THE Energy department’s go-signal for the resumption of exploration for oil and gas in the disputed part of the South China Sea off Palawan is either a bold move, an “insane” one or a cheap stock market play. You decide; here are the facts.
First, it could be a bold, urgent move since the Malampaya Gas Field, also near Palawan, which has been providing one-fifth of our energy needs since 2002, will be drying up starting 2024. We need to replace that.
The most promising area where commercial-scale gas deposits — in fact about twice that of Malampaya’s — is in the Reed Bank. The Arroyo and Aquino governments in 2009 and 2010 awarded a “service contract” (No. 72) for the exploration and development of hydrocarbons to PXP Energy Corp., a subsidiary of the Hong Kong-based First Pacific Co. Ltd., mainly owned by the Indonesian magnate Anthoni Salim.
The service contract covers the so-called Sampaguita Oil Field, which was first explored way back in 1975. In fact, the discovery of gas and oil deposits is the reason why we are in the Spratlys, and not because of the United Nations Convention of the Law of the Sea, which took effect in 1994, and the exclusive economic zone it authorized, which we drew only in 2009 with the enactment of the so-called Baselines Law.
Because of the prospects of ostensible huge deposits of oil and gas there, President Ferdinand Marcos ordered troops to occupy six islands there from 1968 to 1974, and then enclosed those into an area in the Spratlys that he called the Kalayaan Island Group. Marcos through Presidential Decree 1596 declared it part of Philippine territory, a municipality of Palawan. (Vietnam was the second occupier, responding to the Philippine move by occupying nine islands and reefs from 1974 to 1978. China occupied seven reefs in 1988.)
Going by Malampaya’s experience of starting commercial operations three to four years after the start of drilling operations, SC 72 could be rushed so it can provide the gas when the former dries up in 2024.
But here’s the problem, a huge one actually. Both China and Vietnam claim the Reed Bank as part of what their archipelagos (Nansha Qundao to the Chinese, Truong Sa to the Vietnamese), sovereignty over which they claim to have established decades before Marcos annexed it.
Which brings us to the second explanation, the “insanity” one, which term I use in a technical way (hence the quotation marks), using a definition in a quote commonly attributed (but apparently falsely) to Einstein: “The definition of insanity is doing the same thing over and over again and expecting different results.”
The Philippines has tried three times to explore for oil and gas for commercial development in the Reed Bank, with China blocking it every time.
The first time was in the early 1970s. Marcos, during his historic state visit to Beijing, tried to convince no less than the Chinese leaders Mao Zedong and Chou Enlai to allow a consortium of Swedish, American and Filipino firms to explore and develop the oil and gas deposits in the very same Sampaguita Field.*
He was rebuffed. Marcos nevertheless authorized the consortium to explore the Sampaguita Field in 1976. However, when the US didn’t commit to Marcos that it would defend his forces in case of a shooting war with China over the Reed Bank, the strongman ordered the exploration to stop, although the reason his controlled press gave was that the consortium found no oil and gas of commercial scale.
The second attempt, an indirect one, was in 1994 when the Ramos government leased a block adjacent to the Reed Bank to the Houston-based Alcorn Petroleum and Minerals to explore for hydrocarbons. China retaliated by occupying the now infamous Mischief Reef, an unoccupied reef within that block.
That sent a message to Ramos that if he thought the Reed Bank was too far for China to defend, it would build fortifications near it to serve as supply depots for its ships.
It was Ramos’ chief legal adviser, the now vociferous anti-China basher Antonio Carpio, who advised him that the Philippines had all the right to authorize Alcorn to explore for oil there.
The third time was in 2011. After tycoon Enrique Razon became a 30 percent partner in the Salim-owned PXP Energy’s exploration rights to the Sampaguita Field, the Arroyo administration converted those rights into a full service contract (No. 72, that is to include the right not just for exploration but to extract hydrocarbons). It reneged on Foreign Secretary Alberto Romulo’s categorical commitment made in 2007 that it would not do so.
When the Salim-Razon group deployed in March 2011 its vessel MV Veritas Voyager to the Reed Bank to determine where to drill the first holes, two China Maritime Surveillance vessels shooed it away.
For some reason, or perhaps tens of millions of reasons, President Aquino 3rd became surprisingly livid over the incident, even claiming in his State of the Nation Address in July that the Philippines would defend “Recto Bank (the term he made up for Reed Bank**) as if it were Recto Avenue.” A category mistake certainly. Recto Bank is disputed by two other countries; Recto Avenue is certainly not.
