Are We At The Doorstep of Oil Glory?
Written on Friday, October 10th, 2008 at 7:57 am | by Ding G. Gagelonia
Somebody pinch me, please.
The reports, and images, are just too exciting that one has to remind himself that he is in in the Philippines and not in some enclave in the Middle East or even the North Sea where gargantuan oil reserves have secured the people’s future of plenty and posterity.
But dream we can, and with real hard work and absent destructive political wheeling and dealing, it could just be that the Philippines, in this generation’s lifetime, will reap prosperity from the oil finds in Palawan.
The times indeed are exciting, with the reports all pointing to the country’s oil importation burden easing significantly in the coming years with more resources thus being channeled to genuine development.
This is the challenge to the national political leadership to not squander this opportunity and to make the right decisions in ensuring that Filipinos down to the grassroots do benefit from this manna from heaven.
If Manny Pacquiao’s conquests atop the ring unite us, so should this prospect of the nation fully, and properly, exploiting its mineral reserves to the greater benefit of society.
We are being told that the archipelago may actually be swimming atop a petroleum basin that hold close to 500 million barrels of black gold, natural gas reserves included.
Let us all play the cards right for the sake of everyone, and should times of plenty come, let’s bring home all our OFWs, our toiling nurses, seamen, and yes, Filipinas who are living wretched lives as housemaids, yayas, and caregivers.
Let us dream, and work, for the reversal of the Filipino diaspora, and carve out a plentiful future, in peace and harmony.
Do this, we can.
(Cross-posted @ At Midfield, with revisions)
Tags: Palawan Malampaya oil field- Rebuking A President; Alter-Egos As Scapegoats
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The Philippines is consuming around 300 thousand barrels per day so having 500 million barrels of reserves means oil self-sufficiency for 1,667 days or a little less than five years. That’s not small but i won’t say we’re ’swimming’ in oil and it certainly will not meet our energy needs for a generation.
cvj,
The phrase “swimming in oil” is surely not meant to be taken literally. But if you do read the reports closely, the Philippines’ potential has not really been thoroughly prospected, given the huge capital investments required, but even today the oil prospects in the polar regions are also thought to be humongous. ou also are not factoring in the basin under the Liguasan Marsh area of Maguindanao-Cotabato corridor which is really one reason why it is highly coveted by the MILF and its foreign proxy-masters. As I maintain, everything begins with a dream, huwag lang dilat but grounded on reality , and real prospects.
Remember likewise that drawing prosperity lies not in consuming our own reserves but in properly using the revenue for the people.
wasn’t there an announcement in the ’70’s that we did strike oil off palawan?
is the above news truly new?
The 500 million was a conservative estimation, who knows really how much we can suck out from said basin.
That said, if and when a shitload of oil comes out of Palawan, I certainly hope our neighboring countries will not turn into green monsters.
Our 5 Tora-Tora planes can’t possibly handle an invasion.
Ding, pinning our redemption on exploiting resources (whether it be oil, natural gas or other commodities) is one of the root causes of our underdevelopment. Singapore has no natural resources, neither has Japan. On balance, i think abundance in resources (and the prospect of having more) has been a curse.
Jester, the Filipinos are quite a forgetful people, so i guess the above news can count as being new.
Yes, Jester, this is new. The Marcos-era find was in the Nido field. The Galoc find and other prospect sites in the waters of northwest Palawan are the real thing, but I will be the first one to say we should not get ahead of ourselves but simply hope that the estimates indeed are fully confirmed and realized to our benefit. No partying yet
Spot on, cvj. Am not advocating hitching our stars on simply that. Our human resource, I maintain, remains our country’s riches asset. This is the very reason why we must stem the Filipino diaspora and work so that our best and brightest will come back home, but our society has to make it worth their while. Then and only then can we truly celebrate, agree?
I agree with you on the matter of encouraging OFW’s to go home Ding. (As an OFW, i have some thoughts on how that can be encouraged.)
In addition, i think we need to harness the entrepreneurial capabilities of the Muslim people who (just like the Chinese) have shown a disposition and aptitude for engaging in trade whenever given the opportunity. That should be the reason for keeping the Philippines whole, and not what’s under the Liguasan Marsh.
No debate.But what is loathsome is how foreign interests cloak their covetous designs in pseudo-sympathy for the indigenous peoples of our land with a moist eye to raiding the national patrimony.
Oil revenue for the people? how does our government distribute its revenue where it is even slow in implementing Agrarian reforms. It is going to be the poor first after the investors and the elites? I’m not trying to be negative here. If the oil reserve is new, then a cost and benefit analysis for OFW to go home is important to provide them a clear picture of positive Philippine tomorrow.
