractors PPA will include a detailed work program, which must be approved by the CNPA. B-3
The duration of the production period for the Groups PA is 30 years from the day of first commercial production and if commercial production remains possible at the end of the production period, the CNPA, shall, upon the contractors request for an extension, extend the production period for the period of projected commercial production. The contractors may take and use any natural gas produced in association with crude oil for the purpose of petroleum operations, as further specified in the PA. Production is allocated between the contractors and the Cambodian Government in the following order of priority. First, 12.5 per cent. of production is retained by the Cambodian Government as a royalty. Second, the contractors have the right to take, from 90.0 per cent. of the remaining production, its costs (commonly referred to as petroleum costs) from the current and prior years. The rules for determining applicable petroleum costs are set out in the PA. Third, the remaining production (commonly referred to as net oil or net gas as the case may be) is allocated to the contractors based on the percentage described in the table below. The terms of the PA were negotiated having regard to the terms of the Petroleum Regulations in force on the effective date. If there are changes to the Petroleum Regulations or if there is any new legislation, regulations or orders that materially increase the financial burden of the contractor, then the CNPA shall agree to amend the terms of the PA in favor of the contractor so as to take account of such changes or introductions. Pursuant to an amendment of the PA, the contactor shall pay taxes to the Cambodian Government according to the Law on Taxation 1997 as amended from time to time, and therefore, the contractor is not exempt from the payment of all taxes, charges and duties levied under Cambodian law as provided under the Petroleum Regulations. The contractor and the Cambodian Government are still in the process of negotiating the terms of a tax stabilization mechanism. Law on Taxation The Law on Taxation 1997, as amended from time to time, and its delegated legislation provide the framework for taxation in Cambodia. Under the Law on Taxation, the company may be subject to the following taxes: Tax on profit Minimum tax Withholding tax 30.0 per cent. 1.0 per cent. on the annual turnover of a company 14.0 per cent. on payment of dividends and interest to non-resident persons 10.0 per cent. on taxable supply of goods and services in Cambodia, including on imports
Value added tax
Proposed New Petroleum Regulatory Regime The Cambodian Government and the CNPA have been working to develop the existing regulatory framework for the petroleum industry. The centerpiece of this new regulatory framework is expected to be a petroleum law. SUMMARY OF RELEVANT INDONESIAN LAWS AND REGULATIONS Regulatory Body The basic principle underlying the oil and gas industry in Indonesia is established in the Constitution of the Republic of Indonesia (the 1945 Constitution). Article 33 of the 1945 Constitution states that all the natural wealth on land and in the waters are under the jurisdiction of the State and should be used for the greatest benefit and welfare of the people. This principle was embodied in the Oil and Gas Law No. 44 of 1960, which has since been revoked and replaced by the Oil and Gas Law No. 22 of 2001 (Law 22 of 2001). Oil and gas activities are to be supervised and managed by the State, and implemented by the Government of the Republic of Indonesia (Indonesian Government) as the holder of the Mining Authority. Based on Law 22 of 2001 and by Government Regulation No. 42 of 2002 (GR 42 of 2002), the Indonesian Government established the Implementing (Executive) Body for Upstream Oil and Gas Business Activities known as Badan Pelaksana Kegiatan Hulu Minyak dan Gas Bumi (BP Migas). B-4
BP Migas was established as an executive implementing body responsible for conducting supervision and management of upstream business activities in order to maximize benefit and revenue to the State. Prior to the implementation of GR 42 of 2002, PT Pertamina Persero (Pertamina), the Indonesian Government designated State oil company established by virtue of Law No. 8 of 1971, was responsible for all petroleum activities, both upstream and downstream, and for supplying oil and gas to meet domestic demand. From the establishment of BP Migas by GR 42 of 2002 on July 16, 2002 until November 13, 2012, BP Migas had the function of supervising and managing the operations of oil and gas E&P contractors. BP Migas provided recommendations to the Minister of Energy and Mineral Resources concerning PSCs and signed the contracts. BP Migas also evaluated field development plans and approved work programs and budgets of all the PSCs. However, on November 13, 2012, the Indonesian Constitutional Court (MK) handed down Decision No. 36/PUU-X/2012 (Decision 36/2012), which declared several articles in Law 22 of 2001 pertaining to the establishment and functions of BP Migas to be unconstitutional and unenforceable. The articles in question are: (i) Article 1(23), which states that BP Migas shall be an agency established to control upstream business activities in the oil and gas sector; Article 4(3), which states that the Indonesian Government, as the holder of mining concessions, shall establish BP Migas as meant in Article 1(23); Article 41(2) which states that the supervision over the implementation of upstream business activities which is based on joint cooperation contracts shall be conducted by BP Migas; Article 44, which regulates the functions and duties of BP Migas, i.e. to supervise and control upstream oil and gas activities; Article 45, which regulates the status and the organizational structure of BP Migas; Article 48(1), which regulates the source of funds/budget for BP Migas; Article 59(a), which provides the obligation of the Indonesian Government to establish BP Migas within 1 (one) year of the promulgation of Law 22 of 2001; Article 61, which regulates the duties of Pertamina upon the promulgation of Law 22 of 2001 and upon the establishment of BP Migas; and Article 63, which regulates the transfer of the rights and obligations of Pertamina emanating from production sharing contracts to BP Migas.
(ii)
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(v) (vi) (vii)
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In its considerations, the MK elaborates its views on the meaning of Article 33 of the Constitution of Indonesia, concluding that the Indonesian Government should directly manage oil and gas resources, as opposed to only performing supervisory duties through BP Migas. Upon the announcement of Decision 36/2012, all provisions of Law 22 of 2001 relating to the establishment and functions of BP Migas ceased to have any binding force, and BP Migas therefore ceased to exist. However, in order to avoid legal uncertainty with respect to ongoing oil and gas business activities, the MK made clear, in Decision 36/2012, that pending the promulgation of further regulations and amendments to Law 22 of 2001, the functions and duties formerly held by BP Migas would be taken over by the Indonesian Government, represented by the Ministry of Energy and Mineral Resources (MEMR). The MK also stated that all PSCs signed by BP Migas would remain valid until their respective expiration dates or as agreed by the parties. This follows a strong line of constitutional precedent regarding the non-retroactivity of MK decisions. On November 13, 2012, the Indonesian Government issued Presidential Regulation No. 95 of 2012 on the Transfer of Duties and Functions of Upstream Oil and Gas Activities (PR 95/2012), which confirms that, effective November 13, 2012, all duties and functions formerly carried out by BP Migas are transferred to the MEMR pending the issuance of replacement laws and regulations, and that all PSCs that have been signed BP Migas shall remain valid until their expiration date. PR 95/2012 further clarifies that all upstream oil and gas activities that were being managed by BP Migas shall be managed by the MEMR as of November 13, 2012. B-5
Presidential Regulation No. 9 of 2013 regarding the Management of Upstream Oil and Gas Activities (PR 9/2013) was recently issued for the establishment of a government unit called the Special Work Unit for Upstream Oil and Gas Activities (SKK Migas), which has taken over BP Migas former duties from MEMR effective January 14, 2013 (with authority retroactively to deal with all matters in relation to operational expenses of oil and gas business activities arising from and after November 13, 2012), and will remain in place until the issuance of the new oil and gas law. The current Head of SKK Migas, which has been appointed by the President, is the former vice minister of MEMR. In order for SKK Migas to control, supervise, and evaluate the management of the upstream oil and gas business activities, a Supervisory Commission, led by MEMR as its Chairman, has also been established under PR 9/2013. The Supervisory Commission will submit a report to the President at least once every 6 months. State Oil Company Law 22 of 2001 on oil and gas removed Pertaminas regulatory functions and provided the basis to convert Pertamina to a wholly State owned limited liability company under the jurisdiction of the Minister of State Enterprises, which transpired pursuant to Government Regulation No. 31 of 2003. The State as shareholder of Pertamina is represented by the Ministry of State Enterprises. Under Law 22 of 2001, all PSCs and related contracts in existence at the time Law 22 of 2001 took effect and that had previously been entered into by Pertamina with contractors in relation to upstream oil and gas activities were to remain valid until their expiration. Pertaminas role as regulator under those contracts was transferred to BP Migas at the time GR 42 of 2002 took effect on July 16, 2002. As a result of Decision 36/2012 and the issuance of PR 9/2013, such contracts are now managed by SKK Migas. Production Sharing Arrangements in Indonesia Government Regulation No. 35 of 2004 (GR 35 of 2004) implemented reform of the upstream oil and gas regime in Indonesia, and required that the prescribed contract between BP Migas (now SKK Migas) and the contractor shall contain conditions that ownership of oil and gas remain with the State until the delivery point, that control of management of operations executed by the contractor is with BP Migas (now SKK Migas) and that investment and risk is borne by the contractor. From time to time, Indonesia has awarded different types of PSCs including, but not limited to: (1) PSCs; (2) TACs; (3) enhanced oil recovery contracts; and (4) joint operating agreements. We have interests in seven contract areas in Indonesia. Production Sharing Contracts (PSC) PSCs have evolved through five generations; the main variation between each being the production sharing split. The second and third generation PSCs issued after 1976 removed the earlier cost recovery cap of 40.0 per cent. revenues and confirmed an after tax oil equity split of 85/15 for BP Migas (now SKK Migas) and the PSC contractor. In 1994, to stimulate investment in remote and frontier areas, the Indonesian Government introduced a 65/35 after tax-split on oil for contracts in the region (fourth generation). Since 2008, a fifth generation has been introduced. While the after tax equity split is negotiable, the latest model limits items available for cost recovery and offers incentives in other areas such as via investment credits. The contractor under a PSC generally enters into an operating agreement with the other owners of Working Interests under the PSC. Pursuant to this operating agreement, each participant agrees to participate in proportion to its respective equity interest in all costs, expenses and liabilities incurred in conjunction with petroleum operations in the contract area and each participant will own, in the same proportion, the contractual and operating rights in the PSC. One participant is appointed operator and, subject to the supervision of the operating committee (consisting of one representative appointed by each party) and the terms of the operating agreement, the operator is vested with the management and discretion of all petroleum operations in the contract area. The operator is obliged to use its best efforts to conduct the petroleum operations in accordance with generally accepted practices in the petroleum industry and receives an indemnity from the other contractors for acting in the capacity of operator. An operating agreement generally continues in effect for the term of the PSC. PSCs are entered into with SKK Migas (previously BP Migas) and approved by co-signature of the Minister of Energy and Mineral Resources, acting on behalf of the Indonesian Government. Each PSC covering a previously B-6
