'Malampaya case affects other oil fields, Spratlys claim'

Jesus F. Llanto, Newsbreak

Posted at Sep 02 2009 02:33 PM | Updated as of Sep 04 2009 03:45 AM

Limiting Palawan’s jurisdiction isn’t just about who gets control of US$10 biilion in revenues

The position of the national government that the Malampaya natural gas project is outside the territory of Palawan province has implications more far-reaching than cornering the entire US$8.1 billion to $10 billion expected revenues from the reservoir, experts say.

Should the court decide in favor of Malacañang, Palawan will lose its entitlement to multi-billion-dollar earnings not just from Malampaya but from 2 other commercially viable oil fields in its waters, Galoc and Nido-Matinloc.

Aside from these, there are more than a dozen other explorations in the waters around mainland Palawan for potential oil and gas deposits. In other parts of the country, 19 other explorations are being conducted, although most of them are inland.

Legal experts also say that if the national government will not recognize Palawan’s jurisdiction over Malampaya, it will weaken the country’s territorial claim on the Spratlys islands in the South China Sea.

Effectively shrinking Palawan’s territory will place the Philippine farther from the Spratlys; currently, it is the claimant country nearest the oil-rich group of islands.

The case filed by the provincial government of Palawan against the national government, to invoke its right to get legally mandated 40% of the gross revenues from the Malampaya project, has reached the Supreme Court. Another case questioning the legality of an interim agreement between the Palace and Palawan, which reduces to 20% the province’s share, has been consolidated with the first case. Oral arguments were heard on Tuesday.

41 million barrels

The Malampaya reservoir is estimated to have recoverable reserves of 2.7 trillion cubic feet of natural gas reserves and 85 million barrels of condensate. While operational since 2001, it is expected to produce oil in 2010, estimated to reach as much 41 million barrels, according to the US Energy Information Administration website. (Current world market prices peg a barrel of oil at $70).
 
The project is operated by a consortium composed of Shell Philippines (45%) and Chevron-Texaco (45%). The government has a 10% stake in the project through the Philippine National Oil Company-Exploration Corporation (PNOC-EC), the oil and gas subsidiary of the state-owned PNOC.

The national government expects revenues of $8.1 billion to $10 billion from the project. Of this amount, Palawan is claiming a share of $2.1 billion, citing a provision in the Constitution that the locality where natural wealth is exploited and developed is entitled to a just share in the revenues from the undertaking. The Local Government Code sets the local government units’ share at 40% of gross revenues.

Palawan’s jurisdiction over Malampaya and the 60-40 revenue sharing scheme between the national and local governments have been acknowledged by past presidents. President Arroyo acknowledged these, too, early in term. She changed her mind when the commercial operations of the project started in October 2001 and she was told of the estimated earnings.

The national government contends that Palawan’s jurisdiction ends 15 kilometers into its municipal waters. Since Malampaya is located 80 kilometers from the shore of El Nido town, the Palace says, it is therefore outside the province’s territory.

“Beyond this limit, the authority and jurisdiction to enforce the laws of the Philippines rests with the National Government through the Philippine Navy, Philippine Coast Guard, Philippine National Police-Maritime Command, and the Department of Agricultutre,” the national government’s petition for review filed in February 2006 reads.

Highest concentration

Local officials are worried that the result of the legal battle over Malampaya would also affect the sharing scheme from the revenues of other petroleum production activities in Palawan.

In fact, a court decision upholding the national government’s claim of jurisdiction over Malampaya would affect the 13 other explorations, and therefore potential commercial projects, around mainland Palawan.

The bodies of water surrounding Palawan are host to commercial oil and natural gas fields that comprise a huge chunk of the petroleum reserves of the Philippines.

“The Philippines is surrounded by oil-rich basins of Indonesia, Sabah, and China,” an energy industry expert, who asked not to named, told Newsbreak. The area around Palawan, he said, has high potential for oil discovery.

A list of service contracts from the oil and gas division of the energy department showed that of the 34 service contracts for oil exploration as of March 2009, 15 are surrounding mainland Palawan. (See the list  and map of petroleum service contracts as of March 25, 2009.)

“Most of our discoveries are in Palawan, especially in the northwest portion of Palawan where Malampaya is,” energy undersecretary Ramon Allan Oca told Newsbreak, adding that the province’s geology is similar to its oil-rich neighbors Malaysia and Indonesia.

The northwestern side of Palawan alone, the industry expert told Newsbreak, has a discovery rate of 47%, which is higher than in other parts of the country. In Southwestern Palawan, it’s 28%; Southeastern Luzon, 20%; Cagayan Valley 18%; Sulu Sea, 12%; and  the Visayan Basin, 9%.

Galoc proceeds

The northwestern portion of Palawan is also the area where two other wells are located, Galuc and the Nido-Matinloc. (See the map showing location of Malampaya, Galoc and Nido-Matinloc.)

Galoc, an oil field where operations started in October 2008, is said to have a potential oil reserve of 10 billion barrels. On its first 90 days, it produced 20,000 barrels a day, which is equivalent to 6% of the daily demand for oil.

