DoE: Oil contracts assure ‘just returns’ on risks

THE Energy department expects an initial investment of $72 million in two adjacent offshore petroleum exploration projects northwest of Palawan island, calling early activities in the “indisputable” Philippine waters a start of more foreign investors coming in and taking risks.

“Initially, with the drilling of these two wells, one in each service contract, the well cost would be around $16 million per well as per the project they have submitted,” said Department of Energy (DoE) Undersecretary Alessandro O. Sales in a media briefing on Wednesday.

He was referring to Service Contract (SC) 6B and SC 54A, which are under Nido Petroleum Philippines Pty. Ltd., the local unit of Australian energy firm Sacgasco Ltd.

SC 6B, which covers the Cadlao oil field, is expected to be ahead with a production test. Energy officials described the areas as closer to Palawan island than the country’s operating Malampaya gas field and Galoc oil field.

“In Cadlao, they will be undertaking an extended production test and the budget submitted for this is an additional $40 million. So when they drill it, they will test the flow rate for a period of time to determine how to optimize future production and determine the more appropriate way in installing the permanent production facilities,” Mr. Sales said.

“So if you count that, that’s $16 [million], $16 [million] and another $40 [million], [for a total of] $72 [million] for both contracts,” he added.

However, he said that the expected oil recoveries In the area should be framed from the proper perspective. He said in Cadlao, the target is a “small volume” of 5 million to 6 million barrels.

In terms of daily production, the volume could be a high of 15,000 barrels to a low of 5,000 barrels from the oil fields, which will decline in time.

“In terms of actual impact, I think in fluid consumption, [the] Philippines consumes about 320,000-barrel-equivalent of fuel [per day],” he said.

For DoE Secretary Raphael P.M. Lotilla, the Cadlao drilling is just “a first step.”

“What is important and significant in this is that foreign investors have taken the assurances made by the Philippine government that our PD (Presidential Decree) 87 framework for giving incentives to the service contractors is going to be upheld,” he said.

He said PD 87 talks about hastening the discovery and production of indigenous petroleum through the use of government or private resources, either local or foreign.

“The ultimate objective is to yield the maximum benefit to the Filipino people and at the same time, to assure just returns to participating private enterprises, particularly those that will provide the necessary services, financing, and technology, and fully assume all exploration risks,” Mr. Lotilla said.

On Tuesday, the DoE announced that it had allowed Nido Petroleum to proceed with the on-site survey for drilling locations under SC 6B by the fourth quarter of this year.

Meanwhile, Mr. Lotilla said that the DoE approval of the sale of the 45% stake of Shell Philippines Exploration B.V. (SPEx) in the Malampaya deepwater project to a subsidiary of Prime Infrastructure Capital, Inc. was premised on the Razon-led company’s commitment to expand gas production, and develop nearby indigenous sources.

“I am confident that this trend will continue as we reaffirm to prospective investors the openness of our economy to foreign and local investors and we assure them of the continued stability of our legal framework, especially in the upstream oil and gas sector,” he said.

The Malampaya project is one of the country’s most important power assets, producing natural gas for power plants in Batangas City that provide up to 20% of Luzon’s total electricity needs. Its concession agreement is set to expire in 2024. — Ashley Erika O. Jose