DOE threatens to cancel BHP Billiton-led service contract

MANILA, Philippines - The Department of Energy (DOE) has threatened to cancel the contract of the consortium operating Service Contract 55 in Southwest Palawan if it fails to fulfill its obligations to the government.

“They have to comply with their obligations under their contract. We will suspend or cancel their contract (if they fail to do so),” Energy Secretary Carlos Jericho Petilla said.

He said if the consortium is unable to fulfill its obligations under the contract, the DOE could give it to other interested parties.

SC 55 is located near the Malampaya gas field in offshore Palawan. It includes the Cinco well but to date, no offshore drilling has been conducted.

In terms of potential resource, the DOE estimates that SC 55 has some 2.2 trillion cubic feet of gas.

The consortium behind SC 55 is BHP Billiton Petroleum (Philippines) Corp. of Australia, which owns a 60-percent stake. Its partners include Trans-Asia Oil and Energy Development Corp. with a 6.82-percent stake and Australian firm Otto Energy Ltd.

The proponents earlier said that they have been encountering delays in the drilling operations of the Cinco well, prompting them to seek an extension to fulfill their obligations in the contract.

In February, the DOE approved the transfer of Otto’s 60 percent interest and operatorship in SC 55 to BHP which, in turn, agreed to pay Otto $150 million.

Petilla said the consortium has already been given an extension until August 2013 and would not likely be given another reprieve.

“They will likely ask for an extension but it’s very simple, if you don’t want to do it, we will cancel and give it to somebody else,” he said.

Otto earlier said it is “continuing to actively engage BHP regarding various options” that may include force majeure.

The government has been hoping that the Cinco well under SC 55 would be the next Malampaya gas field as the exploration of the disputed Recto Bank has been hampered by conflicting claims from China and other countries.