Stable fiscal environment needed to encourage gas exploration investments

The Philippines may find at least one petroleum resource like the Malampaya natural gas field but the lack of clarity and stability in fiscal policy tempers investor interest in exploration, according to an industry group.

According to the Petroleum Association of the Philippines (PAP), the country’s energy needs will double in 20 years and the government should ramp up tapping indigenous energy sources.

“(W)e have the capacity and the potential to do more explorations which can result in a second or even a third Malampaya,” PAP president Don Paulino said in a statement.

Paulino is also managing director of Shell Philippines Exploration BV, which is the operator of the Malampaya project.

However, Paulino said two things must happen before new exploration activities would be enabled.

“We must first have a longer-term stable fiscal environment before we can expect investors to come in and help in looking for new indigenous energy sources,” he said.

“A lot of things play out in this, including the COA issues and the TRAIN 2 tax reform law,” he added.

Paulino was referring to a ruling of the Commission on Audit that the Malampaya consortium should pay the government income tax of at least P53 billion.

The consortium, which includes Chevron Malampaya LLC and state firm PNOC Exploration Corp., disputes the COA’s ruling and the matter is currently pending at the Supreme Court and is also subject to international arbitration proceedings.

The second package of the Tax Reform for Acceleration and Inclusion (TRAIN) program also threatens investor confidence by removing incentives for upstream projects.

“Our neighboring countries started at the same level as us, but now the Philippines is lagging behind in explorations,” Paulino said.

The Department of Energy last month opened to interested investors 14 prospective petroleum areas as the country’s demand for oil and gas continues to rise while local resources approach depletion.

Even then, a moratorium on exploration activities in areas that are subject to territorial dispute with China—such as Recto Bank near Palawan—remains in place.