Shell wins case; more oil and gas explorations in PH seen
By AJ Siytangco
Published Apr 26, 2019 04:31 pm
By Mario Casayuran
There is no longer any legal impediment for investors to undertake more oil and natural gas explorations in the Philippines now that the arbitration court in Singapore has finally resolved the US$1.1-billion tax case between Shell Philippines Exploration B.V. (SPEX) and the government.
(SHELL / MANILA BULLETIN)
Senator Sherwin T. Gatchalian, chairman of the Senate Committee on Energy, revealed this Friday, saying the multi-billion tax case has been a big specter that discouraged foreign players from conducting petroleum explorations in the Philippines over the past several years and drove away investments in high risk, capital-intensive, and technology-intensive sectors.
“With the case now behind us, it is high time for the government to aggressively pursue a ‘Drill, Drill, Drill’ program, so that we can tap these oil and gas resources and use them to achieve Philippine energy independence and pave the way for the country to become an energy exporting powerhouse,” he added.
Gatchalian had earlier said the Department of Energy (DOE) should spearhead the move for the exploration of a probable gas find near the present Malampaya gas field.
Shell reportedly relayed its interest in exploring the adjacent site in order to extend the life of the current Malampaya gas field for another six years.
This means that the life of the Malampaya gas field will be extended from 2024 to 2030.
With a unanimous vote of 3-0, the operator of the multi-billion Malampaya gas field project, led by SPEX, won its landmark P53-billion tax case before the International Chamber of Commerce (ICC) in Singapore.
The Malampaya gas field uses an innovative and sustainable deepwater technology for recovering natural gas from the deepwater reservoir in northwest Palawan.
Voting in favor of the Malampaya consortium had been designated arbitration Chairperson Yves Fortier, SPEX-led consortium arbitrator David Williams, and Philippine arbitrator Reynato S. Puno, a former Chief Justice of the Supreme Court.
The US$1.1-billion tax case stemmed from the demand of the Commission on Audit (COA) for the Malampaya consortium to settle what it claimed as “back taxes” under its Service Contract 38 for the gas field venture – as the State auditor deemed that income tax should have been to the service contractor’s account instead of it being integrated into the royalty share of the Philippine government.
Nevertheless, SPEX along with its co-consortium members American firm Chevron Malampaya LLC and Philippine National Oil Company-Exploration Corporation (PNOC-EC) argued that the Malampaya gas development contract prescribes that the contractor’s income tax payment shall become part of the State’s royalty share, hence, it is not liable on such scale of back taxes being demanded by COA. Petroleum service contracts (PSCs) in the Philippines take guide from the prescriptions of Presidential Decree No. 87 or the Philippine Oil and Gas Law.
For the DOE, a favorable decision to the Malampaya contractor would also be beneficial to the government chiefly at this time that it has just opened its new round of contracting for petroleum blocks being offered to investors.
Since the Malampaya gas field’s commercial operations in 2001, it already yielded over US$10 billion in revenues shared by the contractor and the Philippine government. Malampaya is currently the only commercially producing gas field in the country.
Many of the interested takers of the oil and gas block offers of the country has raised concern over the Malampaya tax case – and this has in fact, dampened the appetite of investors in recent years.
The DOE primarily stated that “the hesitancy and reluctance of investors and petroleum companies to do exploration activities could also be due to the decisions made by the COA in relation to Service Contract 38, in which COA had affirmed its findings and ordered the Malampaya consortium to settle P146.8 billion in taxes that were charged against the government’s share.”
As stipulated in petroleum service contracts, the investor (contractor) is entitled to a full recovery of capital and operating costs and a service fee of 40 percent of the net proceeds.
In the new model contract released by the DOE to guide prospective investors in the Philippine Conventional Energy Contracting Program (PCECP) of the Duterte administration, it upheld that the income tax of the contractor shall be integrated in the government share.