undeveloped contract area provides that if at the end of an initial period or the exploration phase (which pursuant to GR 35 of 2004 is six years with a further four-year extension available), no oil or gas is discovered in commercial quantities in the contract area, then the contractor must return the entire contract area and the PSC automatically terminates in its entirety. A certain portion of the contract area must be relinquished after specified periods. The entire contract area must be relinquished if it is not declared commercial by the end of the exploration period, unless an extension is granted. Although relinquishment requirements vary with each PSC, generally a PSC will provide for relinquishment of 25.0 per cent. of the original contract area by the end of the third contract year, a further relinquishment of 25.0 per cent. of the original contract area by the end of the sixth contract year. In the event of a commercial discovery, an area not greater than 20.0 per cent. to 25.0 per cent. of the original contract area may be retained. Pursuant to GR 35 of 2004, the contractor must relinquish its contract area gradually, either partially or entirely, according to the terms of the relevant PSC. SKK Migas has (and, prior to November 13, 2012, BP Migas had) the responsibility for the management of the project and has title to all original data from petroleum operations (all of which is the States assets). The operator is responsible for executive operations, furnishing materials, equipment, technical aid, personnel and finance as contractor to SKK Migas (formerly BP Migas). The contractor procures all the equipment needed for the operation, provides the finance and undertakes the risk. Equipment purchased by the contract becomes the property of the Indonesian Government. The contractor must produce regular reports on progress. In exchange, it is entitled to receive information relating to the contracts on adjacent areas. If commercial hydrocarbons are found, the contractor must agree on a development program with SKK Migas (formerly BP Migas), which then decides whether a prospect is commercial or not. If the area is declared commercial, the contract normally will have a term of 30 years from the date of signing. The contractor is required to commit to certain expenditures for petroleum operations that will be spent annually over the potential 10-year exploration period. The amounts, once agreed upon, are considered fixed so that any expenditure under or over these levels (as the case may be) will be carried forward to the following year. Both signature and production bonuses are customary and are regulated under the relevant PSC. Compensation bonuses, in which the contractor pays SKK Migas (formerly BP Migas) compensation for information, also apply. The contractor retains the right to export its share of oil, and retain abroad the proceeds obtained from the disposition after fulfilling domestic market obligation commitments. Technical Assistance Contracts (TAC) TACs are a type of PSC entered into prior to Law 22 of 2001. TACs and the enhanced oil recovery contracts were not assigned by Pertamina to BP Migas after the promulgation of Law 22 of 2001, and so Pertamina has retained responsibility for conducting the supervision and management of petroleum operations under this arrangement. TACs remain valid until the expiry of their term, at which time they will terminate. Under Law 22 of 2001, the area covered by the TAC reverts to Pertamina and will be subject to a cooperation contract between Pertamina and BP Migas (now SKK Migas). Pertamina may, but is not obligated to, enter into a joint working or other agreement with the former TAC contractor for the continued development of the area that was formerly covered by the TAC. First Tranche Petroleum (as explained below under Fiscal Terms) is a feature commonly found in a PSC but not in a TAC. In all other material respects, a TAC is similar to a PSC. Joint Study Agreement A joint study is to be carried out between the business entity or permanent establishment and the Directorate General of Oil & Gas for a direct offer of the work area by way of recording, processing, and evaluating the data to ascertain the potential the oil and gas provided under MEMR Regulation No. 35 of 2008 on the Procedure for Designating and Offering Oil & Gas Work Areas (MEMR Regulation 35/2008). The business entity or permanent establishment must carry out a joint study in the proposed area over 8 months, extendable once for up to 4 months. B-7
Fiscal Terms Information in this section contains general provisions as provided under the prevailing laws and regulations, as well as specific provisions, as set out in the relevant PSC/TAC that the Group has entered into. After commercial production of oil commences, the contractor will typically have a domestic market obligation to account for a portion, not generally exceeding approximately 25.0 per cent. of the oil produced from the contract area, at a specific price. The domestic market obligation does not apply to gas production in PSCs signed prior to 2000. The contractor generally has the right to recover its costs, defined as Operating Costs in each PSC/ TAC, against available revenues, generated by the PSC. Operating Costs consist of current year noncapital costs, current year depreciation on capital costs and current year allowed recovery of prior years unrecovered operating costs. Non-capital costs relate to costs incurred with respect to current years operations, the cost of geological and geophysical activity and the intangible costs of drilling exploration, delineation and development wells. Capital costs include expenditures for items which have useful lives in excess of one year, and are depreciated commencing in the year the asset is placed into service at rates which vary depending on the type of asset. E&P costs in a contract area are ring-fenced, meaning that expenditures in nonproducing or under-producing PSCs cannot be offset against revenues from other PSCs. However, within any one PSC, these unrecovered costs can be carried forward to future years for cost recovery purposes. Before deducting operating costs, the contractor may typically recover an investment credit of up to 17.0 per cent. of the capital investment costs directly required to develop oil production facilities (including new secondary recovery and enhanced oil recovery projects). The contractor typically may recover an investment credit generally amounting to approximately 10.0 per cent. of the capital investment cost directly required to develop gas production facilities of a new field producing from Pre-Tertiary reservoir rocks. In addition, the contractor may be entitled to include, as a cost recovery item, an interest expense on undepreciated capital at a negotiated interest rate. Government Regulation No. 79 of 2010 regarding the Operating Costs that may be Recovered and Income Tax Treatment for Upstream Oil and Gas Activities (GR 79 of 2010), regulates costs that cannot be recovered in the calculation of profit sharing and income tax. It includes costs incurred for personal interests of the participating interest holders, penalties imposed due to violation of any laws by the contractor, depreciation costs, legal consultant and tax consultant fees, and bonuses payable to the Indonesian Government. GR 79 of 2010 also regulates income tax applicable to the transfer of participating interest and any other activities conducted by PSCs. It also requires that the contractor has its own tax identification number. Although provisions of GR 79 of 2010 apply only to contracts entered and extensions of contract after the issuance of the GR 79 of 2010, a transitional provision of the regulation states that within three months of the effective date of GR 79 of 2010 (being December 20, 2010) all contracts in existence on that date which have not expressly or sufficiently provided for (a) governments share; (b) terms for operating cost which can be recovered and the standard norms for operating cost; (c) non-recoverable operating costs; (d) third party appointment to conduct financial and technical verification; (e) issuance of income tax statement; (f) duty and tax holiday for import of goods in exploration and exploitation activities; (g) contractors income tax in the form of oil and/or gas volume from contractor take; and (h) income from outside the contract in the form of uplift and/or participating interest, must be adjusted to comply with GR 79 of 2010. As of the date of this Offering Circular, some implementing regulations have been put in place on matters provided for in GR 79 of 2010. The implementing regulations cover various subjects, from the method for determining the Indonesian crude oil price and the terms and conditions for indirect head office cost recovery, to subjects such as the maximum remuneration that can be cost recovered by the Contractor. In addition to GR 79 of 2010 and its implementing regulations, the Indonesian central bank, Bank Indonesia, has also issued Bank Indonesia Regulation No. 13/20/PBI/2011, as amended by BI Regulation No. 14/11/PBI/2012 (Regulation 13) which regulates the practice of receiving and withdrawing foreign currency via foreign exchange banks. Regulation 13 applies specifically to funds that source from export revenue and foreign debt, including sales of oil and gas under a PSC. Bank Indonesia requires PSC contractors to channel export revenues (e.g. revenue from the sales of oil) to licensed foreign exchange banks in Indonesia. Some major oil companies have objected to the new requirement. All PSC contractors have until July 30, 2013 to comply with Regulation 13 or face a temporary prohibition on oil exports pending compliance B-8
