The Philippines yet again finds itself at an upstream impasse, having in recent years failed to attract the interest and investment in exploration and production ventures that its neighbours enjoy.

Anglo-Dutch supermajor Shell is considering an extension to Service Contract 38, home to its giant producing Malampaya gas field. But to date, Malampaya is really the only significant success story in the Philippines.

What limited exploration there has been over the past decade mostly has not delivered, and licensing rounds of late have failed to excite.

However, the authorities remain upbeat and are convinced that there are other giant fields awaiting discovery.

The government in May extended a deadline from that month to 21 August for bids under the Philippine Conventional Energy Contracting Program (PCECP), its latest licensing model.

The official line from the Department of Energy is that this additional time simply allows “applicants and other interested parties to submit their complete application documents”.

The more cynical view is that there had been a lacklustre response within the initial 180 days allowed.

The DoE had touted players including US supermajor ExxonMobil and independents Ratio Petroleum, Delek and the Rexxon Group as being interested in the PCECP acreage but none of these companies is known to have submitted an application.

The licensing round, launched last November, comprises 14 pre-determined areas (PDAs). A separate initiative allows companies to nominate their own exploration blocks.

Most of the PDAs are offshore in “relatively unexplored basins where significant petroleum accumulations are yet to be discovered”, according to a DoE official.

The majority are located in the Sulu Sea or in the West Philippine Sea off the island of Luzon.

There is also some onshore acreage – three PDAs are located on the island of Mindanao and one in the north of the most populous island, Luzon.

New exploration

Such is the government’s drive to stimulate new exploration that in late May President Rodrigo Duterte repealed a 2006 order that had stopped state-owned Philippine National Oil Company Exploration Corporation (PNOC-EC) from being able to directly farm out its own acreage.

PNOC-EC has service contracts, including SC 47, SC 57 and SC 63, that are in the exploration phase and where a partner or two could help to share the cost of searching for new reserves.

“In all cases, PNOC-EC shall enter into farm-in/farm-out agreements with reputable, technically competent and financially capable entities,” reads the executive order.

It also states: “It is the aim of the Government to achieve energy independence for the Filipino people by... enhancing the country’s competitiveness as an oil and gas investment destination through the adoption of industry practices.”

The president’s move paves the way for finalisation of a farm-out that would see China National Offshore Oil Corporation take over operatorship and 51% of SC 57 in Calamian north-west of the island of Palawan.

Jadestone Energy too had been in the frame to come on board with a 21% working interest but the company’s intention is now unclear.

Force majeure had been in effect for years on offshore block SC 57 ahead of presidential approval of the touted farm-out.

However, any such deals for PNOC-EC’s interests, whether for exploration or producing assets, will need to be approved by the DoE.

Singapore-based independent Jadestone also has a 25% stake in Total-operated SC 56, which Total farmed into in 2012.

The French major subsequently confirmed it intended to drill a wildcat on the block targeting the Halcon prospect, which has gross prospective resources of 6.736 trillion cubic feet of gas and 169 million barrels of condensate.

However, Total later did a U-turn, prompting Jadestone subsidiary Mitra Energy to start proceedings in the Singapore International Arbitration Centre against Total’s Philippines subsidiary, alleging a breach of the farm-in deal.

SC 56 already hosts the deep-water Dabakan and Palendag discoveries that have gross best-estimate contingent resources of 469.6 billion cubic feet of gas and gross high-estimate resources of 21.58 million barrels of oil and condensate.

The Philippines’ dependence on the mature and soon-to-be-declining Malampaya gas field leaves the nation with little option other than to progress with liquefied natural gas imports.

Import projects

Various LNG import projects, both onshore facilities and floating storage and regasification units, have been mooted over the years by players including industry heavy-hitters Shell, Chevron and Total.

However, the maiden project could well now be Tanglawan LNG, proposed by a joint venture of Phoenix Petroleum and China’s CNOOC Gas and Power Group, and with the likely future participation of Philippine National Oil Company.

Tanglawan envisages breaking ground later this year on the LNG terminal at Batangas, which will have initial capacity of 2.2 million tonnes per annum.

Operational start-up of the facility, which could be expanded to 5 million tpa in future, is being targeted by 2023.

While some industry sources put question marks over the Philippines’ prospectivity, at least the investment climate seems to be improving.

A ray of light came recently when the International Chamber of Commerce in Singapore found in favour of Shell and its Malampaya partners in their tax dispute.

The plaintiffs had argued — and the DoE agreed — that corporate income tax payments are part of the government’s take and as such need not be paid on top.

Not only does this ruling save the SC 38 partners upwards of US$1 billion in claimed back taxes, it also provides clarity to other potential investors.

The DOE had earlier said “the hesitancy and reluctance of investors and petroleum companies to carry out exploration activities” could have been due to the Commission on Audit’s demand for back taxes from the Malampaya partners.

Focus

Philippines mired in exploration impasse