DOE to issue rules on PNOC-EC deals

Published June 2, 2019, 10:00 PM By Myrna M. Velasco

https://business.mb.com.ph/2019/06/02/doe-to-issue-rules-on-pnoc-ec-deals/

Following the issuance of Executive Order (EO) 80 that reinstated farm-in and farm-out agreements for Philippine National Oil Company-Exploration Corporation (PNOC-EC), the Department of Energy (DOE) indicated that it will need to issue the guiding rules that shall govern the state-run company into these deals.

Such supplemental rule-making for the Malacañang-administered EO will be done in collaboration with the Governance Commission for Government-owned or -controlled Corporations (GCG), according to the DOE.

Two foreign firms – the China National Offshore Oil Corporation (CNOOC) and Spanish energy giant Repsol S.A – have been awaiting the farm-in, farm-out reinstatement policy for state-run PNOC-EC so they can enter into the blocks they have been eyeing to invest in at the country’s petroleum basins.

At this stage though, Energy Assistant Secretary Caron Aicitel E. Lascano noted that “we have yet to issue rules and regulations in coordination with the GCG on the selection process to be observed by PNOC-EC.”

That rule crafting, she said, shall be done as soon as the department holds its preliminary meeting with the agency which is overseeing the affairs of state-run companies like that of PNOC-EC.

EO 80 that was issued by President Rodrigo Duterte last week basically served as a “corrective measure” to the Executive Order 556 that was administered by the former Arroyo administration – barring PNOC-EC then to engage in farm-in, farm-out transactions on its petroleum service contracts.

The Arroyo-underwritten policy instead changed the course for PNOC-EC to undertaking bidding when there are other companies wanting to partner with it on its petroleum exploration activities. Nevertheless, that is not the practice accepted globally when investors want to acquire or assign interests in their respective service contracts.

A farm-in deal entails the entry or purchase of shareholdings by an investor into a petroleum service contract held by another company; while a farm-out deal often delves with transfer of assets in exchange for services of the company wanting to come in as investor in a block.

For CNOOC, it has long wanted to corner interest in Service Contract (SC) 57 at the Calamian block in Northwest Palawan; and Repsol is targeting acquisition of participating interest in SC 59 or the West Balabac petroleum block in southwest Palawan.

Under the tenure of Energy Secretary Alfonso G. Cusi at the energy department, this is already the second policy that had gotten rectification – the first one was the income tax payment treatment for the multi-billion Malampaya gas field project.

With the rules being made clearer, the energy department is raising hopes that it would be able to corner fresh capital flow in the upstream segment of the country’s oil and gas industry.

The remaining biggest hurdle is the lifting of moratorium on exploration and drilling in the diplomatically saddled West Philippine Sea, which until now is in tedious discussion with the Department of Foreign Affairs as well as with the government of China.