Pangilinan-led PXP Energy Corporation has cemented tie-up with Australian and British firms for the bids it submitted for two petroleum blocks auctioned in the Sulu Sea basin by the Department of Energy (DOE) and the Ministry of Environment, Natural Resources and Energy (MENRE) of the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM).

According to highly-placed sources, PXP Energy has submitted offers for Blocks 2 and 3 for coveted service contracts (SCs) in the Sulu Sea basin – and that was done via a consortium with Australian firm Triangle Energy, UK company Sunda Energy and local partner Philodrill Corporation.

The two areas in the Sulu Sea basin had been among those offered in the 1st BARMM petroleum contracting round, along with another block in the Cotabato basin.

The Department of Energy (DOE) indicated that the submitted tenders will still need to go through post-qualification process before notice of award shall be served to the winning parties.

Triangle Energy, in particular, is touted as a deeply-entrenched oil and gas exploration and production (E&P) company with operations in the Perth Basin of Western Australia.

London-headquartered Sunda Energy (formerly Baron Oil), on the other, has petroleum service contract for the Chuditch gas field development in Timor Leste; and has also been growing its upstream investment portfolio in the Southeast Asian region.

PXP Energy and Philodrill are considerably long time players in the E&P sector of the Philippines; with the former primarily setting its sight on exploration and development of targeted hefty gas reserves in the Recto Bank.

However, that development prospect failed to advance for more than a decade already due to the lingering diplomatic friction with China in the West Philippine Sea.

At the Sulu Sea basin, data from the DOE had shown that drilling in the area had already surpassed 40 wells; and despite anticipated massive potential for oil and gas reserves, further investments are still needed to bring prospects to commercial fruition.

The last big-ticket investor which wagered $400 million capital outlay for petroleum exploration at a block in Sulu Sea basin had been American energy giant Exxon, although the final outcome of its venture had not been enough to merit commercial scale development.

For the longest time, new as well as old-time investors in the Philippine petroleum industry had constantly lobbied for policy fixes to be rectified and rewritten as a way to de-risk investments, but some remedial measures in their wish list have not been coming as they are needed.

So far in the past administration, the energy sector leadership had been able to reinstate farm-in and farm-out deals in petroleum service contracts via Executive Order (EO 80) that was issued by former President Duterte in 2019.

The moratorium on petroleum exploration enforced during the Aquino administration at the conflict areas within West Philippine Sea had also been lifted, but for blocks such as Service Contract 72 in the Recto Bank, impediments had been replaced with force majeure declaration – and that effectively stopped exploration and drilling activities in the area since 2022.

Another hurdle yet to be resolved is the warranted local court ruling on the arbitral award won by the previous Malampaya consortium on the treatment of income tax payments by service contractors.

Presidential Decree 87 (PD 87) is the enabling law that prescribes the investment perks for oil and gas exploration ventures in the Philippines.

And while the fiscal incentives regime under that edict had been able to lure a number of commercial discoveries (i.e. the Malampaya gas and Galoc oil fields), it was emphasized that some of its provisions are no longer attuned to the capital formation climate of the present.

Investments in the upstream oil and gas sector entail very high risks; and that is being compounded by the very low prospectivity of exploration areas in the Philippines versus the rich reserves of Asean neighbors.