It will be a matter of time before most oil and gas exploration companies leave the Philippines in the wake of plunging crude prices.
The erstwhile high oil prices in the international market have served as the biggest incentive for exploration companies to try their luck in this part of the world. Notwithstanding the marginal oil fields discovered so far, mostly in northwest Palawan, exploration firms have scoured deep waters in the Philippines in search of a world-class, major find.
Falling oil prices, however, have started to dampen the hopes of oil and gas exploration companies. Crude prices have dropped to below $30 a barrel from near $100 a barrel just a year ago. One can just imagine how the sharp price drop has drastically altered the numbers earlier crunched by hopeful companies.
Otto Energy Ltd. of Australia is one company that has lost its patience in local exploration. Otto is leaving the Philippines to focus on oil and gas exploration in the US and Africa.
Otto Energy confirmed in its quarterly report that it “commenced structured exit from Philippine assets.” The company plans to sell its stake in service contract 55 southwest off Palawan, after seeking a two-year moratorium on exploration with the Energy Department.
It is also exiting SC 73, or the offshore Mindoro-Cuyo prospect, which was awarded to the company in 2013. A source said Otto Energy planned to develop other assets with “better potential” in other areas.
Otto Energy is not in the league of British energy giant BP or Exxon Mobil. It does not have enough resources to spend on speculative areas with big potentials. SC 55, which contains the Cinco prospect, for instance, has a strong potential and requires investment from large oil and gas companies.
The source said Cinco and other gas leads in SC 55 would be large enough to replace Malampaya “but it will take major oil companies much bigger than Otto to effectively explore and develop these gas prospects.”
“The low oil price regime is good for consumers but it is indeed bad for the oil industry because oil companies stop exploiting,” he said.
ExxonMobil Exploration and Production Philippines B.V., a unit of ExxonMobil, meanwhile, is unlike Otto Energy. It is on the prowl for a major discovery in the Philippines and plans to join the latest auction of oil and exploration blocks.
ExxonMobil spent over $400 million in an unsuccessful drilling of four wells in a Sulu Sea prospect in 2010. It withdrew from service contract 56 in Sulu Sea after finding“non-commercial quantities of gas” but appears to have renewed its interest in other areas. But plunging oil prices may force it to temporarily shelve its Philippine plan if the bottom line becomes discouraging.
The sharp drop in oil prices has devastated British energy giant BP. It registered its biggest loss in at least 20 years, and cut another 3,000 jobs. BP suffered a loss after taxation of $6.48 billion (5.97 billion euros) in 2015, compared with a net profit of $3.78 billion in 2014.
The company said it would reduce 3,000 positions in its downstream business—including refining, marketing and distribution—by the end of 2017. A report said earnings were hit by a $2.6-billion charge in the fourth quarter that was mostly linked to impairments in the upstream division, or exploration and production, as well as restructuring costs.
BP took another $12-billion hit for the Gulf of Mexico oil spill, taking its total bill for the tragedy to $55.5 billion, according to the report.
State-owned PNOC Exploration Corp. is another company whose operations are greatly dependent on oil prices. It reported an unaudited net profit of P1.426 billion in 2015, down 41 percent from P2.43 billion in 2014. PNOC Exploration’s revenues also declined to P4.717 billion last year from P6.6 billion in 2014 following a decline in world oil prices.
The oil and gas exploration of Philippine National Oil Co. receives the bulk of revenues from the Malampaya gas field in northwest Palawan, where it holds a 10-percent stake.
Gas prices from the Malampaya field is indexed on the movement of world oil prices.
PNOC Exploration president Pedro Aquino Jr. earlier said the company was looking at ways to mitigate the impact of low oil prices on operations.
“We are currently experiencing some hiccups in our operations brought about by the sharp decline in the price of crude. But this does not deter us from pursuing our mandate to explore and develop new oil and gas sources,” PNOC Exploration president Pedro Aquino Jr. said. “Management is trying its best to alleviate the effects of crude oil price in our declining revenue by looking at other sources that could bring substantial income to the company.”
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