Like Malampaya, it is on northwestern Palawan. Located 70 kilometers west of Culion Island, Galoc, like Malampaya, is beyond the 15-kilometer municipal waters where the province has jurisdiction, according to Malacañang’s definition.

Definite proceeds from the Nido-Matincloc operations are difficult to estimate it because production there is cyclical—there are periods that there are no production.

This early, Palawan Vice Governor David Ponce de Leon expressed concern that an unfavorable decision on the Malampaya case will affect their claim on the shares from the Galoc oil field, which is located about the same distance as Malampaya.

The decision may eventually force a review of the Palawan government’s revenue share from the oil production in West Linapacan.

The West Linapacan oil fields are also outside the 15-kilometer municipal waters of the province, but Palawan received P116 million from their operations from 1992 to 1998. (See the certification showing amount of oil revenues received by Palawan from 1992-1998. )

The amount, as certified by the provincial treasurer, represented Palawan’s 40% share in the oil revenues from West Linapacan oil fields.

Discovered in 1991 by Alcorn Petroleum, the West Linapacan field was producing 17,000 barrels of oil per day (BOPD) and produced a total of 6 million barrels of oil when its operation was suspended in January 1996.

LGU authority

Governance experts are of the opinion that the authority of the local government units on the Malampaya project has been established.

Local officials said that when the Malampaya project was still on its initial stage, the contractors or operators sought the endorsements of the municipal government of El Nido and the provincial government of Palawan.

Antonio La Vina, dean of the Ateneo School of Government and former environment undersecretary, told Newsbreak that local governments usually give endorsements to obtain the environmental impact assessment of the project.

“I do not think it has ever been an issue to the operator that local governments had jurisdiction,” La Vina said in an e-mail interview.

When the case was being heard at Regional Trial Court in Palawan, local officials presented the environmental compliance certificate of the project to prove that it is located northwest of Palawan, and a declaration from the provincial assessor to show that the project is subject to the taxing powers of provincial government.

Alex Brilantes, dean of the University of the Philippines National Center for Public Administration and Governance, said that these permits and endorsements from Palawan showed that the local government exercise jurisdiction on the project.

“These are recognitions of the authority of the LGU on such resources,” Brillantes told Newsbreak.

El Nido Mayor Leonor Corral told Newsbreak that all activities of the project pass through El Nido and that their municipality is the host of the Joint Task Force Malampaya, which safeguards the project.

“The lot where the task force is headquartered was given by the municipality,” Corral said.

Lawyer Harry Roque, one of those questioning the interim revenue-sharing agreement between Palace and Palawan, said that the “local versus national territory” issue should not be raised om the first place because the Philippines is a unitary and not a federal state.

“Everything is national jurisdiction except that there is constitutional provision and a legislative policy which allocates 40 percent of gross [revenues] to local government units,” Roque said, referring to the Local Government Code provision.

“In case that a crime happens there (Malampaya project), who will prosecute? It's the regional trial court in Palawan. In case of tax on concession agreements that has a local tax, who will collect? It’s the municipality in Palawan,” Roque said.

Distance to Spratlys

Aside from the impact of the Malampaya case on the revenue-sharing scheme between the national and local governments, it may either weaken or boost the Philippine claim on the Spratlys, a chain of islands believed to be rich in petroleum resources.

The Philippines is one of the claimant countries to the Spratlys, which has oil deposits ranging from 2 billion to 200 billion barrels, according to various estimates by local and foreign scientists and engineers.

The country, aside from being nearest the contested islands, has initial geologic evidence that its continental shelf in Palawan was once connected to the Spratlys.

Should the Philippines get its hands on the Spratlys oil reserves, it can cover its petroleum requirements for 15 to 215 years. (Read “Making A Claim.” )

However, says Roque, who is an expert in international law, if the national government will say that Malampaya, which is approximately 80 kilometers from the coast of mainland Palawan, is not part of the province, it’s effectively placing the territory farther from the Spratlys.

Palawan Governor Joel Reyes told Newsbreak that saying that Malampaya is not part of Palawan is tantamount to saying that Kalayaan Islands Group (the local name of the Spratlys) is also not part of their province.

“Our last municipality is Kalayaan and Malampaya is nearer to mainland Palawan. If you say that Malampaya exploration is outside Palawan, it’s like saying that Kalayaan is not part of the Philippines,” Reyes said.

Kalayaan became a municipality of Palawan on June 15, 1978 by virtue of former President Ferdinand Marcos Decree No. 1596.

Palawan Vice Governor David Ponce de Leon, a lawyer, told Newsbreak that the fact that Malampaya is nearer to mainland Palawan than Kalayaan is strong proof that they have jurisdiction over the project.

“If Kalayaan, which is 300 kilometers from Palawan is part of the province, how can this 80-kilometer [far] natural gas project be not within Palawan?” he said. - Newsbreak

(To be concluded)

Read part 1: Palace, Palawan face off over Malampaya’s $10 billion