MANILA, Philippines — President Rodrigo Duterte has signed an executive order allowing the upstream oil and gas subsidiary of state-run Philippine National Oil Company to enter into “farm-in/farm out” agreements in exploring, developing and utilizing the country’s energy resources such as oil and gas.
Farm-in/farm-out refers to a practice permitting third party participation in oil and gas exploration and development to spread the risks and financial burden of such projects. The entity acquiring the participating interests considers the transaction as “farm-in,” while the entity transferring such interests considers the transaction as “farm-out.”
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On May 28, Duterte inked EO 80 that repealed the Arroyo administration’s EO 556, which prohibited the awarding of “farm-in” or “farm-out” contracts by any government agency, including the PNOC.
The old EO also ordered all government agencies, including PNOC, to "follow a strict bidding procedure in forging partnership with interested parties."
Under the new EO, PNOC Exploration Corporation is now permitted to enter into farm-in/farm-out agreements “with reputable, technically competent and financially capable entities.”
The Department of Energy and Governance Commission for Government-Owned or –Controlled Corporations will issue the rules and regulations specifying the third party selection process to be observed by PNOC EC.
“The third party selection process to be undertaken by PNOC EC shall conform to best practices widely adopted in the international petroleum industry, as may be determined by the DOE,” the president said.
“PNOC EC shall observe sound business judgment and exercise extraordinary diligence, with paramount consideration to the national interest, in entering into the commercial contracts and arrangements contemplated herein,” he added.
“It is the aim of the government to achieve energy independence for the Filipino people by, among others, enhancing the country’s competitiveness as an oil and gas investment destination through the adoption of industry practices,” he continued.
The Philippines is racing against time to develop gas reserves and prepare for Malampaya’s inevitable decline.
Commissioned in 2001, the Malampaya gas field offshore Palawan supplies all of the Philippines’ current natural gas. But it is forecast to be nearly depleted by 2024. — Ian Nicolas Cigaral