PXP Energy Corp. joined the Petroleum Association of the Philippines in asking the government to retain the tax incentives for the oil and gas industry amid the search for the next Malampaya gas field.
The PAP said it wanted the Presidential Decree 87 that promoted the discovery and production of indigenous petroleum to be excluded from the proposed Package 2 of the Tax Reform for Acceleration and Inclusion law.
Package 2 of the Train law aims to streamline the tax incentives given to companies and reduce the corporate income tax to 25 percent from 30 percent.
“It’s a concern that the petroleum association has expressed… It’s something to consider because Malampaya is regarded to start running out by 2022 and few years after we will lose the gas, so we have to import gas,” PXP Energy chairman Manuel Pangilinan said.
PXP Energy controls Forum Energy Plc. which holds a 70-percent stake in service contract 72 or the Recto Bank, which is a part of the West Philippine Sea area disputed by the Philippines and China. Exploration in the area has been put on hold.
PXP Energy is hoping that the reserves of the Recto Bank could rival if not surpass the Malampaya gas field in northwest Palawan.
The Petroleum Association of the Philippines asked the government to continue to grant incentives to the industry given its “high risk” nature.
“The first critical question: Is there gas field opportunity in the Philippines including the West Philippine Sea, and I think probably yes. And we have to find out where, how much does it have in terms of reserves, is it commercially feasible or is it better to import gas,” Pangilinan said.
Pangilinan said new commercial gas projects would take about 10 years to develop, thus the Philippines would have to import gas to bridge the gap.
“Now in the interim, I think we have to import gas because it takes a minimum of 10 years to develop a meaningful gas filed the size of Malampaya so we need to decided on a gas terminal. Then the question is who builds that? Is it the private sector the government,” he said.
PAP chairman Rufino Bomasang said this was not a good time to remove the incentives for the upstream petroleum industry considering the importance and urgency of finding indigenous petroleum and given the lack of active exploration activities because of the apparent policy instability.
“Malampaya gas, the main indigenous hydrocarbon resource, is projected to be depleted in a few years. Clearly, therefore, there is an urgent need to accelerate oil exploration and look for the next Malampaya,” he said.
Bomasang said the service contract system with all its incentives under PD 87 enabled the Philippines to attract local and foreign companies, including the majors, who were finally able to discover indigenous oil and gas in commercial quantities.
PD 87 offers attractive financial incentives, including tax-free importation of equipment and supplies, exemption from all taxes except income tax, income tax assumption (i.e. payment of income tax out of the government’s share), accelerated depreciation, free market determination of crude oil price and easy repatriation of investments and profits for the industry.
Under PD 87, the Philippines succeeded in attracting technically and financially qualified companies and drilling of more wells which resulted in commercial discoveries offshore northwest Palawan including the Camago-Malampaya gas complex.
“This is a very high risk industry which is different from all others, but of vital and strategic importance to national energy security. It definitely needs these incentives more than ever before,” he said.