EXXON'S entry into the country represents the government’s first real success in attracting a major player to its upstream oil segment. Royal Dutch Shell and Chevron, the operators of the large Malampaya gas project, have so far shied away from committing investment to assessing the country’s oil potential.
Exxon is planning to spend around $100 million on drilling the Dabakan-1 well in the Sulu Sea, located between the Palawan Island and the country’s main archipelago.
Set to be drilled to a depth of 1,800 metres, Dabakan-1 will be the Philippines’ first deepwater exploration well. Spudding is scheduledsoon and drilling is expected to be completed in December-January. The well is located in Service Contract 56 (SC56), which is operated by ExxonMobil (50 per cent), Malaysian explorer Mitra Energy (25 per cent) and, as of September 2009, Australian mining group BHP Billiton (25 per cent).
BHP’s decision to exercise its farm-in option with Mitra is of interest. The company has been showing signs of interest in the Philippines’ upstream segment for several years, but has so far refrained from making large commitments. Exxon’s decision to go ahead with the drilling, three years after signing the contract for the licence, appears to have convinced the Australian firm to take the plunge, thereby sharing the costs and risks with Mitra while benefiting from the partnership with Exxon. Should the drilling produce positive results, other foreign companies could follow suit into the Philippines’ exploration sector.
Exxon estimates SC56’s reserves at 750 million barrels (bbl) of oil, making it by far the most prospective frontier block in the country. Should Dabakan-1 prove successful, the company’s Philippines manager Ian Fischer has plans to invest an additional $100 million on drilling another well on the licence. A commercial oil discovery on SC56 could open up a new oil basin in the Philippines. Currently, the majority of the country’s hydrocarbon production comes from the area offshore the western coast of Palawan island, rather than offshore the eastern coast in the Sulu Sea.
The Philippines’ proven oil reserves of an estimated 175 million bbl ( BP Statistical Review of World Energy, June 2009) will fall steadily unless there is a major step up in exploration activity, with BMI forecasting 170 million bbl for 2013. A sizeable number of smaller explorers are gradually taking up service contracts, but progress is at a relatively early stage. Exxon’s SC56 apart, attempts by the state-run Philippines National Oil Company (PNOC) to attract large international partners into its upstream oil projects have met with limited success, with several stake tenders expiring without attracting any bids.
