Philippines: Nido Petroleum & CGGVeritas Seismic Surveys

Nido Petroleum Ltd is an Australian oil and gas explorer and producer that currently has production, development and exploration assets in the Palawan Basin, Philippines.

Nido Petroleum’s was not always known as Nido, but rather it had a start as a trust called Sydney Oil Company Drilling and Exploration Trust (SOCDET). This trust had a focus on the Philippines, and began to invest in the north-west Palawan Basin in February 1995. Over time, Nido ‘inherited’ interests in Service Contract 14 (SC14) that included the Nido and Matinloc oil production assets and the Galoc oil field. SOCDET then incorporated as Nido Petroleum Ltd in July 1999.

Since entering the Philippines, Nido is now the holder of the second largest oil and gas exploration acreage holder in the region.

There are 4 sedimentary basins found in the region that include:

• Mindoro-Cuyo
  
• East Palawan


• Northwest Palawan


• Southwest Palawan

The largest gas and condensate field was discovered in 1991 in the Northwest Palawan Basin and is named Malampaya. Currently the field's lifespan is estimated at 20 years and has gas reserves (estimated) of 3,770 billion cubic feet (BCF) and 85 million barrels (MMB) of condensate.

A Short History of the Region

Petroleum exploration in the Philippines dates back to 1896 with the drilling of Toledo-1 in Cebu Island by Smith & Bell.

Between the 1950's and 1970's widespread exploration activities were carried out throughout the region. During this period, all exploration was governed by Republic Act No. 387 known as the "Petroleum Act of 1949" which introduced the era of the concession system.

In 1973, the current Service Contract System replaced the Petroleum Act of 1949. This came via the enactment of Presidential Decree No. 87, which is known as the "Oil Exploration and Development Act of 1972".

This decree brought with it an attractive contractual term, a very liberal fiscal regime that were particularly favorable to offshore exploration, hence allowing activities to move to offshore areas like the Northwest Palawan Shelf where the first field, Nido, was discovered.

Since then, several small fields, which were located offshore Northwest Palawan, were subsequently discovered and produced.

In 1989, relatively large fields were discovered in the deep waters off Palawan when Occidental tested gas in its Camago Structure.

Alcorn Philippines, in 1990, discovered the West Linapacan Field and commenced production two years later until 1996.

In 1990, Shell discovered Malampaya gas field which became the largest gas discovery in the country. The field was produced in 2002, providing clean fuel to Luzon grid.

Onshore in northern Luzon, the Philippine National Oil Company developed the San Antonio Gas Field in 1994 and continues to supply gas fuel to the local electric cooperative in the province of Isabela.

Some of the incentives used to make exploration viable and attractive in this region include:

• Service fee of up to 40% of net production
• Cost reimbursement of up to 70% gross production with carry-forward of unrecovered costs
• FPIA grants of up to 7.5% of the gross proceeds for service contract with minimum Filipino company participation of 15%
• Exemption from all taxes except income tax
• Income tax obligation paid out of government's share
• Exemption from all taxes and duties for importation of materials and equipment for petroleum operations
• Easy repatriation of investments and profits
• Free market determination of crude oil prices, i.e., prices realized in a transaction between independent persons dealing at arms-length.
• Special income tax of 8% of gross Philippine income for subcontractors
• Special income tax of 15% of Philippine income for foreign employees of service contractors and subcontractors

Back to Nido



Nido in its Press release at http://www.energycurrent.com/ (on September 28, 2007) stated that the seismic survey will be the largest ever undertaken by company -- covering a total area of more than 5,000 kilometres (3,107 miles) of 2-D and 846 square kilometres (327 sq miles) of 3-D seismic data in three permit areas: SC58, SC54 and SC63.


The seismic survey's are being conducted by CGGVeritas. Currently,

• CGGVeritas MV 'Pacific Titan' (pictured above) was operating in the SC54 block. This survey was designed to provide more information about the Late Miocene 'Pagasa' Turbidite play. Currently data is being processed.


• Following the completion of SC54, the same vessel started acquiring data adjacent to SC54 and is currently 15% complete.

The Pacific Titan is very well designed and suited for 2D and small 3D seismic data acquisition projects.


Territorial Disputes & UNCLOS


Competing territorial claims over the South China Sea and its resources are numerous.


The 1982 United Nations Law of the Sea allows for a country's Exclusive Economic Zone (EEZ) to extend 200 nm (370.6 km) beyond territorial waters, all the nations surrounding the sea have begun and have been laing claim to great portions of it.


The People's Republic of China (PRC) has stated its claim to almost the entire body.


Areas with potential problems include:

• Indonesia and the PRC over waters NE of the Natuna Islands.
• The Philippines and the PRC over the Malampaya and Camago gas fields.
• The Philippines and the PRC over Scarborough Shoal.
• Vietnam and the PRC over waters west of the Spratly Islands (See a previous blog). Some or all of the islands themselves are also disputed between Vietnam, the PRC, the ROC, Brunei, Malaysia, and the Philippines.
• The Paracel Islands are disputed between the PRC/ROC and Vietnam.
• Malaysia, Cambodia, Thailand and Vietnam over areas in the Gulf of Thailand.
• Singapore and Malaysia along the Straits of Johore and the Straits of Singapore.
• The PRC and Vietnam have both been vigorous in prosecuting their claims.
• The Spratly Islands have been the location of many disputes and armed forces.

Due to such a tense understanding between the nations involved, Joint Development Authorities have been setup in areas of overlapping claims to jointly develop the area and dividing the profits equally without settling the issue of sovereignty over the area. This is true, particularly in the Gulf of Thailand.

