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Foreign investors unperturbed, Thai tensions seen just a blip

Publication Date : 07-05-2014

 

Foreign investors in the oil and gas industry consider Thailand's prolonged political tensions as just a blip, according to Deloitte.

"It's just a short-term thing. From the business perspective, [the political turmoil] has not jeopardised Thailand. It's business as usual," Steven Yap, partner for energy and resources and mergers and acquisitions tax leader for Southeast Asia, said yesterday.

Streets remain safe and the country's fundamentals are still sound with a sizeable population of 60 million people, he said.

However, the high tax burden on O&G concessions have made investors think twice about Thailand and going to other destinations, said Stuart Simons, E&R leader and a tax partner at Deloitte Thailand.

Besides the 50-per-cent petroleum income tax, investors in Thailand's O&G fields are subjected to royalties and other levies.

"Certainly, the government should look at cutting taxes on marginal oil and gas fields," he said.

Yap said Thailand may also consider applying the production sharing system, which has been used in many other countries, to replace the current taxation regime for O&G concessions.

At the "Deloitte O&G Summit" held in Bangkok recently, the consulting firm's energy experts predicted a continued uptrend in foreign direct investment (FDI) in the global O&G industry.

Thanks to the United States' shale gas revolution, the country took a whopping 45-per-cent share of M&A transactions in the O&G industry worldwide from 2012-13. Joint ventures in US shale developments and investments by national oil companies (NOCs) including Chinese state-owned energy firms are among the key drivers of the rising FDI flows in the US' O&G industry.

Concerning future trends, NOCs especially those from Asia would continue to play a dominant role and raise their investments in the US' O&G industry, while Chinese NOCs would expand their FDI to other countries.

Of the top 10 M&A deals in the global O&G industry last year, four involved Asian companies, including some Chinese firms and Malaysia's Petronas, Deloitte's statistics show.

With oil prices expected to remain steady at US$80-$115, the O&G industry in Asean could witness a rise of investment in unconventional resources such as shale gas development, deep-water exploration and production and liquefied natural gas production. Within Asean, Indonesia is estimated to have shale gas reserves of 750 trillion cubic feet.

Malaysia is capitalising on the LNG boom but investors are sceptical that it can achieve its aim to rival Singapore as a LNG trade hub in the region, as the city state boasts a well-established banking system and other infrastructure.

Libya

Citing the cases of Libya and a few other nations, the experts suggested O&G investors to take a long-term view and carefully incorporate politics into their financial modelling when considering their overseas investments. Companies should also incorporate "bribery and corruption" risks.

To deal with these tricky political and corruption risk factors, Suwatchai Meakhaamnouychai, an audit partner at Deloitte Thailand, suggested companies may start from applying a sustainability platform and International Financial Reporting Standards in their accounting systems.

Christian Prokscha, consulting director for Deloitte Southeast Asia, said for conventional O&G resources, Africa is very lucrative at the moment, while Australia and Canada are also promising, but high development costs are a major obstacle for investors looking to invest in both countries.

There are a lot of opportunities in Indonesia, which is investing trillions of US dollars in infrastructure projects over 10 years, of which the O&G industry is taking a quarter share. However, the Indonesian government is not doing the right thing - such as its recent introduction of a new taxation regime and increase in the state's levy on energy resources - to attract investors

Thai O&G firms may consider diversifying into the midstream business such as in pipelines.

 

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