That attempt to explore the Reed Bank was the start of Aquino’s belligerent stance against China. This eventually resulted in the loss of Scarborough Shoal to China, which in turn prompted the Philippines to file the arbitration suit against it in 2013.
If energy chief Alfonso Cusi expects that the results of attempting to explore Reed Bank will be different this time, he is insane, at least going by the Einsteinian definition.
Cusi facetiously remarked about his department’s move: “I am sure China will respect our actions.”
That statement borders on a delirious denial of reality. After the Scarborough Shoal incident that roused Chinese outrage that their “unarmed fishermen were arrested by fully armed Filipino soldiers,” (as their press portrayed it), after the arbitration suit that China was convinced was a devious US propaganda operation, and after Mao and Chou, China’s most revered leaders, long ago themselves asserted the country’s sovereignty over the Reed Bank, Cusi is sure “China will respect our actions”?
I’m afraid Cusi is losing his marbles, and thinks he is defense secretary, foreign affairs secretary, and even spokesman for President Duterte.
How in the world can the head of the energy department in effect commit that the Philippine armed forces will defend the Indonesian-owned exploration firm when it starts work at the disputed Reed Bank? He even boasted that “exploration companies have been assured they will be protected by a 500-meter security buffer zone.” Is he the new defense secretary?
And I thought that it was Duterte’s pragmatic policy that we don’t go to war with China over the disputed territories, as we’ll lose, painful to our national ego as that may sound.
How can the energy chief pretend to be the foreign affairs secretary? This is what he did when he said: “They will not just take it without raising a word. I’m sure they’re going to write us.” Cusi made it appear in his talk with media that all he was saying was approved by Duterte. I thought that was the job of Harry Roque Jr. It is certainly beyond Cusi’s jurisdiction to comment on the our sovereignty disputes with any country.
I still wish though that Cusi has an unannounced plan behind this seeming “insanity.”
However, Cusi’s melodramatic flag-waving pronouncements may have a very mundane basis. There may be a reason to his madness. As another newspaper headlined an article the day after he made his announcement, prices of mining/oil stocks – companies under Cusi’s jurisdiction – “sizzled as exploration resumes in West Philippine Sea.”
Last Friday, PXP Exploration’s stock price — which had been in the doldrums for several years — rose 50 percent to P7.72. Atok Big Wedge’s stock price, whose subsidiary Tidemark Holdings has 20 percent stake in SC 72, also rose 50 percent to P11.54.
The stock price of Apex Mining rose 35 percent. Its subsidiary Monte Oro Resources is Razon’s corporate vehicle for taking a 30 percent interest in SC 72. Even the price of PXP Energy’s mother firm, the Salim-controlled Philex Mining, rose 21 percent. The price of Forum Pacific, owned by the William Gatchalian group whose service contract No. 40 is in the Cebu area far from the Reed Bank, rose 27 percent. All of this thanks to Cusi’s announcement.
This of course is nothing new. Fortunes were made, and most of our oil companies listed in the stock market grew over reports – many of which turned out to be false — that the Sampaguita Field wells struck oil in 1976. A Marcos-controlled newspaper once even reported the strongman and several other high-ranking officials flying over the Reed Bank, purportedly observing gas and oil “flowing and flaring” from the exploration well. Months after the surge in these oil companies’ share prices, they plunged when the exploration stopped.
More recently, stock prices of PXP Energy (Philex Petroleum then), its mother firm Philex, and Apex Mining surged in the months before the survey vessel MV Veritas Voyager sailed into the Reed Bank in March 2011.
After the Chinese blocked it and the energy department ordered all activities in the Reed Bank stopped, share prices of these firms tumbled and slid to unheard of levels. And why shouldn’t they? Its business model was based on becoming a major energy firm when it develops the Reed Bank. When that seemed improbable, its losses has neared P1 billion from 2012 to last year.
Having their stocks “sizzle” after Cusi’s announcement could recover their lost investments through a stock market play. Indeed I heard rumors from my old stockbrokers contacts (I had been a business reporter for many years) that there were some quiet accumulation of PXP shares days before Cusi’s announcement was made.
*See Muscolino, Micah “Past and Present Resource Disputes in the South China Sea: The Case of Reed Bank,” Georgetown University.
**After a year of research on this topic, I haven’t been able to find an executive or administrative order referring to the Reed Bank as “Recto Bank.”