Deal or no deal?


THE resumption of oil and gas exploration talks between the governments of China and the Philippines faces a new challenge just days after their two leaders enthusiastically announced plans for such: the Philippine Supreme Court declared unconstitutional the 2005 exploration agreement of the Philippines with China and Vietnam.

Days before the SC released its decision, Secretary Raphael Lotilla of the Department of Energy (DOE) had said President Ferdinand R. Marcos Jr. and Chinese President Xi Jinping, who met during the former’s state visit to Beijing, “have agreed in principle” for the resumption of talks on the possible joint exploration in waters disputed in the South China Sea (SCS).

“What it establishes is a healthy environment for the talks to take place, that there is at the highest levels of both the Philippine and Chinese governments a commitment to move forward the discussions,” Lotilla said.

China’s Foreign Ministry said Beijing is willing to continue to work with the Philippines to properly deal with maritime issues in “a friendly and consultative manner,” restart negotiations on oil and gas development, promote cooperation on oil and gas development in nondisputed areas, and develop cooperation on green energy such as photovoltaic, wind energy and new-energy vehicles.

However, discussions may take a backseat anew after the SC voided a deal between state-run Philippine National Oil Company (PNOC), China National Offshore Oil Corp. (CNOOC) and Vietnam Oil and Gas Corp. involving the exploration of 142,886 square kilometers of the South China Sea under the tripartite agreement for Joint Marine Seismic Undertaking (JMSU).

According to the SC, the JMSU is unconstitutional for allowing wholly owned foreign corporations to participate in the exploration of the country’s natural resources without observing the safeguards provided in Section 2, Article XII of the 1987 Constitution.

When asked if the SC ruling will have any effect on the joint exploration the Philippines is now negotiating with China, Lotilla could not comment yet as the agency has yet to receive a copy of the decision.

“Still have to get a copy of the full decision,” the energy chief said via text message.

Likewise, SC spokesperson Atty. Brian Hosaka reportedly said, “The Court cannot speculate on that” while pointing out that the SC decision was in connection to the 2005 JMSU.

The DOE, Lotilla further said, “will go by the advice of the DOJ [Department of Justice] and OSG [Office of the Solicitor General]” should the agencies issue legal opinions in the future.

Thorough review

GOVERNMENT lawyers, meanwhile, said the Philippine government and the private sector would have to thoroughly review and seek further guidance as to the implications of the SC ruling. They insisted on anonymity because they are not authorized to speak.

One lawyer commented, “there could be an impact on listed companies that have tie-ups with Chinese firms.”

After the SC ruling was released, shares of PXP Energy Corp., which holds interest in two petroleum exploration service contracts in the West Philippine Sea, dropped.

Another lawyer said, “It would be interesting to find out how the SC will exercise sovereignty on service contracts” involving oil and gas exploration.


EARLIER, businessman Manuel Pangilinan said PXP Energy was in talks with Chinese companies for a possible partnership.

With regard to this approach, “this too could be stalled,” said the government lawyers. “Hopefully, not,” they added.

Pangilinan, however, clarified that his group still awaits guidance from the government if it can pursue work program on areas covering SC 72 and 75. “We don’t have the authority on the sovereignty issues. We’re walking on egg shells, because if you talk about sovereignty—that’s them [Philippine and Chinese governments] and we have to respect that,” he stressed.

Pangilinan-led PXP and Forum Energy Ltd. earlier suspended all activities in SC 72 and SC 75 in compliance with a DOE directive to put on hold all exploration activities for these two sites.

For areas where there are no territorial disputes, the DOE is proceeding with oil and gas developments, noting these are open to both foreign and domestic investors.

Lotilla said nine Chinese firms have pledged over $13 billion in investments in the country’s renewable energy (RE) opportunities, energy storage systems and off-grid power supply systems.

These companies include China Energy International Group Co. Ltd.; China Power International Development (CPID) Ltd.; SPIC Guangxi Electric Power Co. Ltd.; China Machinery Engineering Corp.; China General Nuclear Power Group; China Huadian Engineering Co. Ltd.; China Tianying, Inc.; Dajin Heavy Industry Co. Ltd.; and Mingyang Smart Energy Group Ltd. Some of these companies already have a presence in the Philippines.

“We are very pleased with the enthusiasm we have received from these Chinese companies during our roundtable meeting. They were upbeat with our policy reforms and directions on RE, especially on the opening of 100-percent foreign ownership on wind and solar projects,” Lotilla had said. The energy chief announced this prior to the release of the SC decision.

Likewise, PNOC-Exploration Corp. (PNOC-EC) is looking for farm-in partners interested to take in a majority stake in SC 59 covering 14,769 square kilometers offshore Palawan, west of Balabac Island.

“In case of PNOC-EC, it has announced an invitation for potential farm-ins to a number of service contracts under its control. As far as those are concerned, we can proceed with that,” said Lotilla, who also chairs PNOC-EC.

The government is committed to preserve and maintain the investment incentives for service contractors under Presidential Decree 87. This move, Lotilla said, has been met with renewed confidence and strong interest by local and foreign investors in the oil and gas sector.

Just recently, the agency allowed Nido Petroleum Philippines Pty. Ltd., operator of SC 6B and SC 54, to proceed with the site survey of their drilling locations.

Lotilla is confident that this trend will continue as “we reaffirm to prospective investors the openness of our economy to foreign and local investors and assure them of the continued stability of our legal framework, especially in the upstream oil and gas sector.”


ON the other hand, fishers’ group Pambansang Lakas ng Kilusang Mamamalakaya ng Pilipinas (Pamalakaya) welcomed the SC ruling.

“The SC ruling will strengthen our call against any efforts to revive the negotiations for a joint oil and gas exploration between the Philippines and China in the West Philippine Sea. The Marcos administration should adhere and recognize this ruling by way of actively asserting our sovereign rights against China’s aggression,” it said in a statement.

The SC decision and the International Tribunal on the Law of the Sea (ITLOS) that recognizes the country’s exclusive economic zone in the West Philippine Sea are, according to Pamalakaya, “two strong legal bases to assert our territory.

“The Marcos administration has no reason not to actively uphold our national sovereignty. It is all the more reason for President Ferdinand Marcos Jr. not to pursue the joint oil and gas exploration with China,” Fernando Hicap, Pamalakaya National Chairperson, said.

As one of the petitioners who assailed the constitutionality of the 2005 JMSU, former Bayan Muna Rep. Teddy Casiño said in his Twitter account that “may this be a warning to Mr. Marcos not to trifle with the constitutional provisions that reserve the exploitation of our natural resources exclusively to Filipinos and under the full supervision and control of the Philippine government.”

Even if it took 14 years for the Court to resolve the case, Casiño said, the ruling remains “relevant as ever, considering President Marcos’s plan to enter into a joint exploration of the West Philippine Sea with China.”

For now, it looks like the SC ruling mooted a possible exploration deal between the two countries. “It may or may not complicate efforts to revive oil and gas exploration talks, depending on the next steps to be undertaken by both countries. But everyone is hopeful that all issues will be resolved soonest,” the lawyers added.

Image credits: Claffra |