DOE sets conditions before contractors abandon oil, gas wells

MANILA, Philippines – The Department of Energy (DOE) may require private firms that were granted rights to explore or drill oil and gas wells in the Philippines to put up a fund before they can abandon the awarded area.

Energy Undersecretary Jose M. Layug Jr. said in a media briefing that the DOE plans to release a circular before end-2012 as part of efforts to address environmental concerns.

“We want to conduct advance planning to ensure that appropriate parties are held accountable to protect the environment,” he said, adding that the fund will also cover rehabilitation of all sites affected by petroleum operations.

He said they have yet to put a figure on the possible sinking fund, as it will still be discussed amongst stakeholders. “But they should deposit and charge it as an operating expenses. It will be cost recoverable as they will have to advance,” he said.

He said the amount will depend on a cost per unit basis or cost per production basis.

Based on the draft circular, an oil and gas contractor may opt to undertake on its own the abandonment procedures or have the DOE implement it.

Layug added that the DOE is mulling over the establishment of a sinking fund from holders of service contracts to finance such activities.

“We are trying to be aggressive in trying to award SCs and we need to be clear [on what to do] after 25 years that they abandon the projects,” he noted.

He added that the circular will be retroactive to include not only the new service contractors but also existing service contractors.

Currently, there are 27 active oil and gas exploration and development projects but only two of these service contracts are in commercial production — the Malamapaya natural gas and Galoc oil fields.

In April and July, the Department of Energy (DOE) bid out a total of 15 service contracts under the Fourth Philippine Energy Contracting Round (PECR4).

PECR 4 forms part of President Aquino’s long-term plans to address Philippines’ need for oil and gas and reduce dependence on imported oil. – Rappler.com