PHL stops oil and gas drilling in Reed Bank, cites dispute with China

Published March 3, 2015 12:19pm

(Updated 4:47 p.m.) The Department of Energy (DOE) has suspended all drilling and exploration works in the West Philippine Sea, particularly in the area covered by Service Contract (SC) 72 in the Reed Bank, citing a force majeure as the site is the subject a territorial dispute between the Philippines and China.

Philex Petroleum Corp., which holds a substantial stake in SC 72, confirmed the DOE action in a disclosure to the Philippine Stock Exchange on Tuesday.

The other stakeholder in SC 72 is Monte Oro Resources and Energy Inc., according to previous filings of Philex Petroleum with the Philippine Stock Exchange.

"Forum Energy, the UK incorporated oil and gas exploration and production company with a focus on the Philippines, today confirms that the Philippine Department of Energy (DOE) has granted a force majeure on Service Contract (SC) 72, because this contract area falls within the territorial disputed area of the West Philippine Sea which is the subject of an United Nations arbitration process between the Republic of Philippines and the People’s Republic of China," the disclosure read.

Philex Petroleum holds a 60.49 percent interest in Forum Energy – which operates SC 72 in Reed Bank – also called Recto Bank, covering the Sampaguita Gas Field as well as several oil and gas leads. In turn Forum Energy has a 70 percent in SC 72.

Under the terms of the force majeure, Philex Petroleum said all works related to oil and gas exploration in the area were immediately suspended from 15 December 2014 until the DOE notifies the company that drilling and exploration may commence.

"As a result, the second sub-phase of SC 72 has been put on hold until further notice," the company said. "The terms of the second sub-phase and all subsequent sub-phases will be extended by the term of the force majeure."

Arbitration case

Philex Petroleum chairman and CEO Manuel Pangilinan noted the company is complying with the DOE order.

"We were requested not to engage in any activity within our concession... We understand that the reason is the arbitration case filed by the Philippines against China is still pending, so we have to comply," he told reporters in an interview Tuesday.

He said "... up to a billion pesos [were] already spent by Forum" in SC 72.

Philex Petroleum has other other concession areas options to drill in search of oil and gass in the Philippines, which the company intends to pursue.

"We will continue, but we have to determine priorities. We have to sit down with management of Pitkin Petroleum, Forum Energy to determine which of the concession areas is not subject to territorial dispute," Pangilinan noted.

The other exploration and production assets maintained by Philex Petroleum are in Cebu, Palawan, and Mindoro Island.

Request for force majeure

The decision to grant a force majeure stems from the request of Philex Petroleum, Energy Undersecretary Zenaida Monsada told GMA News Online on the sidelines of the Arangkada Forum in Makati City.

"Kailan lang sila sumulat. Napag-usapan na 'yan before, pero 'yung request, recent lang," she said, referring to why the DOE decision covers December 2014.

"Sinabi na 'yan ni Sec. (Carlos Jericho) Petilla, na inclined kami to allow, but they have to make a request."

Monsada noted the request was a result of the advice from the Department of Foreign Affairs and the Philippine Coast Guard regarding the situation in the disputed waters.

"Pwede na sana sila mag-drill. In fact, ni-lift na namin 'yung moratorium nila last year. Gusto na din nila sana but they were advised na 'wag na muna nila i-rock yung boat dahil may arbitration discussions. Para 'wag sasabihin na nagpre-empt tayo," she noted.

Drilling delayed

As things stand now the drilling in SC 72 will be delayed.

"Ayaw naman natin na magkaroon talaga tayo ng away with other countries. Ang implication ay lalong ma-de-delay dahil 'yung peace and order malaking bagay," Monsada said.

Territorial disputes between the Philippines and China have hampered Forum Energy's plan to drill at least two more appraisal wells in Reed Bank. The SC 72 exploration permit was issued by the Philippine government in 2010.

In 2012, Forum Energy said 3D seismic surveys performed by independent consultant Count Geophysics Ltd. in 2006 showed the gas in place is about 21 percent more than the reserves in nearby Malampaya.

Updates regarding SC72 will be made as and when appropriate, Philex Petroleum added. – Kathryn Mae P. Tubadeza/Danessa O. Rivera/VS, GMA News

Tags: reedbankexploration, rectobank, doe, philexpetroleumearnings, philexpetroleum