Post cost-recovery, BP Migas (now SKK Migas) is entitled to a specified profit share of oil production (after-tax profit share is typically between 65.0 per cent. to 85.0 per cent. to BP Migas) and of gas production (after-tax profit share is typically 25.0 per cent. to 40.0 per cent. to BP Migas). Under the PSC, BP Migas (now SKK Migas) is also entitled to take and receive each year petroleum equal to 10.0 per cent. of the total production from each year (the First Tranche Petroleum), before any deduction for recovery of operating costs, investment credits and handling of production. Under each production sharing arrangement, the contractor is obligated to pay Indonesian corporate taxes on its specified profit share at the Indonesian corporate tax rate in effect at the time the PSC is executed. The contractors pre-tax profit share is generally the rate that will provide an after-tax profit share of between 15.0 per cent. and 35.0 per cent. in the case of oil production, and between 30.0 per cent. and 40.0 per cent. in the case of gas production based on the Indonesian corporate tax rate that applies to the specific PSC. If BP Migas (now SKK Migas) or, in case of a TAC, Pertamina and the contractor consider the processing and utilization of gas produced under the PSC to be economical, then the construction and installation of facilities for such processing and utilization will be carried out pursuant to an approved work program and budget, with all costs and revenue treated as set forth above. If the contractor considers that the processing and utilization of gas is not economical, then BP Migas (now SKK Migas) or, in case of a TAC, Pertamina may choose to take and utilize the gas which would otherwise be flared and will be liable for all associated costs. All oil sold by the contractor to third parties is valued at the net realized price free-on-board Indonesia received by the contractor. If a more favorable net realized price is available to BP Migas (now SKK Migas) or, in case of TAC, Pertamina for oil sold by the contractor to third parties, other than the contractors share of production, then the contractor must meet such price if notified by BP Migas (now SKK Migas) or Pertamina, or BP Migas (now SKK Migas) or Pertamina can choose to market the oil itself. If in any year the quantity of petroleum to which BP Migas is entitled is less than 50.0 per cent. of total production, then BP Migas (now SKK Migas) has the option to market up to 50.0 per cent. of the total petroleum produced from the contract area for the contractor for the recovery of Operating Costs, provided that the net realized price for such petroleum is not less favorable than that available to the contractor. The contractor is obligated to pay the Indonesian Government or Pertamina (in case of the TAC) a compensation bonus upon approval by the Indonesian Government of the PSC/TAC and production bonuses after specified daily production goals for the contract area have been achieved. The terms of all such bonuses are provided for under the relevant PSC/TAC. The contractor has the obligation to offer a 10.0 per cent. undivided interest in the total rights and obligations under the PSC to a government-designated Indonesian company, the shareholders of which shall be Indonesian nationals (the Indonesian Participant). In the case of a TAC, Pertamina may demand that a 10.0 per cent. undivided interest in the total rights and obligations under the TAC be offered to itself. In a PSC, the contractor obligation will lapse unless BP Migas (now SKK Migas) advises the contractor of the government designated regional government enterprise or the Indonesian Participant within one month of notification by BP Migas (now SKK Migas) of the requirement to make the offer which usually concurs with the PSC entering the commercial production phase. Pursuant to GR 35 of 2004, once the approval of the field development plan for first production from a contract area has been received, the contractor shall offer a 10.0 per cent. participating interest to an Indonesian Participant. In return, the Indonesian Participant must reimburse the contractor for an amount equal to 10.0 per cent. of the sum of the operating costs incurred, 10.0 per cent. of the compensation bonus and 10.0 per cent. of any amount expensed to supply equipment or services since the award of the contract. The Indonesian Participant must reimburse the contractor within three months of accepting the offer of participation. The obligation to offer 10.0 per cent. participating interest to a government-designated Indonesian company can be waived if all of the following conditions are met: a. b. c. a large deposit of oil and gas that can be immediately exploited is available; the PSC work area is located in a former Pertamina mining area; and domestic investors have invested in the PSC contractor.
The waiver must then be approved by the President in response to a request from the MEMR explaining that the above conditions have been met by a specific PSC. Either party has the right to terminate the PSC/TAC on 90 days written notice if a major breach of the PSC/TAC is committed by the other party, provided that conclusive evidence of such breach is found through arbitration. B-9
Overview of key aspects of Indonesian tax framework for PSCs General Most investors participate in a PSC through an Indonesian permanent establishment of a foreign company. PSC contractors are subject to a special tax regime, which is distinct from the general tax law and is generally contained in Section V of a relevant PSC and various tax regulations issued by the Government of Indonesia. In addition, taxation of a PSC contractor is governed by conventions that have been adopted in practice, and may not necessarily be consistent with the prevailing tax regulations that change from time to time. 1. Taxation of profits and profit distribution 1.1 Direct taxes The calculation of taxable profit of a PSC contractor is based on the revenues and expenditures contained in PSC reports which are provided by a contractor to SKK Migas (previously BP Migas). The PSC reports are determined by the provisions of a particular PSC. One of the main features of existing PSC tax conventions is the uniformity concept, under which costs that are recoverable under a PSC after the start of commercial production should generally be tax deductible. Government Regulation No. 79/2010 (GR 79) of 2010 contains a list of 24 items of expense that are considered non-tax deductible for corporate income tax purposes. The profits of a permanent establishment are subject to income tax at the rate which was prevailing on the date PSC was signed, unless otherwise prescribed under the relevant PSC. After-tax profits are further subject to the branch profits tax (BPT) of 20 per cent. While some of Indonesias Avoidance of Double Taxation Agreements (DTAs) provide for reduced BPT rates, PSCs signed from 2001 onwards generally contain a clause that migrates any benefits of a treaty reduction by adjusting the contractors share of profits under the PSC. Older PSCs generally do not contain such wording and hence may provide scope to argue for treaty protection. 1.2 Indirect taxes PSCs normally provide that the Government would assume and discharge Indonesian indirect taxes arising to contractors, including value added tax (VAT), transfer tax, and import and export duties (in relation to materials, equipment and supplies brought to Indonesia) and property, land and building tax. Where any indirect taxes are borne by a contractor, under the old rules such taxes should be reimbursable. Under the new rules applicable to PSCs signed after the introduction GR 79 of 2010, any indirect taxes, including VAT, should be treated as deductible operating expenses and can be recovered once production commences under the normal cost-recovery procedures. Taxes on importation shall continue to be exempted. With regard to property land and building tax, note that PSC holders are treated as property owners with respect to their work areas. The Indonesian Tax Office (ITO), or in practice delegated regional authorities, will initially determine who the taxpayer is and issue a Report On The Tax Object to that property to the PSC. 1.3 Withholding obligations A PSC entity, as a tax registered PE, is required to withhold and remit income taxes from employees remunerations, payments of interest, royalties and certain domestic and foreign services. Applicable rates follow the general tax law, in particular:
Payment of royalty/ interest to non-residents: 20.0 per cent.; Fees for services paid to non-residents: 20.0 per cent.; Fees for services and rental of equipment and vehicles paid to resident companies and PEs: two per cent.; Wages, salaries, honoraria and other payments to employees must be withheld at individual income tax rates. B-10
2. Stamp Duty There is potential for minimal stamp duties of IDR 3,000 to IDR 6,000 on certain agreements, legal documents, powers of attorney, or receipts. 3. Transfer of participating interest With the introduction of GR 79 of 2010, any transfer of Participating Interest (PI) in Indonesia is subject to tax at five or seven per cent. from sale proceeds, depending on whether the project is in exploration stage or production stage respectively. In addition, after tax profits from disposal are subject to 20.0 per cent. BPT. The application of GR 79 of 2010 may also extend to any indirect transfer of a PI. Transfer of a PI during the exploration period for the purpose of sharing the risk, may be exempted from five per cent. tax if all of the following requirements are satisfied:
The contractor does not transfer its entire holding in the PI; The contractor has held the PI for more than three years; Exploration has been undertaken in the work area and the contractor has incurred investment expenditure for carrying out the exploration; and The transfer of the PI was not undertaken with the intention of gaining any profit.
