By Myrna M. Velasco
The Department of Energy (DOE) will not proceed for now on its next three-country swing of roadshows for the country’s petroleum contracting round – the sorties prospectively targeting investors in Canada, United Arab Emirates and Argentina.
According to Energy Undersecretary Donato D. Marcos, the international roadshows are being “put on hold” based on the instruction of Energy Secretary Alfonso G. Cusi.
The last leg was in San Antonio, Texas recently – and while that investment promotion activity generated interest from prospective investors in the block offers under the Philippine Conventional Energy Contracting Program (PCECP), the decision is to have the roadshows “held in abeyance” in the interim.
In the United States, Marcos noted they had discussions with several firms and they are counting on these firms to really advance on their interests when the submission of tenders would fall due in August 19 this year.
For the 14 pre-determined areas in the PCECP bid round, 17 firms are currently in the energy department’s list as prospective takers of the offered blocks.
And in the “area nomination scheme”, interested parties can submit tenders year-round, but this will be subject to a Swiss challenge process based on the terms set forth by the DOE.
These companies have either sought area clearances and have submitted letters of interest (LOI) on targeted area nominations; some have viewed and purchased technical data sets including those on seismic lines and well listings; while the rest have made courtesy visits and one-on-one meetings with relevant DOE officials.
The entry of investors to explore and commercially develop the country’s upstream petroleum sector is via a service contract with the government – and to be governed by the provisions of Presidential Decree 87 or the Philippine Oil and Gas Law.
That edict prescribes 60:40 royalty sharing arrangement in favor of the government; with the 40-percent share being the base of the contractor’s revenue stream.
The dispute in income tax payment of the contractor had also been recently resolved with the legal victory scored by the developer-consortium of the Malampaya field, hence, that is one less worry to the interested parties in the country’s oil and gas service contracts.
As explained by energy officials, PD 87as a legal precept on service contract system that was very much patterned after the production sharing scheme that first gained success in Indonesia and other markets – with them leaning on the goal of retaining asset ownership and control of their petroleum resources while attracting foreign capital and technological expertise.
According to the DOE, “PD 87 set up stringent terms to ensure that only technically and financially capable companies will become service contractors.” It is incumbent upon the energy department then “to carefully review the financial status of a contractor and look into the qualifications of its officers and staff to ensure that it has people who have the required technical qualifications.”
And while the law enforces rigid terms on investments, it also dangles incentives to whet investors’ appetite: including tax free importation of equipment and supplies, exemption from all taxes except income tax; income tax assumption or payment of income tax out of the government’s share which is consistent with the arbitration ruling on the Malampaya project; as well as cost indexing to prevailing market prices.
The Malampaya gas field had been the biggest commercial discovery that the Philippines had so far, and with it already anticipating production decline in the near-term, the country is badly in need of new commercially producing reservoir to replace it.