"It seems the Philippines is complicating our joint venture agreement to our disadvantage."
Last week, President Duterte announced he would be lifting the moratorium to explore oil and gas in the disputed areas of the South China Sea (SCS). The suspension was imposed by former President Aquino in 2015 after his government filed a case with the Permanent Court Arbitration over areas in the SCS. The PAC ruled in our favor, that the Philippines has sovereign rights within its exclusive economic zone, and dismissed China’s sweeping claims over the area. Some say the decision was pro forma to show our assertion of sovereignty over those areas.
Despite that favorable decision, the Philippines opted to set it aside by seeking better relations with China, culminating in the signing of an understanding on oil and gas development in the West Philippine Sea/South China Sea. The signing on November 20, 2018 by President Duterte and President Xi Jinping has been interpreted by many as an implied rejection of our claim over those areas.
When the President unilaterally lifted the moratorium, he, in effect, wanted the understanding to proceed. The President never abandoned our claim in the SCS which is favorable to us. There was no prohibition imposed by China. But the Philippines, after it filed an arbitration case, stopped all drilling of oil and gas in the area, particularly in the Reed or locally known as Recto Bank.
Frankly, the PCA decision only redefined those rough edges on what constitute our territory/EEZ after the UN Convention on the Law of the Seas (UNCLOS) was ratified. In fact, the US has refused to ratify the convention. Nothing in the decision ordered China to surrender an inch of its territory or for our country to surrender a portion of its own. Rather, it was the Philippines that lost $7 million or P328,996,500 if valued at P47 to $1, when for the capricious desire of former Foreign Affairs Secretary Alberto del Rosario and retired Supreme Court Justice Conchita Carpio-Morales, our country had to pay those foreign lawyers to litigate our position which China refuses to recognize.
Before that, there were already existing oil and gas drilling explorations in the Malampaya area and another at the Reed or Recto Bank. Malampaya, which is covered by Service Contract 38, is already in operation, supplying 30 percent of the country’s natural gas requirement but is expected to be depleted by 2024. Reed Bank, which is covered by Service Contract 72, according to the US Energy Information Administration, is estimated to contain 5.4 billion barrels of oil and 55.1 trillion cubic feet of natural gas. Among those interested and now active in seeking to sign up in a contract are the country’s PNOC Exploration Corp., Pangilinan’s PXP Energy Corp and unit of Forum Ltd.
The PCA decision clarified those areas where we could assert sovereignty to explore oil, gas and other minerals. Since the October 6 decision of President Duterte to allow the resumption of drilling activities, referring to Service Contract 57 and 72, we can surmise that these areas are within the country’s EEZ or areas we call our “exclusive economic zone” which were “expanded” or “stretched” areas after the ratification of UNCLOS in 1978 which both China and the Philippines ratified.
While the EEZ set to a maximum of 200-mile from the shoreline of the adjacent state, the ongoing oil and gas exploration affected by the President’s unilateral declaration to proceed is not part of the areas within China’s EEZ.
Service Contract 57 and 72, both located within the Reed Bank area, are outside the demarcated boundary signed by US and Spain on December 10, 1898 which now stands as the official map of the Philippine archipelago but well within the country’s exclusive economic zone (EEZ). The PAC set aside China’s nine-dash line boundaries.
Section 2, Article XII of the Constitution is clear that any arrangement within our sovereign territory with any corporation regarding the utilization of water, minerals, coal, and other minerals, all forces of potential energy, etc. shall be on a 60 percent basis for co-production, joint venture or production-sharing. The 40 percent share shall be awarded to foreign corporations on lease not to exceed twenty-five years subject to renewal for the same period.
In Service Contract 38 or for Malampaya, it was entered into by President Arroyo which allowed foreign oil companies to have a share in the contract for natural gas in gross violation of the Constitution. Under that repugnant arrangement, Shell and Chevron each got a share of 45 percent, with PNOC getting 10 per cent and paying all the taxes. Considering that the Malampaya gas field is about to be depleted, a local corporation known as Udenna Corp has already acquired the 45-percent share owned by Chevron.
The Duterte-Xi agreement entered last November 20, 2018 was a rectification of the Malampaya agreement where we got a measly 10-percent share while foreign oil contractors getting a lion’s share of 90 percent with us paying all the taxes. The Duterte-Xi agreement gave China a 40 percent share pursuant to our Constitution and rectified the inequities of the past.
The argument raised by retired Supreme Court Antonio Carpio that the agreement violates the Constitution is woefully out of tune. First, it is allowed under Section 2, Article XII of the Constitution. Second, the agreement is not within our territory but one involving our sovereign right over an area considered part of our EEZ which we have sovereign rights to extract and exploit all mineral resources found within the seabed and subsoil which our constitution allows foreign participation on a 60-40 basis.
With this in mind, it seems the Philippines is complicating our joint venture agreement to our disadvantage. While Energy Secretary Alfronso Cusi appears to be ready to enter into contract for joint oil exploration with China’s National Offshore Oil Corporation (CNOOC), the Philippines is scouting for partners to join, which means we will allow our share to be reduced as when we signed that infamous Malampaya natural gas deal in 2000. China’s share of 40 percent will remain intact whether they will assume it wholly as a state-owned corporation or enter into a joint venture with other private corporations.
If the Philippines decides to enter into a joint venture with CNOOC, it seems that the Philippines is committed to subcontracting agreement to private corporations. While we are no longer concerned about how China will divide its share, it sounds preposterous for us to negotiate only to get the least portion of the extracted deal. As it is, subcontractors like Pangilinan’s PXP Energy and Forum Ltd, or of Dennis Uy’s Udenna Corporation which took over the 45 percent share of Chevron in Malampaya and with Shell Corporations, will get the biggest share of the pie. Officially, the county will be looked upon as silly after negotiating as contractors will hand the agreement we acquired from China to private oil corporations.
Following the old agreement as template like the combined 90-10 sharing agreement obtained by Shell and Chevron, under the new format of 60-40, China will first get its share of 40 percent, while the remaining 60 percent share supposedly for the Philippines, will effectively be reduced to even smaller share than China’s after handing over the 90 percent of its share to the private corporations.
