Petroleum Exploration History

Petroleum exploration in the Philippines dates back to 1896 with the drilling of Toledo-1 well in Cebu Island by Smith & Bell. Widespread exploration activities were carried out from the 1950s to 1970s. At that time, exploration was governed by Republic Act No. 387 known as the "Petroleum Act of 1949" which ushered in the era of the concession system.

The current Service Contract System took effect in 1973 with the enactment of Presidential Decree No. 87, better known as the "Oil Exploration and Development Act of 1972". With its attractive contractual terms and liberal fiscal regime that are particularly favourable to offshore exploration, activities shifted to offshore areas like the Northwest Palawan Shelf where the first oilfield, Nido, was discovered. Several small fields, all located in offshore Northwest Palawan, were subsequently discovered and produced.

In 1989, relatively large fields were discovered in the deep waters off Palawan when Occidental Petroleum tested gas in its Camago Structure. Alcorn Philippines, in 1990, discovered the West Linapacan Field and commenced production two years later until 1996. Also in 1990, Shell discovered Malampaya gas field becoming, by far, the largest gas discovery in the country. The field started to produce commercially in 2002, providing clean fuel for power generation to Luzon grid. At present, Malampaya natural gas provides about 40% of Luzon’s power requirement.

Onshore in northern Luzon, the Philippine National Oil Company developed and produced the San Antonio Gas Field in 1994 and supplied natural gas as fuel to the local electric cooperative in the Province of Isabela.

Year 2011 Update

Contracts

To attract more investors to the country, the fourth Philippine Energy Contracting Round (PECR 4) was launched on 30 June 2011. Fifteen blocks with a total area of more than 10 million hectares are being offered. These areas will be awarded through a bidding process with a minimum application fee of Php 100,000.00. Application period is within 150 calendar days upon the availability of online data. Evaluation period is for forty five (45) days and Service Contracts will be awarded to the new operator thirty (30) days after evaluation.

Previous PECR

A total of seven (7) Service Contracts were granted by end of 2006. Three (3) of these SCs include SC 58 (West Calamian Block Northwest Palawan – Nido), SC 59 (West Balabac Southwest Palawan – PNOC-EC) and SC 60 (Northeast Palawan – Shell Philippines Exploration B.V.) In addition, four (4) service contracts have been awarded to winning proponents of the petroleum sector of the Philippine Energy Contracting Round (PECR) 2005. They include SC 61 (PECR 2005 Area 2, Northeast Palawan - Burgundy), SC 62 (PECR 2005 Area 3, Southeast Palawan - Burgundy), SC 63 (PECR 2005 Area 1, Southwest Palawan – PNOC-EC) and SC 64 (PECR 2005 Area 4, Sulu Sea - Ranhill).

Production

As of end June 2011, the total oil production from the different fields totalled to about 63,208,020.12 barrels. The four (4) existing producers, Nido, Matinloc, North Matinloc and Galoc fields, produced 18,823,407 barrels, 12,137,881 barrels, 2,219,353 barrels and 8,931,848 barrels respectively. The first 3 fields are under the operatorship by Philodrill Corporation while Galoc is being managed by Galoc Production Company (GPC). All of these producing fields under Service Contract No. 14 are located in offshore NW Palawan. There are two (2) other fields that are being evaluated for rehabilitation, namely; Cadlao and West Linapacan fields that have produced 11,235,334 barrels and 8,528,118 barrels of oil respectively.

Shell Philippines Exploration B.V. (SPEX) produced from the Malampaya field (SC 38) a cumulative total of 1,083,551.282 mmscf of natural gas and 48,191,493.636 barrels of condensate from October 2001 until 30 June 2011. Another field, the Libertad gasfield, located in Bogo, northern Cebu is under development and expected to produce natural gas as fuel to power a 1 Megawatt turbine for domestic electric generation in the area. The Libertad gasfield is under SC40 being operated by Forum Energy Philippines, Inc.

Exploration

The geophysical survey over the sixteen (16) sedimentary basins in the country totalled to about 519,841.73 line-kilometers (ln-kms) of 2D and 16,948.56 square-kilometers (sq-kms) of 3D seismic data.

For this year, Forum Energy Philippines, under SC72 acquired a total of 564.93 sq-kms of 3D data over Recto Bank in the West Philippine Sea while NorAsian Energy Ltd. acquired 228.8 sq-kms of 3D data over the Camotes Sea under SC69. Meanwhile, 2D seismic acquisition for 2011 totalled to 2,202.28 ln-kms. This seismic data was acquired by Forum Energy over Recto Bank in the area of SC72. Several other exploration companies are planning to conduct geophysical survey over their respective SC areas this year.

For the year 2011, two (2) wells were drilled in onshore northwest Leyte and offshore NW Palawan. NorAsian Energy Ltd drilled Duhat-1/1A well which is located in Sitio, Kalunasan, Barangay Banat-1, San Isidro, Leyte. On the other hand, Nido Petroleum Philippines, operator of SC54B drilled Gindara-1 well located in offshore NW Palawan. Several other exploration drilling activities are expected to be undertaken in the near future. (Updates as of 02 September 2011)

o Total number of active Service Contracts (SC): 28

 

Potentials

As of June 2011, the potential petroleum resources of the Philippines totalled to 27,905 million of oil initially in place and 53,870 billion cubic feet of gas in place. The estimated recoverable discovered and undiscovered resources include 1,892 million barrels of oil, 10,349 billion cubic feet of gas and 164 million barrels of condensate.

These petroleum reserves calculations are based on the sixteen sedimentary basins situated all over the country from the Cagayan Valley Basin in the north down to the Agusan-Davao Basin in the south as well as the prolific Northwest Palawan Basin and the Sulu Sea Basin along the western flank of the archipelago. These basins extend on both offshore and onshore areas. The offshore regions comprise both shallow to deepwater areas for exploration.

Incentives

Under Presidential Decree (P.D.) 87 otherwise known as the " Oil Exploration and Development Act of 1972, the following incentives are provided for petroleum service contractors:

• Service fee of up to 40% of net production
• Cost reimbursement of up to 70% gross production with carry-forward of unrecovered costs
• FPIA grants of up to 7.5% of the gross proceeds for service contract with minimum Filipino company participation of 15%
• Exemption from all taxes except income tax
• Income tax obligation paid out of government's share
• Exemption from all taxes and duties for importation of materials and equipment for petroleum operations
• Easy repatriation of investments and profits
• Free market determination of crude oil prices, i.e., prices realized in a transaction between independent persons
  dealing at arms-length
• Special income tax of 8% of gross Philippine income for subcontractors
• Special income tax of 15% of Philippine income for foreign employees of service contractors and subcontractors