Joint exploration prospects improve amid warming relationship with China — BMI
IMPROVING ties between the Philippines and China have increased the prospect for joint exploration in the resource-rich South China Sea, offering better prospects for local oil and gas output, a research firm said.
“Locating new crude oil and natural gas sources continues to be of paramount importance for the Philippines as output from its sole producing Malampaya field rapidly declines,” said BMI Research in its production outlook for the Philippine oil and gas sector.
“Improving bilateral ties with China increases the prospect for joint exploration in the potentially resource-rich South China Sea, and offer upside to our long-term oil and gas production forecasts,” the Fitch Group unit said.
It said finding new oil and gas sources is crucial for the country as the Malampaya gas and condensates field is near the end of its production cycle. The offshore Palawan gas project is expected to be depleted around 2022 to 2024, industry officials had said.
“With no new significant projects in the pipeline, the Philippines’ need to explore for additional oil and gas is clear,” BMI Research said.
Thus far, exploration in the country’s most prospective petroleum blocks, particularly those in the South China Sea has made minimal progress because of the maritime dispute with China.
“However, we believe improving bilateral ties between the two countries increase the chances of joint exploration in the disputed waters,” the research firm said.
It added that the view of its country risk team noted “greater scope for cooperation between Manila and Beijing” as President Rodrigo R. Duterte has taken a “more conciliatory approach towards China and the former’s growing need for energy.”
“The Philippines has repeatedly stated its openness to joint ventures in the area with foreign entities, provided that such activities comply with the Constitution of the Philippines,” it said.
The Constitution states that the exploration, development and utilization of Philippine marine wealth must be reserved for the exclusive use and enjoyment of Filipinos.
BMI Research said a breakthrough in the longstanding maritime impasse would allow companies such as PXP Energy Corp. to resume drilling in Service Contract 72’s Sampaguita gas discovery.
It said the 2011 gas find holds up to 4.6 trillion cubic feet of natural gas 115 million barrels of crude oil.
“This in turn, improves our outlook on the Philippines’ upcoming oil and gas licensing round,” it said.
In July, the Department of Energy said it was planning to hold in December the sixth Philippine Energy Contracting Round, or PECR 6, a competitive system of awarding service contracts for petroleum and coal prospective areas.
“The round will include blocks in the disputed South China Sea, along with offshore blocks in the Sulu Sea, Palawan and those that did not receive offers under the previous licensing round,” BMI Research said.
“Although access to the Philippines’ fast-growing consumer market may appeal to potential investors, the success of the licensing round will hinge on whether the country is able to diffuse geopolitical risks in the area,” it said.
“This is especially important with low oil prices weighing on firms’ appetite for high-risk, frontier exploration. These same risks have previously restricted interest in PECR 5, which only attracted three bids for the 11 oil and gas blocks that were offered,” it added. —