PNOC-EC boosts equity by 28%

Publicly-listed PNOC Exploration Corp. (PNOC-EC),  the upstream petroleum and coal arm of state-owned Philippine National Oil Co., increased its total equity by 28 percent to P6.75 billion in 2007, a modest improvement from P5.28 billion in 2006.

The company said the increase can be attributed to the hike in retained earnings of P1.45 billion. PNOC-EC’s book value per share also went up to P3.37 in 2007 from P2.64 in 2006.

As a result of the favorable performance, the company declared dividends amounting to P200 million last December to shareholders.

PNOC-EC’s gross revenue also went up from P6.22 billion in 2006 to P6.44 billion in 2007. The modest four percent growth was attributed to the rise in the volume of sales of Malampaya gas from 105.85 billion cubic feet in 2006 to 125.05 billion cubic feet in 2007,  along with the rise in gas prices from an average of $ 6.93 per giga joule in 2006 to $ 7.15 per giga joule in 2007.

 The growth is also brought about by the increase in the volume of coal sold from 477.70 thousand metric tons in 2006 to 754.31 thousand metric tons in 2007 coupled with the rise in coal prices from an average of P 2,403.48 per metric ton in 2006 to P 2,767.51 per metric ton in 2007.

In 2007, the company also completed its adoption of new accounting methods for its petroleum exploration and production activities wherein all exploration costs, except costs of exploratory wells, are expensed and not capitalized as they are incurred.

While the accounting shift was started in 2006, seismic data acquisition costs and other pre-drilling exploration costs incurred in prior years amounting to P168.73 million were only charged in 2007.

Cost recovery for SC-38 or the Malampaya gas project has been reduced significantly in 2007. Cost recovery is an incentive granted by the Department of Energy (DOE) to the contractors of Service Contract 38 to deduct certain approved costs up to a maximum of 70 percent of the monthly sales revenue before sharing the remaining profit with the government   which includes the DOE, Bureau of Internal Revenue (BIR) and local government units.

 The decrease in cost recovery simply means that all pre-production costs in the Malampaya project has already been fully recovered and the contractors are no longer entitled to take back as much amount from the gross revenue of SC-38 as Cost Recovery Funds.

The charging of pre-drilling costs of prior and current year as an expense of 2007, and the decrease in Cost Recovery for the Malampaya Project resulted in the decrease in net income of the company from P 2.6 billion in 2006 to P 1.77 billion in 2007.