Shell Exploration, partners give up Service Contract 60

Shell Exploration BV, Kuwait Foreign Petroleum Co. and South China Resources Inc. have relinquished their rights over Service Contract 60, citing the “dismal results” of their exploration activities in the oil and gas blocks in northeast Palawan.

In a report, South China Resources said the company and its partners, SPEX and Kufpec, “deemed it prudent to relinquish Service Contract 60 in light of the dismal results of the wildcat well drilled and CSEM (Controlled Source Electro-Magnetics) survey.”

“After a thorough review of the results of all studies done on the area, a decision based on the unsubstantial findings of the Silangan well and the CSEM survey, the JV through the operator decided not to proceed with the third sub-phase,” South China further stated.

SPEX, which was the operator of the field, held a 55-percent stake in the contract while Kufpec has a 30-percent interest and South China controls the remaining 15 percent.

It was only in January 2006 that the Department of Energy approved the application of the group for the conversion of its contract from geophysical survey and exploration contract (GSEC 99) to a service contract. The contract included a 25-year production term in the event of a commercial discovery of petroleum.

The joint venture earlier committed to invest at least $24 million during the seven-year exploration period covered by SC 60.

In July 2008, the group entered the second sub-phase of SC 60 with the objective of continuing the exploration of the block with a commitment to drill one well during the sub-phase.

The Silangan-1 well was spud in on July 20, 2010, and was the first deep water drilled in the area. This well, which was drilled within the second sub-phase of the service contract, was, however, plugged and abandoned without encountering significant hydrocarbons, according to the report.

SPEX is also the operator of the $4.5-billion Malampaya gas-to-power project off Palawan. Kufpec is a wholly owned subsidiary of the Kuwait Petroleum Corp., which is owned by the State of Kuwait. South China is a publicly listed firm involved in, among others, hydrocarbon exploration.