SPEX sets oil search venture in Sulu Sea

Shell Philippines Exploration B.V. (Spex), the major operator of the $4.5-billion Malampaya deep-water gas-to-power project under Service Contract 38 in Northwest Palawan, will engage in another landmark oil exploration project in the Sulu Sea off eastern Palawan.

Energy Secretary Vincent S. Perez said Spex applied for the said SC with the Department of Energy (DOE) early this week.

Shell country chairman Ed Chua announced in a forum in Cebu that Spex has entered into an agreement with other oil drilling firms to convert the existing GSEC (Geophysical Surgey and Exploration Contract) 99 into a service contract.

Perez said aside from Spex, the other members of the consortium that will conduct oil and gas drilling activities in SC 99 are Kuwait Foreign Petroleum Exploration Co. (KUFPEC) and South China Resources.

South China, led by Filipino businessman Edmond Reyes, leads the group in GSEC 99.

"This is another first in the history of oil exploration in the Philippines, wherein Spex will lead again in exploring oil prospects in the eastern side of Palawan in the Sulu Sea. At present, oil developments are concentrated in the northern part of the province or in the South China Sea," Perez said.

He said this is also a milestone for Spex as it will be entering into a partnership with a Middle-Eastern company.

The conversion of GSEC 99 into a SC was part of the DOE’s drilling program for 2005.

Based on the plan submitted to DOE, on the first exploration phase or 20 months, the Spex consortium will acquire and process 450 kilometers of 3D seismic and 1,000 line-km of 2D seismic data and then undertake an evaluation of the block. The operator shall then drill an exploration and appraisal well on the succeeding phases.

Spex earlier decided to abandon the oil rim development in SC 38 after finding that its oil produce is not commercially viable. SC 38 is the single biggest investment in the Philippine upstream oil industry.

The DOE has been aggressively promoting oil and gas exploration activities. In August 2003, the DOE opened the bidding for 46 new exploration blocks located near the Malampaya gas field offshore Palawan and other oil and gas discoveries and producing fields in Southwest and East Palawan, Sulu Sea and Reed Bank under the Public Contracting Round-I (PCR-1), a new bidding scheme which gives excellent contractual and fiscal regime.

Under the fiscal terms for PCR-1, a contractor recovers its exploration and development costs from 70 percent of gross proceeds and gets a maximum of 40-percent net proceeds while the government share is equivalent to 60 percent. Likewise, the contractor shall be exempted from paying national taxes except income tax, which shall be paid out of the government share.

The contractor can also get a Filipino Participation Incentive Allowance (FPIA) of up to a maximum of 7.5 percent with a minimum of 15-percent Filipino participation.