UK-based Forum Energy may need to invest $3 billion in RP

MANILA, Philippines - UK-based Forum Energy Plc will spend up to $3 billion to be able to fully extract the potential reserves of Service Contract (SC) 72 in the Reed Bank basin off Palawan, an investment research firm said.

Edison Investment Research Ltd. said Forum may need to invest around this much or close to what the Malampaya natural gas project consortium’s investment of $4.5 billion to be able to develop the commercial production of SC 72 which is within the gas-rich Sampaguita field in the South China Sea near Palawan.

“The Malampaya consortium, which includes Shell, has already recovered the $4.5-billion investment since the field became operational in 2001. This would suggest a $3-billion price tag for a resource similar to Sampaguita with all the infrastructure in place,” the report said.

The report noted that the Sampaguita field is estimated to hold 3.5 trillion cubic feet (tcf) of gas in place while the Malampaya gas field contains around three tcf of gas and 40 million barrels of recoverable oil reserves.

Edison is Europe’s leading investment research company. Its team of more than 50 includes over 30 analysts supported by a department of supervisory analysts, editors and assistants.

Initially, Forum Energy is likely spend about $10 million for a 3D seismic to affirm the potential of the Sampaguita gas field and is expected to drill two to three appraisal wells at a cost of $30 million per well in the next 36 months.

“Forum is faced with a funding gap and need to raise equity or opt for a farm-in partner to finance its appraisal program on Sampaguita,” it said.

Edison further noted that Forum’s funding risks are significantly mitigated by its current shareholder structure. Philex Mining Corp., which currently owns 65 percent of Forum, is controlled by Hong Kong-based First Pacific Co., which last year generated $3.9 billion in sales and $335-million operating profit.

“First Pacific provides Philex access to a strong balance sheet, suggesting that funding risks are significantly mitigated,” it said.

The investment research firm said the Sampaguita discovery is a “potentially value-changing asset” and adds a significant value to Forum Energy’s entire oil and gas portfolio.

“Were the appraisal program to prove up the GIP (gas in place) estimate, we would expect the size of the field to attract the attention of larger players. In the context of the UK sector of the North Sea, a three trillion cubic feet find would be one of the largest finds in the last 25 years. Similar to Malampaya, such a find would be the foundations of an LNG (liquefied natural gas) project,” it said.

Edison said there are several options available to Forum for marketing the gas produced from the Sampaguita field.

It said Forum Energy can establish a new LNG export facility; build a pipeline to access capacity in Shell’s existing infrastructure at Malampaya; and/or sell its output to the local market.

“The outcome is partly dependent on how much gas is proved up. In our valuation, we assumed that Forum will establish its own LNG export facility to serve markets in China and Korea. Forum is likely to attract attention from major oil companies that may well have complementary infrastructure, such as Shell,” it said.

Forum Energy president Walter Brown said they may look at farm-in agreements during the drilling phase for the Sampaguita field but they have no need for a partner for the 3D survey.

“We’re open (to partnership) in the drilling phase. We may be open to partners,” Brown said.

The Forum Energy executive said the company wants to maximize the potential of the oil field.

“Forum Energy is extremely well placed to take the fullest advantage of its SC 72 asset,” he said. 

Forum now has the ability to move forward with the development of the potentially world class gas discovery at SC72 and to move into the appraisal process.”

Over the next two years, the report said Forum’s resources will be focused on appraising the Sampaguita field. 

“While the company has yet to formally announce a drilling program for SC 72, it is expected that it will shoot and interpret new 3D seismic and drill two wells as part of its minimum work commitments in the next 36 months, subject to approval from the Department of Energy,” it said.