Author Topic: Offshore oil: The way forward  (Read 2049 times)

adroth

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Offshore oil: The way forward
« on: July 29, 2017, 10:14:00 AM »
Here's another thought exercise. But rather than a what-if, let's take on a REAL problem, associated with this emerging discussion.

How do you safely exploit petroleum resources in the WPS, both from an environmental standpoint as well as with a view to ensuring that Philippine sovereignty stays intact?

Key parameters in this discussion:

1. Whatever deals are made MUST be in accordance with the constitution. We have the Malampaya model for how to achieve that end.

2. Whatever is negotiated must be at par -- if not BETTER -- than what we already negotiated for Malampaya

3. Pretending that China doesn't exist is not an option. Even Vietnam accepts that it can't ignore the "Kleptomaniac Panda" as it explores its EEZ (See Vietnam stops drilling after China threats. Whatever solution we choose must also keep the bear at bay.

« Last Edit: July 29, 2017, 03:04:14 PM by adroth »

adroth

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Re: Offshore oil: The way forward
« Reply #1 on: July 29, 2017, 10:15:16 AM »
To meet the goals above, we must:

1. All become familiar with what the Constitution allows

2. Become familiar with the terms and conditions of the existing Malampaya deal to see how it can be used as a basis for what follows

===

Re Item 1

It is clear that the constitution empowers the President to work with foreign entities to exploit the country's resources.

From: http://www.comelec.gov.ph/?r=References/RelatedLaws/Constitution/1987Constitution/Article12

Section 2. . .

The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.



Re Item 2

It's worth noting that both Vietnam and China use the "lease" approach

http://www.bbc.com/news/world-asia-40701121

Quote
The Vietnamese call the region Block 136-03 and have leased it to a company called Talisman-Vietnam, a subsidiary of Repsol.

China calls it Wanan Bei-21 and has leased the same piece of seabed to a different company.

More data about the Malampaya model is called for.
« Last Edit: July 30, 2017, 06:16:36 PM by adroth »

adroth

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Re: Offshore oil: The way forward
« Reply #2 on: August 04, 2017, 05:25:35 AM »
https://www.doe.gov.ph/model-petroleum-service-contract-0

======

< Edited >

W I T N E S S E T H; That:

WHEREAS, all Petroleum, Crude Oil, Crude, Natural Gas and/or Casinghead Petroleum Spirit of the Philippines belong to the State and their disposition, exploration, development, exploitation and utilization  is under the full control and supervision of the DEPARTMENT under  Presidential Decree No. 87, as amended, otherwise known as the Oil Exploration and Development Act of 1972 (the “Act"), Republic Act 7638 otherwise known as the Department of Energy Act of 1992, and Section 2, Article XII of the 1987 Constitution;

WHEREAS, the Act declares it to be the policy of the State to hasten the discovery and production of indigenous Petroleum through the utilization of Government and/or private resources;

WHEREAS, the CONTRACTOR desires and agrees to provide funds, and apply its appropriate and advanced technology and expertise to cooperate with the DEPARTMENT for the exploration, development and exploitation of Petroleum resources within the Contract Area and agrees to be subject to the laws and decrees of the Government and other rules and regulations of the DEPARTMENT in the implementation of the Contract;

NOW, THEREFORE, in view of the foregoing premises, the DEPARTMENT and CONTRACTOR hereby stipulate and agree, as follows:

< Edited >
« Last Edit: August 04, 2017, 08:22:33 PM by adroth »

adroth

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Re: Offshore oil: The way forward
« Reply #3 on: August 04, 2017, 09:50:00 PM »
https://www.doe.gov.ph/presidential-decree-no-87



PRESIDENTIAL DECREE NO. 87
MALACAÑANG

MANILA

By the President of the Philippines

PRESIDENTIAL DECREE NO. 87 

Amending Presidential Decree No. 8 Issued on October 2, 1972

and Promulgation of an Amended Act to Promote the Discovery and Production of Indigenous Petroleum

and Appropriate Funds Therefor.

 

WHEREAS, Presidential Decree No. 8 dated October 2, 1972 was issued to promote the discovery and development of the country's indigenous petroleum resources and adopting therefore as part of the law of the land the provisions of Senate Bill No. 631 (An Act to Promote the Discovery, Production of Indigenous Petroleum and Appropriate Funds Therefor);

WHEREAS, it was found necessary for the national interest to amend Senate Bill No. 531 among other things more meaningful incentives to prospective service contractors.