SUMMARY OF RELEVANT THAI LAWS AND REGULATIONS Regulatory Body The Government of the Kingdom of Thailand (Thai Government) owns all of Thailands petroleum resources. In 1971, in accordance with a Thai Government policy initiative to encourage experienced foreign oil companies to explore and develop Thailands petroleum resources, the Petroleum Act B.E. 2514 (1971) (the Thai Petroleum Act) and the Petroleum Income Tax Act B.E. 2514 (1971) (PITA), together with the Thai Petroleum Act, the Thai Petroleum Laws) were enacted. The Thai Petroleum Laws set forth the procedures by which oil companies may apply for and the Thai Government may grant concessions to conduct exploration and production activities, and they also set forth the royalty and tax schemes governing oil and natural gas exploration and production in Thailand. The PITA further established an income tax system applicable only to petroleum concessionaires, with tax rates between 50.0 per cent. and 60.0 per cent. The Council of Ministers, the National Energy Policy Committee (NEPC) and the Ministry of Energy (MOE), undertake the responsibility of approving Thailands energy policy, industry standards, rules and regulations as well as to supervise and control the related energy operations in Thailand. The Petroleum Committee and the Department of Mineral Fuels (DMF) in the MOE are the regulators for oil and gas exploration and production under the Thai Petroleum Act. They manage and monitor petroleum exploration and production activities, including, concession awards, storage, transportation and sales. They also collect petroleum royalty payments and other benefits. Coordination with concessionaires, operators and government agencies is also part of DMFs responsibility. DMF is also in charge of mineral fuel research and development and the collaboration in developing petroleum fields in joint development areas and overlapping areas with other countries in the region. The Petroleum Committee considers applications for concessions. In this connection, the sub-committee will initially screen the information stated in the applications, and the Minister of Energy is empowered to award and sign the concessions. The Thai Government considers the qualifications of each applicant and will take into account the proposed work program, adequacy of the investment funds to be brought in and used in the exploration, the transfer of technology, employment of Thai nationals, and also the utmost benefits offered to Thailand. Under the Thai Petroleum Act, petroleum belongs to the State. No person shall explore for or produce petroleum in any area, whether such area is owned by him or by other persons, except by virtue of a concession. In general, B-11
petroleum produced by the concessionaire belongs to the concessionaire. The concessionaire has the right to sell and dispose of the petroleum which it produces. State Oil Company PTT, formerly the Petroleum Authority of Thailand, is Thailands state owned oil company, established in December 1978, privatized in October 2001 and listed on the Stock Exchange of Thailand in December 2001, with Ministry of Finance retaining a majority stake. PTTs original role before privatization was to act as the national oil company. To date, PTT retains this role, and participates in all aspects of the petroleum industry in Thailand from exploration and production, to transportation, processing and marketing. It is responsible for purchasing oil and finished products from overseas and retains a monopoly over the distribution of natural gas. All upstream operations are managed by PTTs exploration and production arm, PTTEP, which was established in June 1985 and listed on the Stock Exchange of Thailand in 1993, with PTT retaining a majority stake. Overview of Petroleum Concessions and Thai I, II and III Terms In 1971, Thailand promulgated the Thai Petroleum Act and the PITA. The Thai Petroleum Act established a concession system based on the Consideration Bases. The PITA established an income tax system applicable only to concessionaires, with tax rates between 50.0 per cent. and 60.0 per cent. A tax rate of 50.0 percent was prescribed by a Royal Decree. The Petroleum Act (No. 2) was enacted in 1973 and the Petroleum Income Tax Act (No. 3) was enacted in 1979. They relaxed area limitations, restrictions on transfer of obligations, mandatory relinquishment requirements and royalty rates for offshore blocks with water depths over 200 meters (deep water blocks), extension of exploration and production period. In 1982, new terms were prescribed as conditions of bidding for onshore blocks, in a period of rising oil prices. Additional concessions were awarded, but following the drop in oil prices and the discovery of small and marginal fields, those terms deterred further onshore activity. In 1987, the government decided to relax the 1982 terms and issued Ministerial Regulation No. 13 under the Thai Petroleum Act. It dealt with the criteria of commercial wells and the definition of production areas. Amendments to the Thai Petroleum Act and PITA, their Acts (No. 4), were also promulgated in 1989. The various changes in the Thai Petroleum Act and PITA have resulted in three different sets of terms being applicable to concessions of three different periods: The Thai Petroleum Laws provide three sets of terms under which exploration and production rights have been awarded in Thailand, commonly referred to as Thai I, Thai II and Thai III. Thai I applies to all offshore concessions granted from 1971 to 1989 and also to all onshore concessions granted prior to 1982 (Thai I). Thai II is applicable to all onshore concessions granted from 1982 to 1989 (Thai II). According to Petroleum Act B.E. 2532 (1989), all concessionaires of the petroleum in Thailand II have moved to Thailand III. Thai III has been in effect since 1990, and is applicable to all subsequent concessions granted after 1990 to prior to 2007 (Thai III). The Thai Petroleum Act authorizes the issue of ministerial regulations, announcements and orders. The Thai Petroleum Act also provides the following privileges to the concessionaires: 1. The State shall not nationalize the concessionaires properties and his rights to conduct petroleum operations; The State shall not restrict the export of petroleum except for the purpose of national security or for ensuring an adequate supply of petroleum to meet domestic demand; The concessionaire is entitled to own land to such extent as it is necessary for the petroleum operations; B-12
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The concessionaire and those contractors who have made firm contracts directly with the concessionaire shall hold the right to bring into the Kingdom skilled workers or specialists, including, their spouses and dependent children, who are aliens, for the purpose of his petroleum operations in such number and for such period as the Committee has issued orders which it deems appropriate, irrespective of whether it is in excess of the quotas and the duration of stay provided by the laws on immigration; The concessionaire shall have the right to bring into the Kingdom machinery, equipment, tools, structures, transport vehicles, accessories, spare parts and other materials which are to be used in the petroleum operations free of import duty under the law on customs tariff and free of value added tax under the Revenue Code; The concessionaire shall be exempted from payment of all kinds of taxes, duties, and levies due to central, local and municipal administrations except for the income tax under the law on petroleum income tax, timber royalty, forest improvement fees and other fees under the laws on forestry and on national reserved forests, royalty, special remuneratory benefit and fees under this Act, fees for services rendered under other laws; and The concessionaire shall have the right to retain, take or remit abroad money in foreign currency if it is earned from the conduct of his petroleum operations.
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6.
7.
Concession Agreement Ministerial Regulation No. 17 dated December 8, 1989 prescribes a form of the petroleum concession to be entered between the Ministry of Energy and the concessionaire (Remark: Currently, Ministerial Regulation Prescribing Form of Petroleum Concession B.E. 2555 (2012) which has repealed the Ministerial Regulation No. 4 (B.E. 2514) and the Ministerial Regulation No. 17 (B.E. 2532)). Petroleum Income Tax The PITA, as amended, established an income tax system only applicable to concessionaires, with tax rates between 50.0 per cent. and 60.0 per cent. (Section 20 of the PITA). By Royal Decree, a tax rate of 50.0 per cent. was prescribed. This provides that a reduction or exemption of tax shall be granted in accordance with double taxation treaties established between Thai and foreign governments (Section 15 of the PITA). Expenses, including bad debts, capital depreciation, royalties and the Special Remuneratory Benefit (SRB), may be deducted, provided that the expenses are ordinary and necessary, in a reasonable amount and expended for the petroleum business (Section 24 of the PITA). Income tax returns shall be filed on a semi-annual basis (Section 34 of the PITA). The dividend paid out of the profit from the petroleum business in Thailand in accordance with the PITA is categorized as an assessable income according to Section 40(4)(Khor) of the Thai Revenue Code. Thus, a Company which is subject to pay tax under the PITA shall be responsible for deducting the withholding tax on dividends at the rate of 10.0 per cent. in accordance with the Thai Revenue Code, Section 50(2)(Jor). According to the Board of Taxation No. 37/2551 dated April 9, 2008, the petroleum income tax is not the income tax under the Thai Revenue Code. Therefore, an individual shareholder of a company which is required to pay tax under the PITA is not entitled to receive the dividend tax credit under Section 47 bis of the Thai Revenue Code. SRB SRB was introduced in the Thai III terms, and is a unique form of tax on windfall profits or annual additional petroleum profits, arising from substantial increases in the price of petroleum, or very low-cost discoveries. SRB is calculated annually on a block-by-block basis and varies from year-to-year, depending on the revenue per one meter of well drilled in a given year. SRB will not apply unless capital expenditures have been recovered in full. The SRB will be calculated annually, and will be calculated on a block-by-block basis.
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If the concessionaire has Petroleum Profit for the Year, calculated based on related annual income per one meter of well, the SRB is calculated at the following rates, subject to a ceiling of 75.0 per cent. of Petroleum Profit for the Year.
Rated Annual Income Per One Meter of Well SRB
Up to
Over
Baht Baht Baht Baht
4,800 4,800 to 14,400 14,400 to 33,600 33,600
zero 1.0 per cent. per each Baht 240 increment 1.0 per cent. per each Baht 960 increment 1.0 per cent. per each Baht 3,840 increment
In order to determine Rated Annual Income per One Meter of Well: (1) (2) calculate annual Petroleum Income for the year, and adjust for inflation and exchange rates; calculate the accumulated total meters of all wells (exploration wells, appraisal wells, production wells, etc.) drilled during the period of the concession; and Rated Annual Income per One Meter of Well = Adjusted Annual Petroleum Income (Total dept of all wells + GSF)
(3)
