Oil strike off Palawan: 22,000 barrels a day

MANILA, Philippines – Oil from the Galoc fields off Palawan started flowing yesterday, signaling the first step toward energy self-sufficiency for the Philippines.

Malacañang made the announcement as officials stressed the oil find would be used for domestic consumption to help reduce the country’s dependence on imported fuel.

“The President is pleased to announce, as reported by Energy Secretary Angelo Reyes, the extraction of fresh oil from the Galoc oil field in the northwest offshore of Palawan at 10:45 a.m. (yesterday),” Executive Secretary Eduardo Ermita told a news conference at Malacañang.

“It is a momentous day for us all,” remarked Jeff Davison, chief operating officer of Galoc Production Co. (GPC), the operator of the oil field, located about 60 kilometers west of Culion Island in Palawan.

GPC has started to pump oil that could mean some 20,000 barrels of oil per day (BOPD).

“That is equivalent to roughly six percent of the daily oil demand of the country,” Secretary Reyes said.

Reyes reported the first well was opened at 10.45 a.m. and the oil extracted from it was put onboard a ship headed for local refineries before noon. 

Officials described the oil extracted as “light medium crude oil” with a potential high yield for gasoline. The Galoc oil will be known as “Palawan Light.”

This will be the first time that an oil field was developed since 1992, officials said. The Philippines imports over 95 percent of its oil needs.

Reyes said reserves estimate in Galoc is approximately 10- to 20-million barrels of oil, based on an assessment made in 2006 for a two-well development.

The oil well, which has a reservoir located 2,200 meters below the sea floor, would produce an initial 17,000 to 20,000 barrels per day in the first 90 days of operation.

This will account for about six percent of the daily local demand of 300,000 barrels, officials said.

The Galoc production, combined with the current oil production in other wells in the country, will be over 30,000 barrel of oil per day, accounting for about 10 percent of the country’s daily oil consumption.

“The President is optimistic that this new development will positively impact on the administration’s efforts to reduce the country’s annual oil importation of $6 billion, and in turn will also contain the increasing cost of food and other commodities,” Ermita said.

He said the oil production from Galoc would also translate to about $1.4 billion in foreign exchange savings for the country, since the oil well’s lifetime estimate runs to about three to five years.

The Galoc Field was discovered in 1981, but the oil field was not developed due to the combination of risks associated with the reservoir and low oil prices. 

Since then, advancements in technology have improved the capability of defining the reservoir and resulted in the need for fewer wells to access the reserves than previously necessary.

This has been successfully achieved with the recently drilled horizontal development wells Galoc-3 and Galoc-4.

Presently, production is from the first well, with the second well due to come on-line shortly.

The current development was initiated in mid-2005 when GPC farmed in to the existing Service Contract SC14-C Galoc Sub-Block.

It was originally scheduled for first oil production in April but mechanical problems and bad weather pushed it back by another five months. Delays reportedly resulted in an increase in cost from $86 million to over $120 million.

Benchmarking

Reyes and Davison, in a joint statement, said further development to extend the lifespan of the oil well would be known in the first six months of production.

“We embrace this significant development as this will help immensely in our pursuit to be energy self-sufficient... We are on the right track in utilizing our indigenous sources,” Reyes said.

He said opening up the country for oil exploration “will eventually benefit everyone.”

“In a time of uncertainties in oil prices, this will benefit the country and make us less reliant on imported crude oil and save millions of dollars in importation costs,” he said.

Reyes said there is no definite price on the Galoc oil but pointed out that even at world market rates, pump prices could go down since there would be no more transportation costs, insurance, and handling expenses.

“The reason we benchmark it (Galoc oil price) at international prices is to make an accurate evaluation on our savings,” he said.

Davison, for his part, said, “The GPC team has invested three years of committed and concerted effort to bring the Galoc Field into production.”

Galoc Production is a joint venture owned by a subsidiary of the Vitol Group and Otto Energy Ltd. It formed a consortium composed of Nido Petroleum Pty Ltd., Oriental Petroleum and Minerals Corp., The Philodrill Corp., Forum Energy Philippines Corp., Alcorn Gold Resources Corp. and PetroEnergy Resources Corp.

GPC, which holds Service Contract 14C, owns 58.29 percent of SC 14, while Australia-based Nido Petroleum Ltd. owns 22.28 percent.

The oil exploration began in the early 1970s when the Philippines sought growth and self-sufficiency in energy production. In 1972, the government sought exploration in the Palawan-Sulu seabed where oil was initially discovered in the Nido oil field in 1976.

The oil extracted from the Nido oil fields, however, was not enough to meet the increasing domestic fuel demands.

The increasing fuel crunch prompted the government to look for other alternative sources of energy.

Reyes said the success in the Galoc oil fields is a first step towards self-sufficiency in energy.

He said the Galoc oil extraction would also trigger a flow of investments in the energy sector.

Davison said the development of any offshore field presents a unique set of challenges. He pointed out it took three years for the Galoc field to start coughing up oil.

Alternative sources

Lawmakers, on the other hand, approved a bill promoting the development and use of renewable energy resources.

Pampanga Rep. Juan Miguel Arroyo, chairman of the energy committee at the House of Representatives, said the development of renewable energy resources such as wind, water and biomass would lessen the country’s dependence on imported fuel.

“A lot of investors, local and foreign, are waiting for this proposed Renewable Energy Law,” Arroyo said.

Sen. Edgardo Angara, principal author of a counterpart bill at the Senate, said the government could save up to P5 billion in oil imports while reducing the prices of gasoline.

“It could generate big savings for the country in terms of import cost (of fossil fuels) which we can translate into more projects like additional classrooms and teachers,” he said.

Arroyo, for his part, noted that proponents of alternative energy sources have been pushing for the enactment of a renewable energy law since 20 years ago during the 8th Congress.

He said the Renewable Energy Bill mandates the Department of Energy, the National Power Corp. and other concerned agencies to develop recyclable energy sources such as wind, solar, hydropower, and biomass, and connect these sources to the national power grid, he said.

The measure will help government achieve its goal to boost the country’s energy self-sufficiency from 56.6 percent to 60 percent by 2010, he said.

He pointed out that estimates made by the Department of Energy showed that if renewable energy sources can contribute 2,500 megawatt of electricity to the national grid in the next 10 years, the country would save about $1.2 billion in fuel importation costs.

While the renewable energy could bring in many benefits, Angara admitted the initial investment on technology for Renewable Energy could be very expensive.

Under the bill, developers of renewable energy resources would enjoy an income tax holiday for the first seven years of their operation. They will also be entitled to duty-free importation of machinery, equipment and materials within 10 years.

After the seven-year exemption from income tax, the developers would pay only a 10-percent tax instead of the usual 35 percent for corporations, provided that they pass on the difference to end-users in terms of lower rates for renewable energy.

The producers’ end product would be exempt from the 12-percent value added tax. They would also enjoy lower transmission charges.

The bill creates a National Renewable Energy Board composed of government and private sector representatives to promote a recyclable energy program.

It also mandates the creation of a renewable electricity market similar to the wholesale electricity spot market where Meralco and other power distributors source their electricity requirements. – With Jess Diaz, Christina Mendez