WHEREAS, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General Order No. 1 dated September 22, 1972 as amended, do hereby amend Presidential Decree No. 8 as follows:

 
AN ACT TO PROMOTE THE DISCOVERY AND PRODUCTION OF INDIGENOUS PETROLEUM, AND APPROPRIATING FUNDS THEREFOR

SEC. 1. Short title. This Act shall be known and maybe cited as "THE OIL EXPLORATION AND DEVELOPMENT ACT OF 1972".

SEC. 2. Declaration of policy. It is hereby declared to be the policy of the State to hasten the discovery and production of indigenous petroleum through the utilization of government and/or private resources, local and foreign under the arrangements embodied in this Act which are calculated to yield the maximum benefit to the Filipino people and the revenues to the Philippine GOVERNMENT for use in furtherance of national economic development, and to assure just returns to participating private enterprises, particularly those that will provide the necessary services, financing and technology and fully assume all exploration risks.

SEC. 3. Definition of terms. As used in this Act, the following terms shall have the following respective meanings:

"Petroleum" shall include any mineral oil, hydrocarbon gas, bitumen, asphalt, mineral gas and all other similar or naturally associated substances with the exception of coal, peat, bituminous shale and/or other stratified mineral fuel deposits.
 
"Crude Oil" or "Crude" means oil in its natural state before the same has been refined or otherwise treated. It does not include oil produced through destructive distillation of coal, bituminous shale or other stratified deposits, either in its natural state or after the extraction of water, and sand or other foreign substances therefrom.
 
"Natural Gas" means gas obtained from boreholes and wells and consisting primarily of hydrocarbons.
 
"Petroleum Operations" means searching for and obtaining petroleum within the Philippines through drilling and pressure or suction or the like, and other operations incidental thereto. It includes the transportation, storage, handling and sale (whether for export or for domestic consumption) of petroleum so obtained but does not include any: (1) transportation of petroleum outside the Philippines; (2) processing or refining at a refinery; or (3) any transaction in the products so refined.
 
"Petroleum in commercial quantity" means petroleum in such quantities which will permit its being economically developed as determined by the contractor after taking into consideration the location of the reserves, the depths and number of wells required to be drilled and the transport and terminal facilities needed to exploit the reserves which have been discovered.
 
"Posted Price" refers to the FOB price established by the contractor in consultation with the Department of Energy for each grade, gravity and quality of crude oil offered for sale to buyers generally for export at the particular point of export, which price shall be based upon geographical location, and fair market export values for crude oil of comparable grade, gravity and quality.
 
"Market Price" shall mean the price, which would be realized, for petroleum, produced under a contract as hereinafter defined if sold in a transaction between independent persons dealing at arm's length in a free market.
 
"Barrel" means 42 U.S. gallons or 9702 cubic inches at a temperature of 60ºFahrenheit.
Any reference in this Act to the value of any crude oil at the posted price or market shall be construed as a reference to the amount obtained by multiplying the number of barrels of that crude oil by the posted price or market price per barrel applicable to that crude oil.
 

"Crude Oil Exported" shall include not only crude oil exported as such but also indigenous crude oil refined in the Philippines.
 
"Government" means the Government of the Republic of the Philippines.
 
"Contractor" means the contractor in a service contract whether acting alone or in a consortium with others.
 
"Contract" refers to a service contract.
 
"Filipino Participation Incentive" means the allowance, which may be given the contractor with Filipino participation as provided in Section 28 hereof.
 
"Philippine Corporation" means a corporation organized under Philippine Laws, at least sixty percent of the capital of which is owned and held by citizens of the Philippines.
 
"Affiliate" means (1) a company in which a contractor holds directly or indirectly at least fifty percent of its outstanding shares entitled to vote; (2) a company which holds directly or indirectly at least fifty percent of the contractor's outstanding shares entitled to vote; or (c) a company in which at least fifty percent of its share outstanding and entitled to vote are owned by a company which owns directly at least fifty percent of the shares outstanding and entitled to vote of the contractor.
 
< Edited >

adroth

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Re: Offshore oil: The way forward
« Reply #4 on: August 08, 2017, 01:16:52 AM »
Malampaya profit sharing

http://manilastandard.net/business/163892/govt-seeks-higher-share-from-malampaya.html

The life of the Malampaya gas field, operated by the consortium of Spex as operator with 45 percent stake, Chevron LLC (45 percent) and PNOC Exploration Corp. (10 percent) is expected to end by 2030. To date, around half of the reserves at the Malampaya gas field were consumed.

adroth

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Re: Offshore oil: The way forward
« Reply #5 on: August 12, 2017, 09:57:07 AM »
A potential for moving forward, with China in the mix, apparently already exists in Service Contract 57

From: http://pnoc-ec.com.ph/service-contract-no-57-calamian/

Service Contract No. 57 – Calamian

Project Location : Offshore Northwest Palawan

Nature of Project : Petroleum Exploration

JV Partners and Percent Equity :  China National Offshore Oil Company International Limited (CNOOC) – Operator  51%, PNOC EC 28%, Mitra Energy Limited (MITRA) 21%.