GSF means Geological Stability Factor, which shall be fixed for each geological region of Thailand, and shall not be less than 150,000 meters. The number will increase in areas in which drilling is more difficult. Production Area Prior to the expiration of the exploration period, if oil and/or gas discoveries have been made, the concessionaire may apply for a Production Area (also known as a Production License) and a Reserve Area surrounding the Production Area. The Production License gives the concessionaire four years to begin production from the discovered fields. Such period may be extended twice for two years per extension, provided appropriate notice has been given to the DMF. The concessionaire shall pay surface reservation fees at a prescribed rate per sq km or fraction thereof per year to retain the Reserve Area. The concessionaire shall conduct its operations with due diligence and develop any discovered petroleum field according to good petroleum industry practice. The most up-to-date methods of production and sound technical and engineering principles in conserving the petroleum deposits have to be adopted, and the concessionaire shall not conduct its operations in any method that is against public interest. If the petroleum operations cause harm to others, then the concessionaire has the duty to prevent and make good such damages. The concessionaire shall employ and train Thai nationals at various levels of employment. Revocation and Termination MOE shall have the power to revoke the concession in certain instances, such as in the event the concessionaire becomes bankrupt, or when the concessionaire fails to furnish the agreed special advantages, or breaches certain terms of the concession. The concession shall further terminate in any of the following events: (a) termination of the petroleum production period; (b) when the effective concession area ceases to exist by law or through the voluntary relinquishment made by the concessionaire; (c) upon the revocation of the concession; or (d) upon the termination of the concessionaires status as a juristic person. Upon termination, all of the obligations between the concessionaire and the relevant governmental authorities shall cease, except those undischarged financial or special advantage obligations or further obligations that are required to be performed after termination, and/or any penalties incurred from the default of the concessionaire. By the termination of the concession, the concessionaire shall deliver to the Thai Government, free of charge, all lands, buildings, roads, railways, petroleum pipelines, pumps, machinery, platforms, storage tanks, stations, substations, terminals, plants, harbors, installations and other facilities which are necessary for the concessionaires operations or which are public utilities, such as gas or water. If the properties are not usable, they must be removed in accordance with the instruction of MOE within three months of the date of the instruction. During the B-14
last five years of the petroleum production period or the renewed petroleum production period, the concessionaire shall not remove, sell, give away, dispose of or transfer any property mentioned above, except with the prior written consent of MOE. The concessionaire shall observe the following order of priority in making use of the natural gas produced: (a) use it for conservation of petroleum resources and in particular, for the maintenance of pressure within its producing reservoirs or, after having had the approval of the Minister, send it to the other concessionaires for use in maintaining pressure or assisting in the secondary recovery of their petroleum reservoirs; (b) sell or dispose of it in Thailand, including to the Thai Government for any project that the Thai Government promotes; and (c) export it for sale or disposal. Special Advantages to the Thai Government In the concessions held by the Group, certain special advantages shall be given to the Thai Government. For example, the outstanding or continuing special advantages to be performed are as follows: B8/32 Concession The Thai Government or State organization stipulated by the Thai Government shall be given the first priority to purchase the petroleum produced by the concessionaire at a price to be negotiated and mutually agreed upon. The method of determining such price is provided for in each concession. The concessionaire shall give preference to local contractors, materials and equipment available in Thailand for the conduct of petroleum operations. Additionally, the B8/32 concession also provides the technical training for persons proposed by DMF, support contribution for Petroleum Development in Thailand and production bonuses. B9A Concession The concessionaire shall give preference to local vessels for the transportation of petroleum supplies and equipment in Thailand and the Scholarship to be granted annually to officers in the amount of US$150,000. G6/48 Concession (pending completion under the farm-in agreement dated March 15, 2013) The concessionaire shall spend at least US$20,000 per year during the obligation periods for the purchase of technical literature, data and scientific instruments and training and study courses for the DMF personnel or other qualified Thai nationals. A production bonus of US$ 300,000 within 30 days from the days the average petroleum production from the Concession Area reaches 10,000 barrels crude oil equivalent per day for a period of 90 consecutive days. For the purpose of determining the volume of petroleum, it shall be deemed that the heating value of natural gas in the amount of 6,000,000 BTU is equivalent to one barrel of crude oil. The concessionaire shall give preference to local contractors, materials and equipment available in Thailand for the conduct of petroleum operations. G10/48 and G11/48 Concessions The concessionaire shall spend at least US$150,000 per year during the obligation periods for the purchase of technical literature, data and scientific instruments and training and study courses for DMF personnel or other qualified Thai nationals. A production bonus of US$500,000 shall be paid to the Ministry of Finance within 30 days from the date the total production from the block first averages 20,000 boepd for 30 consecutive days. Up to 10.0 per cent. of participating interest in the block may be acquired by a Thai company (which is majority owned by Thai nationals) approved by the DMF (the Thai Participant). This local participation option may be exercised at any time after commerciality of a well is established and a production area has been defined. The consideration to be paid by the acquirer is equal to the past costs attributable to the acquired participating interest. B-15
The concessionaire shall give preference to local contractors, materials and equipment available in Thailand for the conduct of petroleum operations. Decommissioning Ministerial Regulation Prescribing Rules and Procedures for Petroleum Exploration, Production and Preservation B.E. 2555, enacted in June 2012, empowers the Director General of the DMF to order the concessionaire to: (a) restore, so far as possible, the surface of the land and of the waters to its original condition; (b) enclose or keep enclosed with walls or fences all pits, holes, trenches and other excavations which the concessionaire has made and which are still useful in order to prevent any damage to persons or animals; (c) fill, so far as possible, all pits, holes, trenches and other excavations which the concessionaire has made and which are no longer used to their original conditions, unless the concessionaire and the land owner or land occupier otherwise agree; (d) remove all concrete, foundations, structures, buildings, dwellings, machinery, equipment and any other materials which are no longer used from the vicinity of the exploration or production well, and dispose of petroleum reside, waste, refuse or materials or useless chemicals in the vicinity; and (5) remove or destroy all obstructions, interferences or dangers to communications, fisheries or state property or property of other persons. The concessionaire must complete its performance of the above within three months from the date of the completion of its work. Relinquishment According the Petroleum Act, the concessionaire shall relinquish the area of each of the exploration blocks in accordance with the following rules: (1) At the end of the fourth year from the date of commencement of the petroleum exploration period, the concessionaire shall be obliged to relinquish fifty per cent of the area of that exploration block; but if it is an exploration block which the Department of Mineral Fuels has designated as an offshore block having a water depth in excess of 200 meters, the concessionaire shall be obliged to relinquish 35.0 per cent of the area of that exploration block; At the end of the petroleum exploration period and such exploration period is not renewed, the concessionaire shall be obliged to relinquish the entire area remaining from sub-paragraph (1) hereof; At the end of the petroleum exploration period and such exploration period has been renewed, the concessionaire shall relinquish a further 25.0 per cent of the area of that exploration block; but if it is an exploration block which the Department of Mineral Fuels has designated as an offshore block having a water depth in excess of 200 meters, the concessionaire shall relinquish a further 40.0 per cent of the area of that exploration block; and At the end of the petroleum exploration period which has been renewed, the concessionaire shall be obliged to relinquish all the remaining area.
(2)
(3)
(4)
SUMMARY OF RELEVANT VIETNAMESE LAWS AND REGULATIONS Regulatory Body Under the 1992 Constitution of the Socialist Republic of Vietnam and the Petroleum Law dated July 6, 1993 of the National Assembly, as amended in 2000 and 2008 (the Petroleum Law), all petroleum resources in Vietnam are owned by the entire Vietnamese people and collectively managed by the State of Vietnam. Major government decrees implementing the Petroleum Law include Decree No. 48/2000/ND-CP dated September 12, 2000 (Decree 48), Decree No. 34/2001/ND-CP dated July 06, 2001 (Decree 34), and Decree No. 115/2009/ND-CP dated December 24, 2009 amending Decree 48 and Decree 34 (Decree 115). Under the Petroleum Law and Decree 115, the Ministry of Industry and Trade (MOIT) is designated as the regulatory agency of the Government with regard to State management of the petroleum sector. However, major approvals for critical issues are reserved for the Prime Minister. PetroVietnam was founded in 1995 under the official name of Vietnam Oil and Gas Corporation to conduct petroleum operations and enter into petroleum contracts on behalf of the Vietnamese Government. In August 2006, PetroVietnam was restructured to become the Vietnam Oil and Gas Group. B-16
