Duterte eases rules on oil exploration deals

President Rodrigo Duterte has signed an order making it easier for the government to enter into an agreement with other entities for the exploration, development, and production of oil especially in the western side of the Philippines.

Duterte issued Executive Order 80 on May 28, a copy of which was released by Malacañang on Thursday.

Under the order, third parties are now allowed to participate in the service contracts awarded by the government to the Philippine National Oil Company Exploration Corporation (PNOC-EC), the upstream oil, and gas subsidiary of the PNOC.

PNOC-EC can also participate in the service contracts awarded by the government to third parties.

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

The EO mandates the Department of Energy (DOE), in consultation with the Governance Commission for Government-Owned and -Controlled Corporations (GCG), to issue rules and regulations for the third party selection process to be undertaken by the PNOC-EC.

“The DOE shall take into consideration provisions of existing government selection procedures that enhance transparency and objectivity in the selection process, including GCG issuances requiring that contracts to be entered into by the government-owned and/or-controlled corporations undergo review by the Office of the Government Corporate Counsel,” the EO stated.

The farm-in/farm-out agreements of the PNOC-EC must have the approval of the DOE.

Farm-in/farm-out refers to a practice, recognized and accepted in the oil industry, of allowing third-party participation to spread the risks inherent in oil and gas exploration, development and production.

The entity acquiring the participating interest considers the transaction as a “farm-in,” while the entity transferring such interest considers the transaction as a “farm-out.”

“It is the aim of the government to achieve energy independence for the Filipino people by, among others, enhancing the country’s competitiveness as an oil and gas investment destination through the adoption of industry practices,” the order read.

Duterte’s policy repealed EO 556, signed by then President and now Speaker Gloria Macapagal-Arroyo in June 2006, which prohibited farm-in/farm-out agreements awarded by any government agency, including the contract for the exploration, development, and production of crude oil from the Camago-Malampaya reservoir off Palawan.

The Arroyo-era EO did away with the “farm-in, farm out” policy in favor of a “strict bidding procedure” in forging partnership with interested parties, including the Camago-Malampaya reservoir venture.

The DOE had been pushing for the repeal of the Arroyo-era EO believing this will give way to the implementation of pending farm-in deals including Service Contract 57.

Spanning 720,000 hectares, SC 57 is located west of the Calamian Islands in northwest Palawan, which is not a subject of the Philippines’ maritime dispute with China.

Awarded by the DOE to PNOC-EC in September 2005, the project has yet to materialize after the PNOC-EC entered into farm-in agreements with China National Offshore Oil Corp. (CNOOC) and Mitra Energy Ltd. (MEL) – now Jadestone Energy Inc.

CNOOC has the biggest share in the project at 51 percent, followed by PNOC-EC at 28 percent and Jadestone at 21 percent.

Apart from the reinstatement of farm-in, farm-out deals, the DOE is also urging the national government to lift the moratorium on exploration and drilling works in the disputed areas in the South China Sea in order for the possible joint oil and gas exploration deal with China to move forward.

Manila and Beijing forged a memorandum of understanding on cooperation on oil and gas development in the South China Sea during Chinese President Xi Jinping’s visit to the Philippines in November last year. — MDM, GMA News