Pitkin Petroleum Plc., a unit of Philex Petroleum Corp., has dropped out of a farm-in agreement with a consortium of local oil and gas firms for Service Contract 6A (SC6A) located in northwest Palawan.
As a result of Pitkin’s decision to opt out, Philex Petroleum may record an impairment loss of approximately P300 million during the third quarter of 2014.
In a disclosure to the Philippine Stock Exchange, the parent firm said its 53 percent-owned subsidiary has chosen not to enter Phase 2 of a farm-in agreement to earn a 70-percent stake in SC 6A, referred to as the Octon Block.
Pitkin will reassign its participating interest back to the farm-out partners after completion of the Phase I work program on Dec. 31, 2014, Philex Petroleum said.
Its UK-registered subsidiary will then be “free from any further obligation and liability” under the farm-in agreement.
The other parties involved in the transaction are Trans-Asia Oil and Energy Development Corp., PetroEnergy Resources Corp., Alcorn Gold Resources Corp., Philex Petroleum Corp., Anglo-Philippine Holding Corp., The Philodrill Corp. and Forum Energy Philippines Corp.
The reassignment of Pitkin’s participating interest will have to be approved by the Department of Energy.
Philex Petroleum said Pitkin had signed a farm-in agreement with the Octon Block partners in 2011 to earn a 70-percent stake in exchange for funding a three-phase work program, with the option to exit at the end of each phase.
At the time, it was agreed that Pitkin would have to acquire, at its own cost, 500 square kilometers of 3D seismic data worth about $5 million.
Had it exercised its option to get 70 percent of the project, Pitkin would have to drill up to two exploration wells within the Octon block, still at no cost to the other parties.
The consortium partners initially considered the possibility of developing the Octon Block at the same pace as Phase 2 of the oil-producing Galoc oil field development. However, by the time the Galoc expansion had been completed (production started in December 2013), Octon still had to be drilled.
The Octon block, discovered in 1991, was estimated to contain up to three million barrels of oil reserves and over 34 billion cubic feet of natural gas, of which three billion could be recovered.
The participants in the Galoc project are operator Galoc Production Company W.I.I., a wholly owned subsidiary of Otto Energy Ltd. (33 percent); Galoc Production Company No. 2 Pte Ltd, a wholly owned subsidiary of Kuwait Foreign Petroleum Exploration Co. (26.84 percent); Nido Production (Galoc) Pty Ltd. (22.88 percent), Oriental Petroleum & Minerals Corp. and Linapacan Oil Gas & Power Corp. (7.8 percent), The Philodrill Corp. (7.2 percent), and Forum Energy Philippines Corp. (2.28 percent). Riza T. Olchondra