Project Description: SC 57 was awarded to PNOC EC on 15 September 2005. It covers a total area of 7,120 sq. km. in offshore Northwest Palawan and is situated around fifty (50) kms. northwest (NW) from the north-westernmost tip of Busuanga Island.

CNOOC farmed-in into SC 57 on 3 April 2006 acquiring 51% participating interest and operatorship while Mitra Energy farmed-in on 3 March 2006 getting 21%.  The Deed of Assignment to formalize their entry has yet to be signed by the President of the Philippines.

Brief Background : SC 57 is within the prolific NW Palawan block and is host to the Bantac I well, a non-commercial oil discovery by Occidental Petroleum.  With the farm-in of CNOOC and Mitra, additional 2,200 km. of 2D seismic data was acquired on top of the 3,300+ km. acquired by the previous contractors.

However, the request for approval of the Deed of Assignment to CNOOC and Mitra Energy has been pending since 2006 with the Office of the President (OP). SC 57 is currently under force majeure but exploration activities will resume once approval is granted.

adroth

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Re: Offshore oil: The way forward
« Reply #6 on: August 12, 2017, 07:26:18 PM »
On Chinese terms . . . or can government really negotiate a better deal?

=====

Philippines Faces Post-Arbitration Dilemma Over Reed Bank

Would Manila accept exploration of Reed Bank or joint development on Chinese terms?
By Jeremy Maxie
July 12, 2016

http://thediplomat.com/2016/07/philippines-faces-post-arbitration-dilemma-over-reed-bank/

< Edited >

Double-Edged Dilemma

Now that the arbitration award has been announced, Manila will face increased lobbying pressure as well as public support to resume exploration in Reed Bank. Silently capitulating to possible unilateral Chinese exploration is not a viable political option for Manila. The dilemma for Manila will be whether to engage in preemptive or reciprocal unilateral exploration that would almost certainly be forcefully opposed by Beijing and present escalation risks, or enter into negotiations with Beijing on joint development that would risk inciting domestic political opposition as well as disapproval from Washington.

With the recent election of President Rodrigo Duterte, the opportunity for joint development with China seems ripe. On July 5, Duterte repeated his interest in holding bilateral negotiations with China. The newly appointed Philippine Foreign Secretary Perfecto Yasay, Jr. stated on July 8 that the new government was willing to discuss with China options to jointly explore and mutually benefit from disputed resources. However, Yasay had to issue a rejoinder the follow day to clarify his previous comments in response to public backlash for his apparent willingness to share Philippine resources with China. Yasay’s underlying assumptions appear to be that the arbitration award is essentially unenforceable, but may strengthen Manila’s bargaining position in bilateral negotiations with Beijing on joint development.

If history is any indication of future behavior, Philippine public opinion will be strongly opposed to any agreement that is perceived as too compromising on national sovereignty over its offshore resource to China’s benefit. As with the defunct JMSU, joint development would likely be highly scrutinized by the political opposition. These domestic political factors will significantly restraint Duterte’s maneuverability in negotiations with Beijing.

The forceful logic of China’s presumptive position toward Reed Bank is clear: With the Malampaya gas field expected to be depleted in 8-12 years, the timely development of Reed Bank is essential to Philippine energy security. However, time is on China’s side. Through coercion and harassment, China can indefinitely delay the exploration and development of Reed Bank. The Philippines’ only rational option is to agree to joint development with China, albeit on China’s terms, since Philippine companies are unable to develop Reed Bank alone and international partners are reluctant to participate.

If successful, joint development would be a geopolitical victory for Beijing since it would facilitate a rapprochement between Beijing and Manila, make China a critical partner in the Philippines’ long-term energy security, drive a political wedge between Manila and Washington and further weaken ASEAN unity. The downside risks for China is that a heavy-handed play could provoke a public backlash which pushes the populist Duterte to take a strongly nationalist position. In this scenario, Beijing’s gambit would likely have the unintended consequence of scuttling Chinese-Philippine rapprochement while pushing Duterte closer to Washington. This would lock in the status quo, with Reed Bank exploration and development indefinitely delayed and Philippine energy security in a vulnerable position.


