Palace issues EO allowing PNOC unit to take on partners for service contracts

PRESIDENT Rodigo R. Duterte signed an executive order (EO) authorizing the Philippine National Oil Co.-Exploration Corp. (PNOC EC) to take in equity participants for service contracts it acquired in its own name.

Mr. Duterte signed on May 28 EO No. 80, “Rationalizing the Rules for the Engagement of Third Party Participants Under Petroleum Service Contracts, Repealing for the Purpose Executive Order No. 556 (s. 2006).”

The repealed EO No. 556, issued by former President Gloria Macapagal-Arroyo on June 17, 2006, prohibits so-called “‘farm-in’ or ‘farm-out’ contracts awarded by any government agency, including the Philippine National Oil Company (PNOC).”

Mr. Duterte’s EO No. 80 states that PNOC EC, the upstream oil, gas and coal subsidiary of the state-owned PNOC, is now “permitted to enter into farm-in/farm-out agreements” because the practice is “recognized and accepted” in the energy exploration industry.

“The entity acquiring the participating interest considers the transaction as ‘farm-in’, while the entity transferring such interest considers the transaction as ‘farm-out,’” according to the EO.

Under the EO, third parties “can participate in the service contracts awarded by the government to PNOC EC.”

PNOC EC can also “participate in the service contracts awarded by the government to third parties.”

Mr. Duterte’s EO also requires PNOC EC “in all cases” to enter into such agreements “only with reputable, technically competent and financially capable entities.”

The Department of Energy (DoE), in consultation with Government Commission for Government-Owned or -Controlled Corporations (GCG), will issue rules and regulations for the selection process to be followed by PNOC EC when selecting third-party partners.

The DoE, according to the EO, should take into consideration “provisions of existing government selection procedures that enhance transparency and objectivity in the selection process, including the GCG issuances that require contracts entered into by GOCCs to undergo review by the Office of the Government Corporate Counsel.” Both the DoE and the GCG should also closely monitor compliance with the selection guidelines.

Energy Secretary Alfonso G. Cusi said at a briefing at the Palace on Nov. 7, 2018, that PNOC EC had a problem partnering with China National Offshore Oil Corp. (CNOOC) for the Service Contract (SC) 57 because of Ms. Arroyo’s EO.

“Service contract number 57 has issues (regarding) farming-in… because that service contract is owned by PNOC EC and then [it] needs a partner to pursue further exploration and exploitation… when the time comes. So they have been looking for partners and one partner that had shown interest is CNOOC,” he said during the briefing.

He added: “I think the best proposal is coming from CNOOC and PNOC EC cannot continue the agreement or the acceptance of CNOOC’s proposal until that EO is amended.”

Located off northwest Palawan, SC 57 was awarded to PNOC EC in September 2005. CNOOC acquired 51% participating interest in the contract in April 2006, while Mitra Energy Ltd. acquired 21%. Its deed of assignment remains pending with the Office of the President. — Arjay L. Balinbin