"The Philippines and China should come up with a legally binding framework within a 12-month period that would guide joint gas and oil exploration activities in the disputed waters in the years ahead."
During the state visit of Chinese President Xi Jinping in November last year, the Philippines and China signed a memorandum of understanding (MOU) to establish a framework for future talks on joint oil and gas exploration in the disputed Recto Bank in the West Philippine Sea.
The MOU stipulates a deadline of 12 months in which the two parties would agree on areas and arrangements on how to pursue joint exploration activities. It says that the two sides “decided to negotiate on an accelerated basis arrangement to facilitate oil and gas exploration and exploitation in relevant maritime areas consistent with applicable rules of international law.”
All negotiations under the MOU "will be without prejudice to the respective legal positions of both governments," and “does not create rights or
obligations under international or domestic law." Moreover, the MOU itself states that it was drawn up in the context of the United Nations Convention on the Law of the Sea (UNCLOS) and the 2002 Declaration on the Conduct of Parties in the South China Sea and positive dialogue between the two countries.
Supreme Court Senior Associate Justice Antonio Carpio, a staunch critic of the Duterte administration's position on the West Philippine Sea dispute, is said to have no objection to the MOU provided that cooperation with China on oil and gas activities will be through service contractors who should expressly recognize that the area falls within Philippine sovereignty or sovereign rights.
But there is an obstacle to achieving the goal of the MOU: this is the moratorium on oil exploration covering the disputed Recto Bank or Service Contract 72 (SC 72) in the West Philippine Sea. The moratorium is the end-result of the case lodged in 2013 by Manila against Beijing before the Permanent Court of Arbitration at The Hague in the Netherlands that was eventually decided in our favor in July 2016. Here, the arbitration court ruled that Reed (Recto) Bank, where SC 72 lies, is within the Philippines’ exclusive economic zone (EEZ) as defined under UNCLOS.
The moratorium was imposed by the Department of Energy on Dec. 12, 2014 upon the recommendation of the Department of Foreign Affairs. It remains in place until the DFA notifies the affected parties that they can commence drilling activities.
The DOE has recommended to the DFA the lifting of the moratorium following the request of Forum GSEC, a wholly owned subsidiary of Forum Energy which has a 70 percent participating stake in SC 72. PXP Energy, formerly Philex Petroleum, holds a 78.98 percent direct and indirect interest in Forum Energy.
Apart from PXP Energy, the state-owned Philippine National Oil Company-Exploration Corp. (PNOC-EC) is also eyeing exploration work in the West Philippine Sea.
The DOE has opened to interested investors 14 prospective petroleum areas for exploration under the Philippine Conventional Energy Contracting Program (PCECP). All these 14 areas are within the Philippines’ EEZ and covers onshore and offshore blocks in Luzon and Mindanao.
Forum GSEC has urged the DOE to lift the moratorium on SC 72. It said this will not only be a positive development for its SC 72 block but also for the country because it will allow them and another company with a stake in SC 72—Monte de Oro—to resume exploration and appraisal activities in the area, which include the drilling of two appraisal wells on their Sampaguita gas discovery. This discovery is said to contain approximately 2.5 trillion cubic feet of recoverable gas that would be a new source of gas as replacement for Malampaya, which is expected to start a decline in production by 2022.
The two firms will spend at least $80 million to $100 million in the next two to three years to fully appraise the Sampaguita Gas Field and other identified prospects within the contract area.
The DOE imposed the moratorium on exploration in Recto Bank five years ago, but it wants to defer to the DFA in determining the resumption of such activities. Meantime, it has already opened communications with China’s National Energy Commission, which is its counterpart in China.
What is ideal is for the two countries to come up with a legally binding framework within a 12-month period that would guide joint gas and oil exploration activities in the disputed waters in the years ahead.
The Philippines needs to beef up energy security as we are already trailing behind our neighbors in upstream petroleum activities. With accelerated infrastructure development activities in the coming years and Malampaya about to run out of steam, oil and gas exploration in Recto Bank must start not later than 2027 as it will take at least six years for it to pump out its first output.