Duterte relaxes rules on oil and gas development deals

Arianne Merez, ABS-CBN News

Posted at May 30 2019 06:08 PM

MANILA- President Rodrigo Duterte has issued an executive order making it easier for the government to enter into oil exploration and development deals with third parties.

Duterte, through Executive Order 80, allowed third parties to participate in service contracts awarded by the government to the Philippine National Oil Company Exploration Corporation (PNOC-EC), the upstream oil, gas and coal subsidiary of the state-owned Philippine National Oil Company.

“In all cases, PNOC-EC shall enter into farm-in/farm-out agreements only with reputable, technically competent and financially capable entities,” the order stated.

According to Duterte's order, farm-in or farm-out refers to a practice of allowing the entry of third-parties to spread the risks inherent in oil and gas exploration, development and production.

It repealed the Arroyo administration's EO 556, which banned the awarding of farm-in or farm-out contracts by any government agency, including the PNOC and required it to "follow a strict bidding procedure" in selecting parties for oil exploration.

The Department of Energy (DOE) has long been pushing for the repeal of the Arroyo-era EO to allow a pending joint exploration in Service Contract (SC) 57 to push through. 

SC 57 refers to an area under the exclusive economic zone (EEZ) of the Philippines. 

According to the contract, state-run China National Offshore Oil Company (CNOOC) farmed in into SC 57 in 2006, acquiring 51 percent participating interest.

Arroyo's EO prohibits farming in, but its amendment would allow SC 57 to push through, according to Energy Secretary Alfonso Cusi.

The DOE, under Duterte's new order, is tasked to issue regulations specifying the third party selection process for the PNOC-EC. 

All farm-in or farm-out agreements to be undertaken by the PNOC-EC must be approved by the energy department.

“The DOE shall take into consideration provisions of existing government selection procedures that enhance transparency and objectivity in the selection process, including GCG issuances requiring that contracts to be entered into by the government-owned and/or controlled corporations undergo review by the Office of the Government Corporate Counsel,” the EO stated.

Duterte's new order comes months after the Philippines and China signed a memorandum of understanding on oil and gas development in the disputed South China Sea.

Under the MOU, the 2 countries will set up an inter-governmental joint steering committee that will be "responsible for negotiating and agreeing the cooperation arrangement and maritime areas to which it will apply."

China claims almost the entire South China Sea, believed to be rich in energy reserves and marine resources, conflicting with partial claims of the Philippines, Brunei, Malaysia, Vietnam, and Taiwan.

In 2016, the Philippines won a case at the Permanent Court of Arbitration in The Hague, which invalidated China’s claim to sovereignty over most of the South China Sea, and also made clear that the potentially oil-rich Reed Bank was inside the Philippines’ exclusive economic zone (EEZ). 

China does not recognize the ruling and has instead ramped up its militarization efforts in the vital waterway.