PetroVietnam has dual reporting lines to the MOIT and the Prime Minister. Investment in the petroleum sector is also subject to the general principles of the Law on Investment No. 59/2005/QH11 and its implementing Decree No. 108/2006/ND-CP of September 22, 2006. Petroleum Contracts To encourage petroleum activities in the remote, deep water areas, a reduction of taxes and various incentives were introduced in 1998 under Decision No. 216/1998/QD-TTg. On June 9, 2000 the Petroleum Law was amended to introduce for the licensing round system which was subsequently guided by the Bidding Regulations issued under Decree 34. Under the Petroleum Law, a petroleum contract could be in the form of a PSC, joint venture contract or other contractual forms, the most popular form being the PSC. On November 11, 2005, the Model Petroleum Production Sharing Contract was promulgated under Decree No. 139/2005/ND-CP (Model PSC 2005). From June 8, 2013, Model PSC 2005 was replaced by Model Petroleum Production Sharing Contract issued under Decree No. 33/2013/ND-CP (Model PSC 2013). In addition to standardizing much of the PSC, it also limited the areas which are open for negotiation by the parties. Model PSC Terms (following Model PSC 2013) The term, minimum work commitments and fiscal terms for PSCs are to be negotiated individually within the parameters of the Petroleum Law. The Model PSC, however, provides the following contractual structure: (i) The term of the contract cannot exceed 25 years for oil (including a five year exploration period). For gas and encouraged investment projects, the term cannot exceed 30 years and includes a seven year exploration period. The contract term can be extended up to five years with the approval of the Prime Minister, and the exploration period can be extended up to two years with the approval of the MOIT. The exploration period comprises three phases, each with a minimum work program (comprising seismic and drilling, together with cost estimates). The minimum work program and cost estimates are to be negotiated. Only the first phase is a commitment phase; phases two and three are at the option of the contractor. The contract area of a petroleum contract may not comprise more than two blocks, other than in special cases with the approval of the Vietnamese Government. On commencement of production, the PSC provides for the payment of an incremental royalty in kind, based on the rate of net production output. The applicable royalties rate for each PSC shall be in accordance with prevailing laws on royalties. The contractor is entitled to recover its costs (Petroleum Operations Costs), out of net production. The costs are recovered on a first-in-first-out basis and carried forward to the next succeeding quarters (without interest) until fully recovered. There is no depreciation of capital costs. The maximum percentage of hydrocarbons which is permitted to be allocated to cost recovery is in accordance with the invitation to bid (typically 50.0 per cent. for normal projects; 70.0 per cent. for encouraged investment projects). The volume of oil remaining after the allocation of oil for royalty and cost recovery is referred to as Profit Oil. How the Profit Oil is divided between the Vietnamese Government and the contractor is subject to negotiation, and is based on incremental tranches of daily average net production in each quarter. Production tranches and profit split percentages are also negotiated for profit gas. Each contractor is responsible for its corporate income tax which is 50.0 per cent. out of its net taxable income for normal projects and 32.0 per cent. for encouraged petroleum investment projects. Tax holidays previously available are no longer granted for projects licensed after the effective date of Law No. 10/2008/QH12 amending the Petroleum Law January 1, 2009. The contractor is responsible for Value Added Tax (VAT) of 0.0 - 10.0 per cent. according to the Vietnamese prevailing VAT. Import tax for imported material and equipment that cannot be produced locally and other material and equipment essential for petroleum operations is exempted. The Ministry of Finance is empowered to set the export B-17
(ii)
(iii)
(iv)
(v)
(vi)
tax rate on crude oil from time to time (historically ranging from 4.0 per cent. to 20.0 per cent.). Contractors are protected by the stabilization regime under the PSCs and the Vietnamese Law on Investment. (vii) The PSC generally provides for a back-in right for PetroVietnam. This back-in right is for the entire PSC and is generally provided by the contractor as part of its bid. The right is exercisable by PetroVietnam and PetroVietnam may appoint one of its affiliates (PetroVietnam Affiliate) to exercise the right following the declaration of the first commercial discovery. If the back-in right is exercised, the contractor is entitled to recover its past costs (excluding the bonuses, data fee and training costs) from the PetroVietnam Affiliates share of production until they have been fully recovered without interest. The costs (excluding the bonuses, data fee and training costs) which are incurred by the contractor during the notice period are paid by PetroVietnam as a lump sum, and future costs are paid by the PetroVietnam Affiliate pursuant to normal joint-venture cash call procedures in accordance with the Joint Operating Agreement. The PSC provides for the payment of production bonuses after declaration of the first commercial discovery and first commercial production date once certain rates or volumes are attained; the levels and amounts of which are negotiable. Such bonuses are not cost recoverable but are tax deductible.
(viii)
Assignment of an interest in a PSC to a third party which is not a contractors affiliated company requires Prime Minister approval. The assignment is also subject to pre-emption by PetroVietnam pursuant to the Petroleum Law and by other contractor parties under the Joint Operating Agreement. The assignment is subject to capital gains tax. Overview of key aspects of Vietnamese tax framework for PSCs General The prescribed contractual arrangement under which investors can become involved in Vietnams oil and gas sector is the production sharing contract (PSC) negotiated and concluded with the Vietnam Oil and Gas Group (PetroVietnam). Most foreign investors participate in a PSC through a Vietnamese permanent establishment of a foreign company. PSC contractors are subject to a special tax regime, which is distinct from the general tax law and is contained in the Petroleum Law, its guiding Decree and Circulars, as well as other tax regulations. 1. Taxation of profits and profit distribution 1.1 Direct taxes As a PSC is not a legal entity in itself and the parties to a PSC carry out petroleum operations based on the contractual terms and conditions to receive their shares of petroleum production output. Therefore, each party is responsible for Corporate Income Tax (CIT) on their share of petroleum production output. The current standard CIT rate applicable to petroleum businesses is 50.0 per cent. Encouraged petroleum projects may be entitled to tax incentives which typically include a preferential tax rate of 32.0 per cent., a period of tax holiday, and a period of tax reduction. However, the criteria for determination of encouraged projects for the application of tax incentives under the current tax regulations are rather ambiguous in certain cases. CIT for petroleum operations is assessed in the same manner as it is applied to other businesses. In addition, the following specific rules apply:
Total tax deductions are capped by the amount equivalent to the total revenue from the sale of crude oil and natural gas multiplied by the rate of cost recovery specified in the PSC. Where a PSC does not specify the rate of cost recovery, the default rate of 35.0 per cent. will apply. Although a rate as high as 70.0 per cent. can apply in respect of certain encouraged projects. The current CIT regulations of the Ministry of Finance do not provide clear guidance on deductibility of expenses which are not part of the recoverable costs but are relevant to the operation of the PSC and should be deductible under the CIT Law. B-18
Where a petroleum contract is in the form of a PSC or a joint operating contract, the CIT liability of each party to the contract is determined by apportionment of the CIT liability in line with the profit sharing ratio. 1.2 Indirect taxes 1.2.1 VAT Under current VAT regulations, export of crude oil is exempt from VAT. Mainly production of crude oil in Vietnam is exported and therefore, input VAT incurred in the course of oil production is not creditable. Investors are however able to claim credit of input VAT or VAT refund during the exploration and development stage. As natural gas is normally consumed domestically, input VAT relating to natural gas production is creditable. Output VAT of natural gas sales is 10%. Petroleum investors are exempt from VAT when importing machinery, equipments, spare parts, specialized means of transportation that are not produced in Vietnam and used for petroleum exploration and petroleum platform development operations. VAT is declared and paid monthly by the operator on behalf of all the PSC parties. 1.2.2 Export duty Export of crude oil or natural gas is subject to export duty. Currently the export duty rate for crude oil is 10%. The export tax rate may be adjusted from time to time by the Ministry of Finance depending on the fluctuation of the oil price. If a specific export duty rate is fixed in the PSC, the agreed rate shall not be subject to changes regulated by the Ministry of Finance. Export duty payment is however treated as a recoverable cost. Parties to PSC have to pay export duty within 35 days from the date of customs clearance. 1.2.3 Import duty Petroleum investors are exempt from import duty in respect of the following goods:
Machinery and equipment; specialized means of transportation necessary for petroleum activities including parts, spare parts, auxiliary equipments for installation or for to be used together with the main equipment; Materials not produced in Vietnam necessary for use in petroleum operations. Medical equipment, medicament for emergency use in oil rigs or other floating structure approved by the Ministry of Health; Office equipment used for petroleum operations; Other temporarily imported goods for use in the petroleum operation and will be later exported.
Investors are required to register the import plan before importation. 1.3 Withholding obligations A PSC entity is required to withhold and remit income tax from payments of interest and royalties as well as foreign contractor withholding tax (which comprise VAT and CIT) from fees for foreign services. Applicable rates follow the general tax law, in particular:
Payment of interest to non-residents: five per cent.; Payment of royalty to non-resident: 10.0 per cent.; Fees for services paid to non-residents: five per cent. VAT and five per cent. CIT.
2. Transfer of participating interest Any gain from the transfer of a Participating Interest in Vietnam is potentially subject to a capital assignment tax at a rate of 25.0 per cent.
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2.1 Direct Transfer Capital gains derived from the transfer of interest in a PSC is subject to CIT at 25 per cent. The rules for determination of capital gain, transfer price, cost of purchase, and transfer expenses are similar to those under the CIT legislation. In addition, the following specific rules shall apply: Where the transfer price is settled by instalments in accordance with the terms and conditions of transfer agreement, the associated interest (if any) is not regarded as part of the transfer price (and therefore not taxable). Where the transfer agreement does not specify the transfer price, the tax authorities may deem a transfer price on similar transactions. The cost of purchase includes the balance of recoverable costs at the time of transfer after deduction of all costs already recovered. Non-recoverable costs directly relating to the operation of the PSC in the nature of investment cost should arguably be included in the cost base subject to confirmation of the tax authorities. In any subsequent transfer, the cost base shall include the transfer price of the previous transfer and additional injections of recoverable costs and excludes costs already recovered. 2.2 Indirect Transfer The Company could transfer its PI through a sale of its shares in the BVI entity. As this indirect transfer would not have to be reported to the Vietnamese tax authorities, it is arguable that the transfer is an offshore transaction and is not taxable and on that basis no tax return needs to be filed. Currently, the Vietnamese tax regulations do not provide any specific or clear guidance on offshore capital transactions. We are aware of a number of rulings both for and against taxing offshore transactions. The legal basis of these rulings is not always made particularly clear due to the heavily redacted nature of rulings in Vietnam. Notwithstanding the above, if the Vietnamese tax authorities become aware of the transaction they may challenge the position taken. As the BVI entity only holds the interest in the Vietnamese PSC, the tax authorities may argue that this entity should be disregarded and a direct transfer of the Vietnamese PSC has taken place. Accordingly, any gain from the transfer would be subject to CAT at a rate of 25 per cent. There is no explicit legal basis for such treatment under the current tax regulations. However, it remains a risk as the tax authorities have been known to look to other legislation when interpreting areas of taxation where gaps are found to exist. Where the current tax regulation is not clear, the Ministry of Finance may consider issuing a ruling guiding for the specific case. Moreover, the lack of a fully transparent and independent court system increases the risk of dispute resolution. Furthermore, as there is no DTA between Vietnam and BVI, the Company would not be able to fall back on any treaty protection.
