Department of Energy to review all South China Sea service contracts

MANILA, Philippines - The Department of Energy (DOE) will review all service contracts located near or within the disputed areas in the South China Sea.

“Yes, there have been discussions in that effect. But as I’ve said I cannot comment on these things,” Energy Secretary Jose Rene Almendras said, when asked if the review will include those contracts somewhere near the South China Sea.

Almendras pointed out that as a matter of policy, they need to go through these contracts, but this doesn’t mean that they have to change anything on the contracts.

“Yes, there are. As a matter of fact, we’ve sent letters to all applicants, pending applicants and listed applicants that we’re no longer committing to the turnaround time, as purposedly I’ve asked the Energy department to study all of this. We’re also doing an inventory of the service contracts, and where it has already been done with these service contracts,” he said.

On his mandate from the President to review the exploration contracts, he said, “the exploration deals, for those that have been done and done properly, we will push through with it. Most that have been questioned, some of them have been questioned in courts, we will have the court rule on it. The rest, we will have to make sure that it is going to be done properly. And that it’s not just the service contract in oil, there’s geothermal, there’s coal and there’s a whole bunch of things that have to be looked at.”

He said the DOE is now starting the review of these exploration contracts.

“Within the DOE, there’s already a group that’s reviewing those contracts. We’re also trying to make sure that we interact with the stakeholders,” he said.

The energy secretary, however, said he is not yet aware if the review will involve Service Contract 72.

“No, I haven’t gotten to the details of that yet. I will answer that at a more appropriate time and not now,” he said. “I cannot comment yet on that one, as don’t have the full details of that yet.”

UK-based Forum Energy Plc, operator of SC 72, is expected to pour in some $3 billion to be able to fully extract the potential reserves at the said SC (formerly Geophysical Survey and Exploration Contract 101) in the Reed Bank basin, an investment research firm said.

Edison Investment Research Ltd., commissioned by Forum Energy to conduct a research report, said Forum may need to invest around this much or close to the Malampaya natural gas project consortium’s investment of $4.5 billion to be able to develop into commercial production SC 72 which is within the gas-rich Sampaguita field in the South China Sea near Palawan.

“The Malampaya consortium, which includes Shell, has already recovered the $4.5 billion investment since the field became operational in 2001...This would suggest a $3 billion price tag for a resource similar to Sampaguita with all the infrastructure in place,” the report said.

The report noted that the Sampaguita field under service contract 72 (formerly GSEC 101), is estimated to hold 3.5 trillion cubic feet (tcf) of gas in place while the Malampaya gas field contains around 3 tcf of gas and 40 million barrels of recoverable oil reserves.

Edison Investment Research further noted that Forum’s funding risks are significantly mitigated by its current shareholder structure. Philex Mining Corp. currently owns 65 percent of Forum. Philiex is controlled by First Pacific Company, which last year generated $3.9 billion of sales and $335 million of operating profit.

“First Pacific provides Philex access to a strong balance sheet, suggesting that funding risks are significantly mitigated,” it said.

The investment research firm said the Sampaguita discovery is a “potentially value-changing asset” and adds a significant value to Forum Energy’s entire oil and gas portfolio.