Exploration Continues......

As it can be seen, exploration, disputes, and companies and nations are working together, no matter their size to become energy independent.


Junior Oil and Gas companies, such as Nido, focus on one region and develop relationships in the area - leading to new discoveries and a better understanding of the areas that have currently been explored and exploited over the years. As the technology increases and improves yearly, it allows Junior companies to bring life back to old fields or to find new ones, no matter where they are.

Malaysia, Brunei - No More Gunboats?

An interesting article appeared on Rigzone about the importance of knowing your location and your boundaries, especially when you have quite a few neighbours interested in the resources.

Essentially, Malaysia and Brunei are close to reaching an agreement over a maritime boundary dispute that has caused some headaches for oil and natural gas exploration in an area west of Borneo Island since 2003.

1. Why is this area of interest?
2. Who is laying claim to the islands?
3. Where are they?

A good summary from the article states: "At stake is a so-called deepwater area, near where several oil and gas fields have been discovered by both sides in recent years. Malaysia's state-owned Petronas in 2003 awarded two upstream acreages in the area, which it calls blocks L and M, to U.S. independent Murphy Oil Corp. (MUR), a year after Brunei had awarded nearly identical areas under its own licensing around.The tiny sultanate signed off block L as block J to a consortium headed by French oil giant Total S.A. (TOT), while a group led by oil major Royal Dutch Shell PLC (RDSB.LN) secured block M as block K."

Spratly Islands

These islands, known as the Spratly Islands, are a tinderbox in a climate where oil and gas exploration can help turn around the economies of many countries.

The Spratly Islands consist of 100 - 230 islets, coral reefs and sea mounts (tablemounts). This archipelago is spread over 250,000 sq km of sea space, and yet the total land mass of the Spratly Islands is a mere 5 sq km. None of the land is arable. Until recently, the Spratly Islands have not been occupied by humans. Presently, the countries with territorial claims are now using military means --airstrips and armed forces -- to reinforce their claims

The Spratly Islands are situated in the South China Sea -- one of the largest continental shelves in the world. Typically, continental shelves are abundant in resources such as oil, natural gas, minerals, and seafood. It is etimated that oil and natural gas reserves in the Spratly region are estimated at 17.7 billion tons; Kuwait's reserves amount to 13 billion tons. The Spratly reserves place it as the fourth largest reserve bed worldwide.

The UN Convention on the Law of the Seas article 55 and 77 play an important role in determining ownership of these rights. Article 55 establishes the EEZ (Exclusive Economic Zone), while Article 77 defines a countries continental shelf.

Under Article 121(3) of the UN Convention on the Law of the Sea (UNCLOS): "Rocks which cannot sustain human habitation or economic life of their own shall have no exclusive economic zone or continental shelf." Unfortunately, UNCLOS provides no further guidance as to how a 'rock', capable of sustaining a claim to a 12nm territorial sea and a further 12nm of contiguous zone, should be distinguished from a fully fledged island with continental shelf rights and an EEZ of up to 200nm breadth. Many of the 36 Spratly 'islands' would seem to fall more readily into the category of 'rock' rather than 'island' - providing fertile ground for dispute even were the sovereignty issue to be resolved.

Overlapping claims resulted in several military incidents since 1974 and in several countries awarding foreign companies exploration rights in the same area of the South China Sea.
Claims to the various islands in this archipelago started as early as the 1930s. Since the late 1950s, 29 oil fields and 4 gas fields in the Spratly region have been developed.

An EEZ and Firing Shots?

In the winter of 2000, Brunei said it would begin to offer exploration blocks after declaring an EEZ (Exclusive Economic Zone) , giving it rights to fishing grounds and mineral extraction from the sea bed.

In May 2007, Malaysia, not happy about the dispute, the claim, and the EEZ, decided to fire some warning shots to remind Brunei, which is tightly wedged between Malaysian territory on Borneo island, of its claim by sending its navy to chase off a drilling team from Total. Malaysia, which has had territorial disputes with all its neighbours, argues Brunei only has jurisdiction over its continental shelf, in water up to 200 metres deep. About three quarters of the EEZ is in deeper water.

As any one watching world politics would expect, both governments are keen to keep this dispute under the radar of any observers and potential investors in the area. Brunei, a very small sultanate, has only 330,000 people and no army.

Redraw the Map?

"The leaders discussed the long-standing issue of maritime delimitation, on which both sides have put forward new proposals, and agreed on the need to resolve the matter urgently," the leaders of Malaysia and Brunei said in a joint statement.

There is now the potential idea to redraw the map. The idea being, that once the map is redrawn, any and all the competing oil claims could be sorted out.

Redrawing the sea border would be a departure from the more pragmatic solutions reached in some previous oil disputes,where countries have agreed to jointly develop oil from a contested area rather than tackle the primary issue of sovereignty.

Is Han's Island similar? A Russian Sub at the Pole?

As one can tell, this is an interesting case study of the UNCLOS, EEZ, the continental shelf, and boundary disputes.

Redrawing a map is an interesting solution to this dilema in the South China Sea, but as one can see with the current Russian submarine trip to the North Pole, disputed by Canada, Denmark and the United States. Ownership of these 'rocks', the contential shelf, can lead to diplomacy by gunboats.

Canada and Denmark have been planting flags and making trips to little Han's Island which is located between Baffin Island and Denmark.

Time will tell how these situations resolve themselves, but it shows the importance of boundaries and being able to get along with your neighbours.