B-20
3. Other taxes, fees, or charges 3.1 Natural Resource Tax (NRT) Petroleum investors are subject to NRT at different NRT rates applicable to different levels of daily averaged production volume as follows:
Production output Tax rates for promoted projects Tax rates for other projects
Crude oil: Up to 20,000 barrels/day <20,000 ~ 50,000 barrels/day <50,000 ~ 75,000 barrels/day <75,000 ~ 100,000 barrels/day <100,000 ~ 150,000 barrels/day <150,000 barrels/day Natural gas: Up to 5 million cubic meters/day <5 ~ 10 million cubic meters/day <10 ~ cubic meters/day Legend: < means above; ~ means up to and include The NRT rates may be changed as agreed between PetroVietnam and the petroleum contractors in a specific PSC. NTR is calculated by the following formula: NTR payable = Average daily production output x Tax rate x No. of production days 0% 3% 6% 0% 5% 10% 6% 8% 10% 12% 17% 22% 8% 10% 12% 17% 22% 27%
Provisional NRT for crude oil must be declared and paid within 35 days following the date of sale invoice (for domestic sale) or the date customs clearance (for export). For natural gas, the deadline is the 20th day of the following month. Annual NRT liabilities must be reconciled and finalised within 90 days following the end of the calendar year. The PSCs operator normally calculates NRT for each party to the PSC to pay separately. The NRT may be paid in cash or in the form of petroleum products (i.e. crude oil or natural gas) or a combination of both. 3.2 Environment Protection Fee The current rates of EPF for crude oil and gas are VND100,000/ton and VND50/m3, respectively. The rate for gas accompanying crude oil is VND35/cubic meter. It is currently not clear under the regulations as to whether EPF is treated as recoverable cost. Investors are required to declare and pay monthly and finalise the annual EPF liability within 90 days of the end of the fiscal year. 3.3 Profit oil surcharge Effective 2010, all new PSCs are subject to profit oil surcharge when the oil price appreciates. If the quarterly average oil price appreciates by more than 20.0 per cent. of the base price, the surcharge rate is 50.0 per cent. for normal projects or 30.0 per cent. for encouraged projects. If the quarterly average oil price appreciates by more than 50.0 per cent. of the base price, the surcharge rate is 60.0 per cent. The base price is defined as the budget price indicated in the approved oil well development plan. The current regulations are unclear as to how the base prices can be calculated consistently for different projects and in different points of time. The payment of profit oil surcharge is an allowable CIT deduction. B-21
3.4 Abandonment cost contribution Petroleum investors in a PSC are required to contribute abandonment cost within the first year of petroleum production. The contribution is based on a plan of abandonment cost to be approved by the Ministry of Industry and Trade. A contribution to abandonment fund is made by each party to a PSC every year based on their individual participating interest and such contribution is treated as a recoverable cost. PetroVietnam manages the fund, reports to the parties concerned on the utilization of the fund, and distributes the balance if the fund is not fully used at the end of the project.
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APPENDIX C OUR SUBSIDIARIES AND MATERIAL ENTITIES Subsidiaries and Material Entities Details of our subsidiaries and entities in which we have a material interest are as follows:
Date and Place of Incorporation September 29, 2011, British Virgin Islands September 22, 2011, British Virgin Islands September 29, 2011, British Virgin Islands October 5, 2009, British Virgin Islands March 30, 2011, British Virgin Islands Key Hydrocarbon Asset(s) Per cent. Held Beneficially by our Company 100.0
Name of Company B Block Limited
Principal Activities Investment holding
Paid-Up Capital US$50,000 comprising 50,000 shares of US$1.00 each US$50,000 comprising 50,000 shares of US$1.00 each US$50,000 comprising 50,000 shares of US$1.00 each US$100 comprising 100 shares of US$1.00 each US$100 comprising 100 shares of US$1.00 each US$2.00 comprising two ordinary shares of US$1.00 each US$100 comprising 100 shares of US$1.00 each US$100 comprising 100 shares of US$1.00 each US$2.00 comprising two shares of US$1.00 each
BEM Resources Limited
Investment holding
100.0
EM Block Limited
Exploration and production of oil and gas Investment holding Investment holding Exploration and production of oil and gas Management services Exploration and production of oil and gas Exploration and production of oil and gas
100.0
KrisEnergy (Asia) Ltd. KrisEnergy (Cambodia) Holding Ltd
East Muriah PSC Block 120 Bulu PSC
100.0 100.0 100.0
KrisEnergy (East Muriah) November 5, 2008, Limited British Virgin Islands KrisEnergy (Management March 15, 2010, Services) Ltd British Virgin Islands KrisEnergy (Phu Khanh 120) Ltd KrisEnergy (Satria) Ltd KrisEnergy (Song Hong 105) Ltd KrisEnergy (Song Hong 115) Ltd KrisEnergy Holding Company Ltd KrisEnergy International (Thailand) Holdings Ltd KrisEnergy Management Ltd KrisEnergy (Cambodia) Ltd October 5, 2009, British Virgin Islands April 25, 2006, British Virgin Islands March 4, 2010, British Virgin Islands October 7, 2009, British Virgin Islands October 5, 2009, British Virgin Islands November 3, 2009, British Virgin Islands October 5, 2009, British Virgin Islands February 4, 2010, Cambodia
100.0 100.0 100.0 100.0 100.0 100.0
Exploration and Viet Block 105 US$100 comprising 100 production of oil and gas shares of US$1.00 each Dormant Investment holding US$100 comprising 100 shares of US$1.00 each US$326,700,000 comprising 326,700,000 shares of US$1.00 each US$100 comprising 100 shares of US$1.00 each US$100 comprising 100 shares of US$1.00 each 4,000,000 Cambodian Riels comprising 1,000 shares of 4,000 Cambodian Riels each US$58,215,986 comprising 1 ordinary share of US$1.00 each and 58,215,985 preference shares of US$1.00 each US$10,000 comprising 10,000 shares of US$1 each
Investment holding Dormant Exploration and production of oil and gas
Block A
100.0 100.0 100.0
KrisEnergy (Gulf of Thailand) Ltd.
July 15, 2005, Cayman Islands
Investment holding
G6/48(1)
100.0
Tullow Bangladesh Ltd.
July 27, 1995, Jersey, Channel Islands
Exploration and production of oil and gas
Block 9(2)
Currently 0.0, which will increase to 100.0 assuming the completion of the acquisition 100.0
KrisEnergy Pte. Ltd.
September 29, 2008, Singapore
Management services
US$300,000 comprising 300,000 shares of US$1.00 each
C-1
Name of Company Wassana MOPU Pte. Ltd.(3) B8/32 Partners Ltd
Date and Place of Incorporation
Principal Activities
Key Hydrocarbon Asset(s)
Paid-Up Capital S$100,000 comprising 100,000 shares of S$1.00 each
Per cent. Held Beneficially by our Company 100.0
June 27, 2002, Singapore Investment holding
May 7, 1991, Thailand
Exploration and B8/32 and B9A THB 110,000,000 production of oil and gas comprising 110,000 shares of THB 1,000 each Exploration and production of oil and gas G10/48 THB 100,000,000 comprising 100,000 shares of THB 1,000 each THB 100,000,000 comprising 100,000 shares of THB 1,000 each
4.6345
KrisEnergy Oil & Gas (Thailand) Ltd
June 16, 2005, Thailand
100.0
KrisEnergy Resources (Thailand) Ltd
February 24, 2006, Thailand
G11/48
100.0
Orange Energy Ltd
December 14, 1990, Thailand
Exploration and B8/32 and B9A THB 100,000,000 production of oil and gas comprising 1,000,000 shares of THB 100 each 18,000 comprising 18,000 shares of 1.00 each
10.0
KrisEnergy (Ageng) B.V.
December 15, 2011, The Exploration and Netherlands production of oil and gas July 17, 2009, The Netherlands
100.0
KrisEnergy (Andaman II) Holdings B.V. KrisEnergy (Andaman Timur) B.V. KrisEnergy (Bangora) B.V. KrisEnergy (Nemo) B.V.
Exploration and Indonesian JSA 18,000 comprising production of oil and gas 18,000 shares of 1.00 each
100.0
December 15, 2011, The Exploration and Indonesian JSA 18,000 comprising Netherlands production of oil and gas 18,000 shares of 1.00 each December 12, 2006, The Exploration and Netherlands production of oil and gas Formerly held 18,000 comprising Block 06/94 18,000 shares of 1.00 each
100.0
100.0
December 15, 2011, The Exploration and Indonesian JSA 18,000 comprising Netherlands production of oil and gas 18,000 shares of 1.00 each December 15, 2011, The Exploration and Indonesian JSA 18,000 comprising Netherlands production of oil and gas 18,000 shares of 1.00 each Tanjung Aru PSC Udan Emas PSC 18,000 comprising 18,000 shares of 1.00 each 18,000 comprising 18,000 shares of 1.00 each N/A 18,000 comprising 18,000 shares of 1.00 each 18,000 comprising 18,000 shares of 1.00 each
100.0
KrisEnergy (Sakti) B.V.
100.0
KrisEnergy (Tanjung Aru) December 14, 2011, The Exploration and Netherlands production of oil and gas B.V. KrisEnergy (Udan Emas) B.V. KrisEnergy Asia Coperatief U.A. December 15, 2011, The Exploration and Netherlands production of oil and gas February 9, 2010, The Netherlands Investment holding Investment holding
100.0
100.0
100.0 100.0
KrisEnergy Asia Holdings November 6, 2009, The Netherlands B.V. KrisEnergy East Seruway B.V. KrisEnergy GlagahKambuna B.V. KrisEnergy Kutai B.V. July 18, 2008, The Netherlands November 6, 2009, The Netherlands November 6, 2009, The Netherlands October 11, 2006, The Netherlands
East Seruway PSC
100.0
Exploration and Glagah18,000 comprising production of oil and gas Kambuna TAC 18,000 shares of 1.00 each Exploration and production of oil and gas Exploration and production of oil and gas Kutai PSC 18,000 comprising 18,000 shares of 1.00 each 18,000 comprising 18,000 shares of 1.00 each
100.0
100.0
KrisEnergy Kutei B.V.
Kutai PSC
100.0
Notes: (1) (2) (3) We are awaiting approval from the Thai Government for our farm-in in respect of G6/48. We are awaiting approval from the Bangladesh Government and Petrobangla for our acquisition of our interest in Block 9. The name of Wassana MOPU Pte. Ltd. is currently being changed to KrisEnergy (Development) Pte. Ltd.
C-2