“It’s not right to promise that the guava fruit will fall unto Juan’s face.”
I’m alsmost not wishing this for our country. The corrupt will only get richer and i mean oil richer.
Oil price is now at $90.00/gallon. Based on the short-term trend, oil prices is approaching $80 next week. as demand fall short due to financial crisis, is it advisable to dig? what is the cost benefits? cvj has laid out a good starting numbers.
we’ve been down this road before but will OPEC learn their lesson by tightening output to protect their own interests? how far can they go if many countries are bluffing? that we have OIL?
this is a number crunch…. let’s see what’s going to happen.
Are we at the doorstep of OIL Glory? yes, according to global demand and supply
Leytenian,
That’s the conundrum our leaders face, even assuming they are in power legitimately… to rise above their own self-serving interests and for once not betray us and sell out our patrimony. But if the action on JPEPA is an indicator, we may not have much to hope for. I can almost hear proposal to immediately securitize the prospective oil revenues from Galoc, with sticky brokers’ pockets benefiting immensely in the name of the Pinoy.
We can always dream.
That the oil find will finally redeem our nation from perpetual poverty.Etc, etc.
And we can also ask ourselves.
Is the grinding poverty in this country brought about by lack of natural resources?
Conversely. Are the economically advanced societies living in wealth due their oil or other natural resources.?
Further. Are all oil producing countries, wallowing in wealth? I mean the people. Not the leaders or the ruling class.
Dream, dream dream. When people are so hopeless, that is a very fortified refuge.
Ding (at 10:09 am), you’re right on that as well. What galls me is that these foreign interests are being actively assisted by our local oligarchs.
Leytenian (at 10:28 am), thanks. I think the best use of any oil revenue would be to fund the construction around nine nuclear power plants which is a more sustainable source of energy. At 500 Million barrels multiplied by 90 dollars per barrel, that would give us 45Billion Dollars, and at 5 billion dollars per nuclear power plant, we can construct nine which can sustain us for a generation (around 30 years). Alternatively, we can choose to construct one or two less nuclear plants and devote a few billion dollars on R&D to reduce the cost of solar energy so we can deploy solar farms in the squatter areas (will describe this suggestion later).
I think the above is better than any intangible welfare program from the point of view of leaving a legacy once the oil (and natural gas) runs out.
Thanks for doing the math, cvj.
The numbers underline the potential that I wanted to call attention to in making this post… that we the cards as dealth by provenance are played right we do stand a chance of climbing out of the rut we seem be be interminably in. I am saying the dream of any society worth the sacrifice of its people is within reach in this generation’s lifetime. Call me an optimist. But we need to believe that it can be done. If only we abandon the defeatist attitude and keep faith in our nation and people’s potentials.
Thanks for doing the math, cvj.
The numbers underline the potential that I wanted to call attention to in making this post… that we the cards as dealt by provenance are played right we do stand a chance of climbing out of the rut we seem be be interminably in. I am saying the dream of any society worth the sacrifice of its people is within reach in this generation’s lifetime. Call me an optimist. But we need to believe that it can be done. If only we abandon the defeatist attitude and keep faith in our nation and people’s potentials.
cvj and ding
“At 500 Million barrels multiplied by 90 dollars per barrel, that would give us 45Billion Dollars, and at 5 billion dollars per nuclear power plant, we can construct nine which can sustain us for a generation (around 30 years)”
i think the math is wrong.have you add up the production cost of extracting the oil.
anyway, if you do that enough will be left to construct those nuclear paltns you are talking.
my point is, let us be sober and not jump up down because of this oil find.
be realistic and apprise what really are the economic potentials of this oil find in relation to out economic development.
I am tired already,– ‘pearl of the orient kuno, the most imaginative people kuno, the most wondeful islands kuno , the most hospitable kuno, etc etc which tend to lull us to complacency.
The news said that the production is only enough to supply 6 per cent of our requirements.
We don’t apply math in this case. We apply accounting and economics and finance.
It is not a matter of multiplying output by the current price and there is the revenue.
There are other costs that go into the production.
The oil exploration project is not owned by the Philippines.
Galoc oil exploration started in 1981 and ownerships in the joint venture have already changed since then. Now it is a joint venture of an Australian company with the 22 per cent controlling interest and SURPRISE,SURPRISE a BRITISH COmpany, Cape Energy Pty Ltd (Cape) of Perth and Team Oil Limited (Team) of the UK.
cvj’s simple project cost for putting up a nuclear plant based on the output times the price of oil is a classic example of artihmetic in the grade school level.
