MANILA, Philippines (UPDATED)- In a move to assert sovereign rights over disputed areas in South China Sea, the Philippines accepted bids for 3 energy blocs from exploration groups eyeing potential oil and gas deposits near Palawan.
On Tuesday, July 31, the Department of Energy facilitated the 2nd and final leg of the bid opening for the 4th Philippine Energy Contracting Round (PECR4) -- a move largely considered as a dismissal of the territorial assertions of China, which claims nearly all of the disputed sea.
About 40 companies -- including units of Total SA, Exxon Mobil Corp. and Royal Dutch Shell Plc -- previously qualified to bid under the PECR4.
However, only the following local firms, including the Pangilinan-led Philex Petroleum and Lopez-led PNOC-EC, were accepted for the following areas:
- Area 3 (600,000 hectare): Helios Petroleum Corp
- Area 4 (616,000 hectares): Consortium of PNOC-EC, Philex Petroleum Corp and PetroEnergy Resources Corp.; and Helios Petroleum Corp
- Area 5 (424,000 hectares): Consortium of Pitkin Petroleum Plc and Philodrill
Over the next 100 days, the DOE will review these bids and President Aquino will sign Service Contracts to award the right to conduct exploration activities in these areas.
All of these bidders are existing players in the local oil and gas industry.
PNOC-EC is part of the consortium that is operating the Malampaya deep water gas-to-power project, the Philippines' largest existing natural gas project located near Area 4.
Philodrill, Pitkin, PetroEnergy have stakes in the Galoc oil field (Service Contract 41), while Helios has exploration activities in Agusan.
On the other hand, a consortium led by Philex, the sister firm of PetroEnergy and Pitkin, has been granted Service Contract 72 (SC-72), which gives the group the right to explore Reed Bank.
Reed Bank lies near, and may have bigger gas deposits than, Malampaya off Palawan.
Dispute with China
Tensions between the Philippines and China over the South China Sea have been running high due to disputes over the Reed Bank and the Spratly islands to the south and Scarborough Shoal to the north.
"Historically, the Philippines has always attracted bids from medium-sized exploration companies. They do seismic surveys, and if they have (good) results, that's when the big boys come in," Energy Undersecretary Jose Layug said.
But Layug dismissed suggestions that the latest quarrel over the shoal would dampen interest in the bid.
Layug said a number of factors attract investors to do oil and gas exploration in the Philippines, including the high oil price environment. He also stressed that they received a total of 20 bids in the two bidding rounds under the PECR4.
Regarding security concerns in the disputed sea, Layug stressed that military support is not expressed explicitly in the service contract but that the government will provide support to sevice contractors needing it.
In the case of Philex-led consortium conducting exploration activities at the Reed Bank, Philex chair Manuel V. Pangilinan previously held talks with representatives of state-owned China National Offshore Oil Corp. (CNOOC).
Amid the diplomatic woes with China, Pangilinan's meeting with CNOOC had the Philippine government's go-signal. The Pangilinan-CNOOC talks were considered a move to explore business partnerships as diplomatic woes between the two countries drag on.
While CNOOC did not take part Tuesday, Layug said it would be welcome to enter into a partnership with any of the winning bidders. "They are always welcome to take part in any of our service contracts for as long as they recognize Philippine law," he said.
Indigenous energy sources
Amid the geopolitical issues in the disputed sea, the Philippines is asserting jurisdiction on these potentially gas and oil-rich areas since the government wants to reduce its reliance on imported oil and coal.
"For an energy-secure future, the DOE has committed to pursue energy independence and sustainability through effective and reasonable development of all indigenous energy resources in the Philippines. The DOE believes that increase in exploration and development activities all-over the World is a cushioning measure against the volatility of oil prices that affects the reasonable pricing methodology for transport and power," the agency said in a statement.
The Philippines currently has 27 active petroleum service contracts with Shell'Philippines Exploration, Nido Petroleum, Galoc Production Company, Forum Energy, and BHP Billiton among the operators.
After holding off bidding for energy blocs for years, largely due to the disputes with China and neighbors asserting their own claims, the Aquino resumed the bidding process through PECR4 last April.
Areas 3, 4, and 5 are the last to be bidded out among the 15 blocs under PECR4.
Under the PECR4 rules, interested parties must comply with the DOE requirements, which include the proposed Work program and economic development of the contract area. Prospective investors will also need to submit the financial and technical documentation for evaluation bv the DOE Review and Evaluation Committee.
31 July 2012
ENERGY BLOCKS. Areas for offer under the Fourth Philippine Energy Contracting Round. Photo courtesy of Department of Energy.