Forum Energy Plc of the UK, controlled by Philex Petroleum Corp., said Tuesday the government declared a force majeure on service contract 72 (Recto Bank) in West Philippine Sea because of the territorial dispute with China.
Forum, which already spent around P1 billion for pre-development activities in SC 72, said in a statement to the London Stock Exchange the Energy Department declared a force majeure on SC 72 “as this contract area fails within the territorial disputed area of the West Philippine Sea which is the subject of the United Nations Arbitration process between the Philippines and China.”
A force majeure is declared because of risks beyond the control of a party in a contract. This effectively suspends the contract for a particular period and frees the parties involved from liability or obligation.
“Under the terms of the force majeure, all exploration work at SC 72 is immediately suspended [effective from December 2014] until the DoE notifies the company that it may commence drilling. As a result, the second sub-phase of SC 72 has been put on hold until further notice,” Forum said.
Forum spent P1 billion for preparatory activities in SC 72, Philex Petroleum chairman Manuel Pangilinan told reporters.
Pangilinan said Forum was asked “not to engage in any activity” in SC 72 and “we understand the arbitration case filed against China is still pending.”
“[I] Don’t think anything will happen this year, at the earliest 2016,” Pangilinan said. He said the declaration of force majeure would allow for an automatic extension of the work program.
Forum Energy has not yet conducted a seismic study over the gas and oil-rich area, but its service contract is set to expire in 2016.
Pangilinan said despite the force majeure declaration, Philex was bullish on other oil and gas prospects in the country. He said the company might look at other areas owned by Philex Petroleum and Pitkin Petroleum Plc.
Philex Petroleum holds a 60.45-percent direct and indirect interest in Forum Energy, which in turn owns a 70-percent operating interest in SC 72. The Energy Department earlier extended Forum’s exploration license by another year or until August 2016.
Pangilinan said China would not likely surrender its claim. “I don’t think China will give up its claim on sovereignty,” he said.