The DOE has always acknowledged that petroleum exploration ventures are extremely risky – with a 20-percent rate of discovery already considered highly favorable. This is also the main reason why recovery of operating costs had been warranted under PD 87, albeit it had been capped at 70 percent of gross proceeds.
(SHELL / MANILA BULLETIN)
Senator Sherwin T. Gatchalian, chairman of the Senate Committee on Energy, revealed this Friday, saying the multi-billion tax case has been a big specter that discouraged foreign players from conducting petroleum explorations in the Philippines over the past several years and drove away investments in high risk, capital-intensive, and technology-intensive sectors.
“With the case now behind us, it is high time for the government to aggressively pursue a ‘Drill, Drill, Drill’ program, so that we can tap these oil and gas resources and use them to achieve Philippine energy independence and pave the way for the country to become an energy exporting powerhouse,” he added.
Gatchalian had earlier said the Department of Energy (DOE) should spearhead the move for the exploration of a probable gas find near the present Malampaya gas field.
Shell reportedly relayed its interest in exploring the adjacent site in order to extend the life of the current Malampaya gas field for another six years.
This means that the life of the Malampaya gas field will be extended from 2024 to 2030.
With a unanimous vote of 3-0, the operator of the multi-billion Malampaya gas field project, led by SPEX, won its landmark P53-billion tax case before the International Chamber of Commerce (ICC) in Singapore.
The Malampaya gas field uses an innovative and sustainable deepwater technology for recovering natural gas from the deepwater reservoir in northwest Palawan.
Voting in favor of the Malampaya consortium had been designated arbitration Chairperson Yves Fortier, SPEX-led consortium arbitrator David Williams, and Philippine arbitrator Reynato S. Puno, a former Chief Justice of the Supreme Court.
The US$1.1-billion tax case stemmed from the demand of the Commission on Audit (COA) for the Malampaya consortium to settle what it claimed as “back taxes” under its Service Contract 38 for the gas field venture – as the State auditor deemed that income tax should have been to the service contractor’s account instead of it being integrated into the royalty share of the Philippine government.
Nevertheless, SPEX along with its co-consortium members American firm Chevron Malampaya LLC and Philippine National Oil Company-Exploration Corporation (PNOC-EC) argued that the Malampaya gas development contract prescribes that the contractor’s income tax payment shall become part of the State’s royalty share, hence, it is not liable on such scale of back taxes being demanded by COA. Petroleum service contracts (PSCs) in the Philippines take guide from the prescriptions of Presidential Decree No. 87 or the Philippine Oil and Gas Law.
For the DOE, a favorable decision to the Malampaya contractor would also be beneficial to the government chiefly at this time that it has just opened its new round of contracting for petroleum blocks being offered to investors.
Since the Malampaya gas field’s commercial operations in 2001, it already yielded over US$10 billion in revenues shared by the contractor and the Philippine government. Malampaya is currently the only commercially producing gas field in the country.
Many of the interested takers of the oil and gas block offers of the country has raised concern over the Malampaya tax case – and this has in fact, dampened the appetite of investors in recent years.
The DOE primarily stated that “the hesitancy and reluctance of investors and petroleum companies to do exploration activities could also be due to the decisions made by the COA in relation to Service Contract 38, in which COA had affirmed its findings and ordered the Malampaya consortium to settle P146.8 billion in taxes that were charged against the government’s share.”
As stipulated in petroleum service contracts, the investor (contractor) is entitled to a full recovery of capital and operating costs and a service fee of 40 percent of the net proceeds.
In the new model contract released by the DOE to guide prospective investors in the Philippine Conventional Energy Contracting Program (PCECP) of the Duterte administration, it upheld that the income tax of the contractor shall be integrated in the government share.
The DOE has always acknowledged that petroleum exploration ventures are extremely risky – with a 20-percent rate of discovery already considered highly favorable. This is also the main reason why recovery of operating costs had been warranted under PD 87, albeit it had been capped at 70 percent of gross proceeds.