In economics and finance, that is not the way how a very capital intensive project is funded.
Besides we do not own the capital.
Even Nido did not use its own money in the exploration.
If you will take a look at their investors, it is composed of several multinational corporations holding oil-based shares of stock.
With the announcement of the finding of oil, the price of the shares goes up.
With the commercialization of the oil production, the debt financing is considered.
What benefit will the Philippines get from this commercial oil production?
Then you can do the math. We own the oil field. We let investors do the exploration for us because we do not have the resources.
If one is going to tell me that PHilippines should have done the sourcing of capital instead, I will send him back to the nursery.
glu gun, sorry to be unclear on my method but i wasn’t approaching it from the point of view of directly using the profits (or cash flow) from oil revenues as such. Rather, i was thinking in terms of dollars saved by not having to import those 500 million barrels of oil. These foreign exchange savings can then be used to take out a loan to finance the construction of the nuclear power plants. [In saying this, i’m temporarily setting aside the very real issues of predatory corruption and incompetence in keeping with the spirit of Ding’s appeal to not be defeatist.]
Admittedly, my computation is just a rough (and perhaps simplistic) estimate but the main message i wanted to convey is that the best use of the savings in foreign exchange afforded by local oil production is to fund our future capital intensive energy infrastructure (whether it be nuclear or solar).
@Ca t, my above clarification (addressed to Glu gun) can also be addressed to you. sorry, didn’t see your comment until i finish submitting my own comment above.
How much is 6 percent anyway? I do not want to talk the amount of 500 million barrels but the percentage . It’s the one that counts.
By the way. Isn’t oil traded internationally?
Correct me but i really dont know.
If the oil is trading at 100 dollars a barrel, can we but the commodity in Galoc at 80 dollars a barrel?
Or we have to follow the international pricing? If that is the case, peanuts coulkd be the terme for whatever royalty we will get from tjhose oil wells.
Lets do the math. No 500 million dollars. But we can always dream. Daydream.
Glu gun, 6% is 20K barrels per day. As i commented over at Smoke back in June on this subject matter:
BTW, the ‘producing oil for three years’ i mentioned above was computed as follows:
20K barrels per day x 365days x 3years = 20 Million barrels (known reserves as per the report).
the best tangible asset that a pinoy can have in his country, is LAND. the rest are accessories. I like cvj’s do the math .. the rest are just accessories.
Because you are assuming that the oil exploration project is owned by the country.
And in this so called oil exploration projects which takes long years to get the needed results, there are gargantuan development costs, return on investments of the venture capitalists which put together their money for an uncertain commodity that they tried to find.
It is as not simple as that cvj, don’t insist your idea.
Yep, two commenters have already disputed about the math. As usual, you can not contribute an original idea so you ride on others’ thoughts even if it is wrong.
“As usual, you can not contribute an original idea so you ride on others’ thoughts even if it is wrong.”
hahaha, funny girl. i don’t know about you the cat. you always sound upset. Why can’t i like cvj’s do the math? try opening a business, the first thing you will ask is how much, the rest are just accessories to your decision making. there’s a big difference between real experience and theory
the next number crunch is whether to drill or import
advantages to drill:
1.independence from foreign oil.
2.employment can be generated if we build cvj’s 9 nuclear power plants ( rough estimate only- exmaple only) now do the math
disadvantages: ??
to import: ( it is predicted that price/barrel will go down as far as $65.00
1. maybe cheaper … maybe?
2. economics- world demand and supply. check out OPEC’s forward looking statement.
3. access to financing- the relationship of the current financial mess.
Questions to ask:
1. refineries
2. contractor
3. who will manage
4. result of past performances of governing bodies. can we trust them?
Later, we can make a better decision. I still like cvj’s do the math.
Nowhere have i made such an assumption as this assumption is not relevant to my point which is the distinction between that of imported oil and domestically produced oil. Every barrel of oil we produce here in the Philippines means one less barrel of oil we have to import from abroad which means foreign exchange that is freed up and can be reallocated for something else.
I hear what you’re saying that getting domestic oil production going also requires foreign investments by Multinational Corporations (MNC’s), and that these MNC’s would eventually repatriate their profits to their home countries which will result in a net reduction of foreign exchange.
So why did i not offset foreign exchange savings from not having to import oil with the foreign exchange outflow resulting from repatriation of profits (or repayment of loans)?
The reason has less to do with National Income accounting and more to do with the distinction between spending for capital equipment</i. (e.g. oil platforms) and spending for consumables (e.g. barrels of oil). The former increases our local production capability while the latter does not.