KrisEnergy LTD - Appendices A To C

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KrisEnergy LTD - Appendices A To C

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APPENDIX A INDUSTRY OVERVIEW All the information and data presented in this section, including the analysis of the

Commercial Oil and Gas Reserves by Region

45% 40% 35%

Remaining Reserves (mmboe)

30% 400,000 300,000 200,000 10% 100,000 5%

Crude Oil Demand by Region, 2005A-2018F

Oil demand (mmboe)

Gas Consumption by Region, 2005A-2018F

Gas consumption (mmboe)

Source: Wood Mackenzie

Oil Production by Region, 2005A-2018F

Oil production (mmboe)

30,000 25,000 20,000 15,000

Source: Wood Mackenzie

Gas Production by Region, 2005A-2018F

Gas production (mmboe)

Source: Wood Mackenzie

Crude Oil and Natural Gas Pricing

Historical and forecast crude oil pricing

180 160 140 120

Global Gas Spot Prices (real 2012A terms)

US$/mmBtu, Real (2012A)

Asia Oil Indexed Contract

Global Gas Spot Prices (nominal)

Asia Oil Indexed Contract

South East Asia Regional Oil and Gas Market Overview

Reserves and resources by country3

Remaning Reserves (mmboe)

Commercial and Technical Oil and Gas Reserves by Country, 2012A

30,000 25,000 20,000 15,000

South East Asia Oil Demand, 2005A-2018F

Oil demand (mmboe)

-2% Cambodia Thailand Yr-on-yr change% Myanmar Philippines Indonesia Malaysia

Average Annual Increase in Oil Demand by Country, 2013F-2018F

South East Asia Gas Demand, 2005A-2018F

Gas demand (mmboe)

Myanmar Thailand Yr-on-yr change%

Malaysia Brunei Darussalam

Average Annual Increase in Gas Demand by Country, 2013F-2018F

Source: Wood Mackenzie

Crude oil production

South East Asia Oil Production, 2005A-2018F

Oil production (mmboe)

800 600 400

Brunei Darussalam Malaysia Thailand

Cambodia Myanmar Vietnam

Indonesia Philippines Yr-on-yr change%

South East Asia Gas Production, 2005A-2018F

Gas production (mmboe)

1400 1200 1000

Brunei Darussalam Malaysia Thailand

Cambodia Myanmar Vietnam

Indonesia Philippines Yr-on-yr change%

South East Asia Oil Supply-Demand, 2005A-2018F

1,400 1,200 1,000

Source: Wood Mackenzie

South East Asia Gas Supply-Demand, 2005A-2018F

1,200 1,000 800 600

Gas Demand (mmboe)

Oil and gas prospectivity of region

Yet-to-Find Commercial and Technical Reserve Volumes

Total Yet-to-Find (mmboe)