DOE sets ‘corrective policies’ to lure fresh oil exploration investments

Published August 12, 2022, 9:18 AM

by Myrna M. Velasco

The Department of Energy (DOE) will re-take “baby steps” and will push for “corrective policies” to entice fresh capital flow in the country’s upstream oil and gas sector, especially in areas not encumbered by territorial disputes.

“I think we don’t even have to look far into the West Philippine Sea right now…we’re looking at the areas that are clearly undisputed; and we’re also looking at the near-fields around Malampaya,” Energy Secretary Raphael P. M. Lotilla said.

He, nevertheless, admitted that before investors will place their bets on risky exploration and production (E&P) investments in the Philippines, the policy terrain of the sector must be given clarity first.

“The President indicated that he wants to have all legal and policy issues that have been a sword of Damocles over investments in the upstream clarified fully,” the energy chief stressed.

Lotilla has not provided details yet on the ‘policy fixes’ being framed by the Marcos administration, but he just hinted that this is currently sorted out by the legal cluster of the energy department.

“But I want to assure you that we are on track towards the resolution of a number of these uncertainties,” he told reporters who raised questions about prospects of re-opening oil and gas exploration activities across Philippine basins.

While adjustments are pushed on the “wobbly points” of the industry’s regulatory milieu, the DOE is giving assurance on policy stability that the investors would be able to lean on primarily the deep-pocketed foreign companies that will be risking millions to billions worth of dollar-investments in the country’s sedimentary basins.

The past Duterte administration attempted to whet investors’ appetite in the upstream petroleum sector via its self-designed Philippine Conventional Energy Contracting Program (PCECP) up to the point that it lifted the moratorium on oil exploration activities at ‘conflict areas’ within the West Philippine Sea. But, it still failed miserably in cornering investments; that not even a single well was drilled in their reign.

Beyond the diplomatic tussle that has been bedeviling the country’s efforts in finding its next Malampaya, investors have also repeatedly raised concerns over the antiquated provisions of Presidential Decree 87 or the Philippine Oil and Gas Law; as well as the implications of the Malampaya tax case which is still pending with the Supreme Court.

The pervasiveness of “weak data’ on the offered petroleum blocks similarly disappoints investors, hence, that is one area that they would want government to address before pursuing new wave of petroleum contracting round.

Prospective investors further indicated that while the fiscal incentives regime under PD 87 spurred commercial discoveries (i.e. the Malampaya gas and Galoc oil fields) in the past, some of its provisions are no longer attuned to the investment climate of the present.

On precept of obsolescing bargain raised by foreign investors, there had been plans by the DOE to modify the 60:40 royalty sharing arrangement between the State and the petroleum service contractors and the recommendation then was to explore options on how to make the cost recovery scheme more enticing to the service contractors.

The energy department examined Indonesia’s experience on that policy terrain fundamentally the “gross split revenues” that this Southeast Asian neighbor had institutionalized in 2017, with the energy officials noting that proposals of refashioning the cost recovery scheme might make sense given the very low prospectivity and the very high risk nature of investing in the country’s petroleum blocks.

DOE data would show that only 23 wells had been drilled in various petroleum basins in the country over the past 12 years or a number that redounds to just two to three wells drilling per year. In fact, the Philippines even lagged behind Myanmar which was able to drill 29 wells in over a decade; while Vietnam had 43 wells; and the more mature markets of Malaysia logging in 81 well-drillings; Thailand with 594 wells and Indonesia with 903 wells.

The low prospectivity, it was noted, aggravates the frustration of many companies which do not have the assurance that the expenses incurred, which are in millions of dollars, cannot be recovered in case of negative results in their exploration and drilling activities.

Given the government’s to-do list yet in crafting the ‘curative measures’ for the industry, it is worth watching if the Philippines under the Marcos administration can finally corner much-desired investment-dollars in the E&P sector.