The point i’ve been making above (at 2:00 pm), is that since the oil is eventually going to run out (as i told Ding at October 10th, 2008 8:34 am), it is best to use this window of opportunity afforded by the foreign exchange savings to invest in more sustainable energy infrastructure (i.e. nuclear and solar energy).
@Glu gun, looking back at what i wrote (at 2:00 pm), i now see that i made the mistake by using the term ‘oil revenue’ which is not correct for the reasons you have pointed out. I now see where the confusion comes from and it’s my fault so i apologize for that mental shortcut. However, i hope that my subsequent comments make clear where i was coming from in terms of the benefits of domestic oil production and, more importantly, the optimal way to build on top of those benefits which is to further develop local energy capabilities (like nuclear and solar).
You do not have to write the assumption. The fact that you multiplied the total output by the price of oil, you are showing an amount that is available for the Philippines to use for the project you have in mind.
I’ve opened a business here in the States and if you claim that you have one too, then you will understand what glu gun and and I are harping about.
Revenue minus cost minus expenses equals profit or loss. In this oil exploration, most likely, losses are to be reported since the development costs are huge to be charged for just a couple of years.
this is not a topic where you can just copy and paste. mwehehe
The corporation is already operational since 2007 without which they are not able to get so much oil.
This is the time when you have to find out more about the project before writing you nonsensesical
“unoriginal idea”.
Copy/paste would not work.
I have likewise clarified this already (on October 10th, 2008 7:32 pm) that the price of oil multiplied by amount of domestically produced oil equals the foreign exchange savings from not having to import the same amount of oil.
glu gun, ca t, and cvj,
Thanks for the pinch, as I asked for at the start of my post, and I am certain our readers here at FV have been more than illuminated by your spirited exchange.
And now that everyone is hopefully better grounded on the significance of the Galoc find, t he question that lingers is what then are we to hope for in the continuing explorations, and oil strikes that may come in the future. Much ado about nothing? For lack of our own money to pump into (oun unintended)exploration efforts, are we again just sadly at the mercy of the multinational venture capitalists who are front-loading the expenses? Les miserables, we are? Pinch me further please.
ding,
this is great news. one can only hope that it does work out. that it forms part of an overall guiding strategy going forward and not its entirety. oil will be less valuable in the future as everyone NEEDS to switch to alternative energy.
But all are at the mercy of venture capitalists.
YOu are aking for capital infusion in your other article…practically you are asking for capital from the same groups. No single businessman no matter how rich he is will use his own money for capital intensive projects.
Besides, for risk purposes, the more there are investors, the greater is the distribution of risk.
In business , the more you use other people’s noney, the better…that is trading on equity concept.
Ms.Ca t,
To make myself clear, When I cite venture capitalists, I do not mean that I am averse to them. What I am concerned with is for our leaders, Filipinos as they are, to be thoroughly committed to balancing national interests with the need (call it necessary evil, if you will) to attract foreign investors and giving them a fair return on their money and the risk they take. Paraphrasing FVR, finding a “win-win solution.”
the cat,
“for risk purposes, the more there are investors, the greater is the distribution of risk”
why would an investors even bother to invest? For emerging countries, The government can facilitate Privatization and provide Partial RISK Guarantee to be made available to investors to back regulatory and other political risks in support of distribution privatizations. There other means but for discussion purposes. Let’s assume Privatization.
the cat, the risk purposes you mention is very basic- grade school for me. There are risk insurance, guarantee and regulatory support our government can provide- to enhance private investor’s interest. So What do you mean by distribution of risk if investors risk can be contained?
The challenge is to design regulatory frameworks in the part of our governing bodies.
cocoy re your 7:20,it is truly alternative energy that is key… as in the wind farm in Bangui, Ilocos Norte which I visited last week…. that array of windmills now churn out 40 megawatts of clean power… great huh?
Ding (at 6:54am), based on what i’ve read and from my back of the envelope calculations, we will need 18,000 Megawatts by 2010 growing to 21,000 Megawatts 2015 to 34,000 Megawatts by 2030. (This is based on an existing capacity of 15,000 Megawatts in 2005 growing 3.4% per year.)
The oil will all go to Singapore.
CVJ, relatives from Palawan told me that, what about from your end?
kung nasagot mo na above,di ko pa nababasa.
