PNOC-EC backs scrapping of EO on bidding for partners

By Danessa Rivera (The Philippine Star) | Updated September 20, 2016 - 12:00am

http://www.philstar.com/business/2016/09/20/1625376/pnoc-ec-backs-scrapping-eo-bidding-partners

MANILA, Philippines - PNOC Exploration Corp., the oil and gas exploration arm of state-owned Philippine National Oil Co., favors the scrapping of Executive Order (EO) 556 to help the country’s upstream industry move forward.

The EO, issued by former president Gloria Arroyo, mandates government corporations to undergo public bidding to look for partners in service contracts (SCs) in the upstream and downstream industry.

However, this has been a “major stumbling block” of the state-owned firm in the upstream industry, PNOC-EC president and CEO Pedro Aquino Jr. said in a recent Senate hearing.

“Oil exploration is a very expensive business, highly risky. And it would be absurd for us to ask would-be investors or partners to undergo public bidding. Because if we’re able to sell the area and they are confident to come in…for us to tell them to undergo a public bidding is really very, very absurd,” he said.

Aquino said the company is looking for partners to develop eight SCs under a 10-year work program.

“We want to share the risk because even the big companies like Shell, they resort to farm-out to spread the risk. But in our case, we cannot do that simply because of this EO, nobody wants to undergo a bidding process just to participate,” he said.

Because of the low success rate in the upstream industry, the PNOC-EC official said they can only offer a 10 percent share from the SCs.

“Out of 100 is just 10 percent. And investors are willing to buy that 10 percent. But if I make life for them difficult, they might as well take their money and invest it somewhere,” Aquino said.

Currently, the Philippines already has low investments in exploration compared with its Southeast Asian peers, with only 700 wells drilled so far versus 200 to 400 wells annually in Indonesia for example, according to the Petroleum Association of the Philippines (PAP).

Previously, PNOC-EC auctioned off a farm-in agreement for SC 37 in Isabela province. The Mangosteen prospect in the SC showed it has an estimated recoverable resource potential of about 71 billion cubic feet (BCF), which could complement the Malampaya gas-to-power project offshore Palawan especially when the latter’s contract expires in 2024.

However, Aquino said the public bidding did generate any interest from the private sector.

So instead of undergoing public bidding, PNOC-EC is proposing to invite the best possible partner, which will be approved by its board, and the Department of Energy (DOE) will have the final say, the company official said.

For the DOE, this is one of the options the agency is looking at, DOE Undersecretary Felix William Fuentebella said.

“It’s only one of the items that we’re looking at. We’re also looking at the GCG (Governance Commission for GOCCs) intervention. We’re also looking at the Procurement Reform Act. And we might be able to look into the need to strengthen the GOCCs or to get rid of them. We cannot be stuck in the middle,” he said.