Petroleum Exploration History

Petroleum exploration in the Philippines dates back to 1896 with the drilling of Toledo-1 in Cebu Island by Smith & Bell. Widespread exploration activities were carried out from the 1950s to 1970s. Exploration then, 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 favorable to offshore exploration, activities shifted to offshore areas like the Northwest Palawan Shelf where the first field, 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 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 was produced in 2002, providing clean fuel to Luzon grid.

Onshore in northern Luzon, the Philippine National Oil Company developed the San Antonio Gas Field in 1994 and continues to supply gas fuel to the local electric cooperative in the province of Isabela.

The Year That Was: 2006

Contracts

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).

* Currently seeking DOE’s approval for operatorship

Production

As of November 2006, the Philodrill Corporation produced a total of 162,963 barrels of crude oil while 106,939 barrels and 56,024 barrels were produced respectively from the Nido and Matinloc Fields in offshore Palawan (SC 14C).

Shell Philippines Exploration B.V. (SPEX) produced from the Malampaya field (SC 38) a total of 103,328.97 mmscf of gas and 4,908,180.87 barrels of condensate as of November 2006.

On the other hand, gas production from the San Antonio field in Isabela under PNOC-EC's SC-37, produced a total of 292.89 mmscf of gas from January to November 2006.

Exploration

As of end 2006, Nido Petroleum, under SC 54, acquired a total of 581 square kilometers of 3D seismic data over the SC area. The survey is still being carried out until the target of 824 square kilometers is achieved.

Meanwhile, 2D seismic acquisition for 2006 totaled to 11,168 line kilometers. SPEX (SC60) acquired 1,034 line kilometers, CNOOC* (SC57) 2,269 line kilometers, Nido Petroleum (SC58) 3,083 line kilometers, Nido Petroleum (SC54) 70 line kilometers, NorAsian (SC55) 455 line kilometers, PNOC-EC (SC59) 2,057 line kilometers, and Mitra Energy (SC56) 2,200 line kilometers, in their respective contract areas.

* Currently seeking DOE’s approval for operatorship

Drilling

No drilling activity was carried out for the year due to the unavailability of drilling rig although several contractors showed their intention to undertake exploration drilling in their respective SC areas.

Updates as of 10 January 2007

• Total number of active Service Contracts (SC): 28
• Total number of Geophysical Survey and Exploration Contracts: 1 (GSEC 101, Forum [GSEC 101] in Reed Bank Basin)
• Total number of Terms of Service: 1 (PNOC-EC, Camago-Malampaya Oil Leg (CMOL), signed last 17 March 2006)
  

Potentials

At the end of 2005, petroleum reserves of the Philippines totaled 456 million Barrels of Fuel Oil Equivalent (BFOE). This consists of 25 million barrels of oil, 2,135 billion cubic feet of gas and 54 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