Karl, no info on that from my end. Could it be that the oil will be refined in Singapore for resale later or consumed in Singapore? In any case, i wonder at what price we will be exporting our oil? I hope the concerned MNC does not engage in transfer pricing, i.e. sell crude oil at below market rates to their Singapore subsidiary.
cvj, correct me please but the reports I’ve seen say Palawan Light (the Galoc find) has relatively high sulfur content so may be priced lower. Is this right?
Sorry Ding(at 8:25am), i don’t have info on the quality of the Galoc find, but higher sulfur content does fetch a lower market price because of cost of refining.
(What i’m concerned about (when i brought up transfer pricing) is if the Philippine subsidiary of the Multinational Company that extracts the oil ’sells’ it to its Singapore subsidiary at below market rates (for a given specification of crude oil). We will lose out on foreign exchange earnings if that’s the case. )
Mismo, cvj.
I mean that now after the moneyed foreign prospectors have successfully drilled into our bowels, what real tangible benefits to WE get from the exploitation of the national patrimony. Yes, they spent money on the exploration, but My gut tells me our own provenance should count for more right?
You’re right on that Ding, and how much we get depends on the concessions that our government leadership extracts from these MNCs on behalf of the country (and not just for themselves).
Thanks CVJ!
I mistakenly made a followup on another blog: Where are we?
Oh yeah, a physical therapist disputing an accountant/economist.Very funny. Just so she can say something. Am tired of educating you in Manolo’s blog. I left you in mlq3′ blog to allow you to write your ignorance on any subject under the sun. Copy paste is not my cup of tea in debuting. read (debate and disputing). The forum has become the battle of the links not the battle of the brain since you joined.
Wait, oh wait. It does look exciting but you just don’t instantly believe press releases of oil treasure hunters whose obvious purpose is to generate more funds from new investors to finance their operations. Media hype usually does the job. Just last Sept 23, Nido Petroleum likewise announced it hit oil in Service Contract Area 54 (SC54) though nobody was listening as everyone’s attention was on Wall Street. Galoc is in SC14C.
The Cat is right, no matter how financially capable an oil explo company is, it will always use funds from its investors, their own exposure, minimal. Drilling costs around half-a-million dollars per day, inshore rule of thumb. Offshore, it probably costs double.
Btw Cat, Cape Energy’s stake has already been sold to Otto Energy last year for 18+% interest in Galoc Production Company, the Galoc Field operator.
This is definitely not news, Ding. Nido A & B have been pumping crude since 1979 and has produced 23M barrels. Matinloc, too has been producing since 1983 and has accumulated 11M barrels. In both sites, Nido owns about a fourth. Galoc has estimated gross reserves of 23M barrels.
If you read press releases such as these, which, while announcing the discovery of oil in SC54, gives details related to SC14 which is about 65kms away! The reporter cannot wait for SC14 to come out with its own news, it piggybacked on SC54. FYI, Monte Oro Energy and Oil is one of the partners in SC14/Galoc. Monte Oro is known to be owned by Ricky Razon. This was published in Manila Standard. Konek?
Tongue,
I do not do single source reporting. And yes, I am aware that corporate interests at time do drive issues to stir up investor interest and push stock value.
What is at the core of the post is the prospect of properly channeling proceeds from the oil find for the public good. If you read back to the start of the post, I said pinch, me. This is because I myself appreciate the reported development with guardedness. I do not propose that we call out the brass bands and hold thanksgiving masses. Clear? :~)
Clear. I forgot to write, that Shell, in partnership with Chevron among others in the extraction of the trillions of cubic feet of natural gas in the same area had earlier on expressed loss of interest in drilling for oil because it is “not economically viable”. They have drilled in many areas under the gas reservoir and even if it will be advantageous to them since they will be able to save on mobilization, 2D and 3D surveys, and other studies which they have already undertaken for the gas project, the capex and operating cost still far outweigh the benefits.
Back to Galoc, discovery happened a long time ago. Two horizontal wells have been drilled and what they are supposed to be announcing is “first oil” or the first batch of crude they are pumping out of the wells and into the ship (not a huge floating rig) and transferred into another tanker before it ships to the refinery. It was known in business circles that first oil will be produced sometime August but the strong typhoon came two days before they started to pump. Anti-climacic.
But you don’t stir much excitement from first oil unlike in discovery. If there are only a handful of investors who responded to the discovery, new investors will be lukewarm to a first oil or a farming-in announcement.
Now, if we are to believe press releases, that if the upcoming drill tests in the Reed Banks prove positive, these guys say this will be the petro-jackpot we’ve been praying for. Reed Banks is in an area within our territory as defined by Marcos PD and is now being operated by the partnership of Ricky Razon, Water Brown, Oscar and Joe De Venecia and some Brits.