Dutch

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Re: Offshore oil: The way forward
« Reply #8 on: August 28, 2017, 07:03:27 AM »
US think tank expert flags planned joint development in disputed sea | BusinessWorld - 28 August 2017

Quote
By Ian Nicolas P. Cigaral (Reporter)
and Victor V. Saulon (Sub-Editor)

A JOINT development between the Philippines and China in the resource-rich South China Sea would be difficult to implement and may not conform with Manila’s legally won entitlements over the sea, an expert from a US think tank said.

Both countries, which have overlapping claims over the contested waters, are now open to the idea of joint energy ventures, with China’s foreign ministry recently saying that such cooperation will not “impair” the “final delimitation of boundary.”

But according to Gregory B. Poling, director of the Asia Maritime Transparency Initiative (AMTI) of Washington’s Center for Strategic and International Studies, working out such an agreement will be difficult considering its complexity.

He explained that under such arrangement, Manila and Beijing would “set aside” questions of sovereign rights, which he said would disregard the arbitral award won by the Philippines in an international court last year.

“That would not be in keeping with the arbitral award, which recognized Reed Bank as being part of the Philippine continental shelf,” Mr. Poling, who specializes on maritime security issues in Asia, said in an e-mail interview last week.

“But more importantly, it would violate the Philippine Constitution and would probably face an immediate court challenge. In other words, China and the Philippines are talking about very different things here,” he added.

“Getting both sides to say they like the idea of joint development was the easy part — working out an actual arrangement will be much, much harder.”

< Edited >

‘EASE TENSION’
In the same interview, Mr. Poling qualified that any commercial energy ventures like the one discussed by Philippine oil and gas firm PXP Energy Corp. and China National Offshore Oil Corp. (CNOOC) would be “great” and could ease tensions.

But China may not approve such cooperation, Mr. Poling also said, adding that China instead “seems to be interested in a joint development scheme.”

“It (commercial energy agreement) would lower tensions and would be entirely consistent with international and Philippine law. But there is no indication that Beijing would agree to that kind of a deal,” he said.

Talks between PXP and CNOOC about joint exploration and development of Reed Bank were disrupted in late 2014 after Manila, under the administration of then president Benigno S. C. Aquino III, filed an arbitration case against Beijing.

Citing warmer ties with China, PXP said it is hoping to revive the stalled negotiations under Mr. Aquino’s successor, Rodrigo R. Duterte, who has set aside The Hague ruling in exchange for billions of dollars in Chinese aid and investment.

< Edited >

Among the service contracts (SC) that had been placed on force majeure is Service Contract 72, which is covered by the decision handed down by the Permanent Court of Arbitration in The Hague in the Netherlands on July 12, 2016.

The court ruled that Reed Bank, where SC 72 lies, is within the Philippines’ exclusive economic zone as defined under United Nations Convention on the Law of the Sea.

On March 2, 2015, the DoE placed SC 72 under force majeure because the contract area falls within the disputed area, which was the subject of the arbitration process.

Under the terms of the force majeure, exploration work at SC 72 is suspended from Dec. 15, 2014 until the DoE notifies the exploration company that it may continue drilling.

< Edited >

For now, what the DoE is allowing for exploration are areas within Philippine sovereignty, Mr. Cusi said.


Dutch

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Re: Offshore oil: The way forward
« Reply #9 on: August 28, 2017, 08:32:49 PM »
Petroleum Service Contract Map - DOE Website


adroth

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Re: Offshore oil: The way forward
« Reply #10 on: September 01, 2017, 01:38:49 AM »
http://news.abs-cbn.com/focus/08/31/17/joint-development-might-legitimize-china-claim-in-west-philippine-sea-analyst

< Edited >

Batongbacal said the Philippines must ensure that "whatever we agree to does not result in an acknowledgement of China’s illegitimate claim."

"That’s why any kind of bargain with China on this has to be really very well thought of, and the terms have to be very well-written in order to prevent that kind of even an implied recognition," he said.

"It’s bad enough that we have actually the official position very loosely declared by the President. When he said that China has this historic claim, that’s almost one step closer to acknowledging officially because he is the President of the country," he added.

Batongbacal supports Foreign Affairs Secretary Alan Peter Cayetano's statement that the energy department is now focused on allowing oil and gas exploration in "areas that are not disputed."
He said this would mean that Manila is "implementing and continuing to attempt to implement" the Hague ruling.