November 21, 2017 | MANILA, PHILIPPINES

MVP hopes bilateral consultation to spur resumption of gas exploration

PXP Energy Corp. is hoping a recently formed bilateral consultation mechanism between the Philippines and China may pave the way for the resumption of exploration of gas resources in the South China Sea, its chairman said on Friday.

PXP Energy Chairman Manuel V. Pangilinan told participants of the BusinessWorld Economic Forum that the consultative mechanism could agree on the code of conduct in the region, "which will help us explore and hopefully develop" the area.

He said the Philippines needs to set aside sovereignty issues and build ties with China to move forward the exploration and development of resources in South China Sea, referred locally as the West Philippine Sea.

"Our view has always been that, setting aside the sovereignty issues, which of course, are very important to the Philippines... we need a relationship. We need to deal with China. They are undoubtedly an economic and military superpower. They are the 800-pound gorilla in our backyard," he said during the forum at the Shangri-La at the Fort in Taguig City.

Mr. Pangilinan said his company is encouraged that the Duterte government had provided an "accommodating environment with its open, constructive approach to China."

"We know that Malampaya will start depleting in 2024. It is imperative that we start looking for alternative sources of gas now, failing which, gas will have to be imported. It's as simple as that," he said.

Mr. Pangilinan said the country could not afford to simply leave the three natural gas-fired powered plants in Batangas province, with a combined capacity of around 2,000-3,000 megawatts (MW), to be "stranded."

"Brownouts will ensue for certain," he said. "I know there are plans to build a gasification facility out there in Batangas and that makes sense because we don't know whether there's actually gas in the South China Sea."

"Of course, we don't know whether we could come in, enter the area without some understanding with China," he said.

The critical step, Mr. Pangilinan said, is to first determine if there are indeed commercial gas resources in the area. But in 2012, he said the company, then named Philex Petroleum Corp., disclosed its best estimates of the contingent resources in the north bank of service contract (SC) 72.

"Those resources are equivalent to about 2.6 trillion cubic feet of gas, about the size of Malampaya when it started, plus oil and condensate gas of 65 million barrels equivalent," he said.

"There's, of course, no assurance at this time that these estimates are accurate until further drilling and technical evaluations are made. So it is important again that we have to enter the area precisely to do our test drilling and that's part of our program approved by the Department of Energy (DoE). But we have not moved since 2014," he said.

PXP Energy directly and indirectly owns 77.5% of Forum Energy Ltd., a London-listed company whose main asset is a controlling interest in offshore exploration SC 72 west of Palawan island in the disputed seas. SC 72 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 Forum Energy that it may continue drilling.

The Malampaya gas field began production in 2001. Its reserves is expected to start running out by around 2022 to 2024. The natural gas project delivers up to 20% of the country's electricity requirements.

On Friday, shares in PXP Energy climbed 3.63% to P3.71 each.