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Friday, 27 May 2011 James McGrath

Tuesday, 20 September 2011

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Philippine Sunrise

YILGARN Gold was an unloved penny dreadful that decided to focus entirely on oil and gas assets in the Philippines, and it hopes to reap the rewards within the coming month.
Now Kairiki Energy, the company expects to turn its 4 cent valuation into 30-50c on the basis of what its sitting on. Spudded on May 20, the drilling of the Gindara-1 well in the Palawan Basin offshore Philippines by operator Nido Petroleum has the potential to tap an unrisked oil-in-place resource of 1 billion barrels with an estimate of a 40% success rate. Kairiki holds a 22% interest and Nido 33%. So how do a couple of Aussie juniors like Kairiki and Nido go unnoticed while sitting on a resource like that? Well, they dont. The Philippine arm of Royal Dutch Shell has taken a 45% stake in the prospect, with the major to contribute up to $US24 million ($A22.49 million) for Gindara-1. As Kairiki Energy managing director Mark Fenton told EnergyNewsPremium: Majors only go in if they think something significant is there, so Shell going in is definitely a good thing it gives us and investors confidence in the asset. BHP Billiton too, has gone in for a slice of the offshore Philippines pie, farming into Otto Energys SC55 permit. SC55 contains a number of gas and condensate targets with total unrisked potential mean recoverable resources at the Nido carbonate level of 19 trillion cubic feet of gas and 670 million barrels of condensate. STORY IMAGE SLIDESHOW
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At the Malampaya field, Shell recently announced it will spend $1.1 billion to develop the next phase of the Malampaya gas project, which will pump gas to the Philippines. Meanwhile the national government will consider installing LNG infrastructure. It will look to bid out $700-800 million of work for regassification and receiving facilities in a move to shore up supply. According to analysts Wood Mackenzie, the governments recent promotion of exploration in the country is more about domestic supply than meeting demand across the region. At this time the government is more concerned with security of domestic supply rather than exports, a spokesperson told ENP. However, if any large stranded gas finds are made, the most likely development option would be LNG, which could be for the export markets. So why all the interest in the Philippines? Up until 1998 its oil and gas industry was highly regulated, but since then moves from the government have encouraged exploration in the country and opened up another producer in the competitive Southeast Asian market. Wood Mackenzie said the current health of the oil and gas sector could largely be traced back to 2004. Interest in the Philippines took a positive turn in 2004 when companies such as Shell, ExxonMobil, Petronas Carigali and CNOOC all signed new service contracts or farmed into existing licences, it said. This was driven largely by the fact that the Supreme Court issued a ruling reaffirming the right of 100% foreign ownership, along with the high oil price Subscribe | Advertise FREE TRIAL! Cameron G2 Spool Treemore

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environment. Since then the government has held three licensing rounds and has now launched the fourth, trying to attract investment into the country. The fourth round is taking place in July. Fifteen exploration blocks will be auctioned off by the Philippine Department of Energy, with a focus on the Palawan Basin. Energy Minister Jose Rene Almendras said the blocks would be expected to net the government hundreds of millions from prospective investors. He added that the government would provide security for any future explorers. While its certainly welcome that the government will provide security, more than a few may be worried that its needed in the first place. One of the potential resource fields of the Philippines lies in an island cluster known as the Spratly islands. Recently, the national government has funded seismic in the area with the help of other Southeast Asian nations. The islands lie in the South China Sea, and with an energy-hungry China claiming ownership of the islands some fear the Spratlys may become a flashpoint. Along with China, Taiwan, the Phillippines, Brunei and Vietnam all claim at least part ownership. Things came to a head in March, when Chinese patrol boats reportedly harassed a seismic vessel in the fields, and earlier this month Philippine planes spotted unidentified jet fighters in the skies above the islands. Chinese estimates over 50 billion tons of crude oil and more than 20 trillion cubic metres of natural gas could be present in the disputed islands. As part of its Five Year Plan, the government said it was looking at enhancing the ability of marine development and utilising and actively developing offshore oil and gas in the South China Sea. Last year, the nationally owned China National Offshore Oil Corp said it was planning to invest 200 billion yuan ($A29 billion) over the next 20 years in oil and natural gas mining. It is a grand scheme to transform the South China Sea into a new Daqing China's largest oil field, which provides 21% of domestically produced oil. Its shaping as a tinderbox just waiting to be fuelled by oil. Given that the only other large field in the Philippines is the Malampaya field, which is dominated by Shell and Chevron, and the government is pushing for more exploration in the Palawan Basin, the question becomes: how long a life does exploration in the Philippines have without the Spratly Islands? Regional geopolitics aside, the Philippines is trying to lure new oil and gas investment in the country over the coming years, and while Wood Mackenzie doesnt think the sector is due for an explosion, favourable fiscal terms offered by the government to explorers is playing a role in a spike of interest. At the moment, incentives offered to explorers include cost reimbursement of up to 70% gross production with carry-forward of unrecovered costs, grants of up to 7.5% of the gross proceeds for service contracts with minimum Filipino company participation of 15% and exemption from all taxes except income tax. Kairikis Fenton said the incentives were a large part of what was making the Philippines an attractive option for explorers. The Philippines is one of the best countries in Southeast Asia to get some oil, he said. If you can actually get your foot on some oil, youll do well. The reason is the fiscal terms in the Philippines are possibly the best in Southeast Asia. At the other end of the scale, possibly the worst is some parts of Indonesia. While that may be the case for a junior, Wood Mackenzie said fiscal terms wouldnt really be a dealbreaker for explorers. This is attractive to investors but it is only a small part of any company's decision-making process, they said. However, Philippine legislators are looking at offering even more favourable terms to explorers, which they hope will make explorers consider an entry into onshore Philippines. In short, the Philippines government is trying to make things as easy as possible for explorers. It wants explorers to provide the energy for a rising population, and energy majors have answered the call. While the Philippines wont become an oil and gas powerhouse any time soon, expect a Philippine sunrise

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