DOE sets 2 major conditions in modified petroleum contracting

The Department of Energy’s (DOE) announcement on modified petroleum contracting will be nuanced on two major collatillas that may be worth considering by prospective investors.

Energy Secretary Alfonso G. Cusi indicated that firstly, those labeled as ‘conflict areas’ are ‘not quite open yet’ for business on exploration and drilling activities; and the other one is on policy prescription that with the 60-40 royalty sharing arrangement, the contractor’s tax shall be part of the government’s share.

These critical issues had been due to the diplomatic strife that the country had with China; and on the case that the Malampaya contractors had elevated to international arbitration proceedings.

Cusi said these shall be made clear to prospective grantees of petroleum service contracts in the unsolicited submission of proposals that the energy department had set forth under its revised Philippine Energy Contracting Program.

“Our position, even for Malampaya, is that on the 60:40 arrangement, taxes for contractor will already be included. We will uphold that policy in our new bidding round,” the energy chief said.

Cusi added that moving forward on the policy sphere, “we will have to make it very clear that the tax regime we have (for upstream petroleum investments) will still prevail.”

On resolution of territorial claims at the West Philippine Sea, Cusi emphasized that there shall be provision in the bidding terms that if the submitted petroleum block is within a ‘disputed area’, it shall be stipulated that no seismic survey, exploration or drilling programs be done yet until the lifting of the moratorium previously imposed by the Department of Foreign Affairs (DFA) on such domains.

Cusi hinted that policy discussions are already moving headway on this with the DFA and the end-goal is to come up with a written policy on the lifting of the moratorium covering upstream petroleum ventures.

Once that is done, he noted that other pending contracts in these ‘conflict areas’ such as Service Contract 72 at the Recto Bank shall also resume immediately.

PXP Energy of the Pangilinan Group is the awardee of the SC 72 block, but its planned drillings way back in 2015 had been hobbled by the West Philippine Sea territorial and legal skirmish.

Until now, the company is still finding its way how it can accelerate exploration activities in the block – and had even contemplated on forging a joint venture deal with a Chinese firm to pursue probable commercial development of the oil and gas block.