MANILA, Philippies – Any oil and gas exploration contract to be pursued in the West Philippine Sea with China must be consistent with both the Philippine and Chinese constitutions, said Philippine Ambassador to China Chito Sta Romana.

He said this hours before President Rodrigo Duterte’s evening meeting with Chinese President Xi Jinping in which the two leaders are expected to discuss oil and gas exploration.

“The contract has to be in accordance with the Philippine Constitution and UNCLOS (United Nations Convention on the Laws of the Sea) and since the Chinese are involved also, according to the Chinese constitution,” said Sta Romana on Thursday, August 29, in a press conference in Beijing.

“There will be protracted or at least intense negotiations. Legal experts will have to come in and see how they will phrase it in a way that will be acceptable to both sides,” he added.

But existing service contracts already awarded to companies expressly recognize that the areas they cover are within Philippine sovereignty or sovereign rights, as pointed out by Supreme Court Senior Associate Justice Antonio Carpio.

It’s because of the existence of such provisions that Carpio and former foreign secretary Albert del Rosario said that the joint exploration scheme entered into by the Duterte government with China is “very safe.” By working under these contracts, China will be operating under Philippine laws, they said.

But if service contracts must be consistent with the Chinese constitution as well, how will China agree to the existing service contracts, for instance Service Contract No 72, which covers Recto Bank (Reed Bank)? Recto Bank is within the Philippines’ Exclusive Economic Zone (EEZ) but is being claimed by China.

The Chinese government, said Sta Romana, is willing to be more “flexible” in order to push through with the exploration.

“The Chinese have expressed their desire to be flexible, pragmatic because of the improving relations,” said the ambassador.

One distinct possibility is for the first exploration agreements to cover “undisputed” oil or gas-rich areas in the West Philippine Sea.

Sta Romana said there are areas which even China “accepts are undisputed.” One of them is the 720,000-hectare area in Calamian, northwest of Palawan. (READ: Calamian area a ‘confidence-builder’ for joint exploration in Reed Bank – analyst)

Because this area is not being claimed by China, the service contract that covers it, Service Contract No 57, may be the easiest to pursue first.

“I think Service Contract No 57, that’s not a problem,” said Sta Romana.

The holder of SC 57 is government corporation PNOC-EC (Philippine National Oil Company-Exploration Corporation). They have agreed to partner with China state-run CNOOC (China National Offshore Oil Corporation), and Jadestone Energy Incorporated, formerly Mitra Energy Ltd, said Energy Secretary Alfonso Cusi in 2017.

Back in November 2018, SC 57 was among two oil exploration deals ready for Duterte’s signature.

But it still required an executive order that would allow PNOC-EC to enter into oil exploration and production agreements with other corporations. Duterte followed through, signing Executive Order No 80  last May.

The tougher hurdle will be Chinese involvement in implementing Service Contract No 72 (SC 72) since it involves Recto Bank.

SC 72 was awarded to Forum Energy PIc, a firm led by the Manuel Pangilinan-led Philex Petroleum Corporation. According to previous reports, the firm was initially in talks with CNOOC on developing a part of Recto Bank.

Formation of steering committee, working groups

To move forward with the 2018 MOU on joint oil and gas exploration, groups stipulated by the document may be formed during Duterte’s China trip.

These are the “joint steering committee” and “joint entrepreneurial working committees,” said Sta Romana.

The latter will be composed of executives from companies that will take part in the oil and gas exploration.

The steering committee will comprise of government officials. The MOU states that it will be co-chaired by the Philippines’ Department of Foreign Affairs and China’s Ministry of Foreign Affairs. Co-vice-chairs are the Department of Energy (DOE) and Chinese energy ministry.

One of the first orders of business of these groups is to lift the 2013 moratorium on exploration and drilling in the West Philippine Sea.

“The plan is to get the framework ready so that the steering committee can start the ball rolling as well as the working groups so they can start meeting so the service contracts affected by the moratorium can proceed which have been put on hold,” said Sta Romana.

Duterte’s predecessor, Benigno Aquino III, had imposed the ban due to heightened tensions with China. The DOE and companies holding affected service contracts have been lobbying for the ban’s lifting.

The committee and working groups are supposed to produce “cooperation agreements” covering specific West Philippine Sea areas by November.

Sta Romana said Duterte is determined to pursue joint exploration because of the looming energy security problem posed by the expected decline in supply from the Malampaya reserve in Palawan.

“The bigger picture is energy security. Malampaya is running dry… The President is moving with urgency to move the process forward, especially in his last 3 years,” said Sta Romana.

Supply from the Malampaya gas project is projected to decline starting 2022, or the last year of the Duterte presidency, and may run out by 2024.

The Malampaya gas project supplies 40% of gas-fired plants contributing to the Luzon grid. – Rappler.com