WITH debate on the Ferdinand Marcos years surging because of the son’s presidential candidacy, at the same time that tension in the South China Sea has heated up, I thought it would be informative to publish the following excerpts (minus the many footnotes reporting the sources of information) of the chapter entitled “The Scramble for Oil and Gas” from my new book. Scheduled to come out mid-December. The book is titled The Aquino Regime’s Scarborough Fiasco and the SCS Arbitration Deception:
In 1968, a United Nations scientific research body issued technical bulletins that concluded that the South China Sea (SCS) seabed could have vast quantities of hydrocarbon deposits.
The Marcos government was encouraged by these findings and authorized oil exploration in the 1970s by both Filipino and foreign firms in the Spratlys, specifically in the Reed Bank area.
When the oil crisis broke out in 1970, which highlighted the Philippines’ total dependence on imported oil, President Marcos undertook several steps to incentivize oil exploration by private enterprises off Palawan and in the Reed Bank.
By the end of 1971, the Philippines granted 65 concessions for oil exploration in the area. Oriental Petroleum and Minerals Corp. drilled the first two offshore exploration wells northwest of Palawan in May and July 1971, but these came up dry.
In 1970 and 1971, Marcos ordered a top-secret operation by the Navy that seized five islands (then uninhabited) in the Spratlys and stationed there 72 soldiers: Lawak (Nanshan) in September 1970 and then in 1971 Parola (Northeast Cay), Likas (West York), Kota (Loatia) and Pag-Asa (Flat), which is the second-biggest island in the area. Marcos actually had also ordered his Navy to occupy the biggest island Itu Aba (Ligao). However, after finding out that a vessel of the Republic of China (Taiwan) had secured it, the Navy was ordered to keep off.
Marcos’ aim was to militarily secure the submerged Reed Bank in order to encourage oil exploration companies to undertake surveys in the area and determine where the commercial-level gas and oil deposits were located.
In 1972, Marcos ratified a petroleum exploration law that allowed foreign oil companies to sign a “contract of service” with Philippine companies for exploration and development of the country’s petroleum resources. The first concession granted in the Reed Bank area went to a joint venture called Fil-Am Resources as “part of an effort to strengthen Philippine claims in the South China Sea area contested by both Vietnam and China (as well as nominally by the government of Taiwan).”
The global oil crisis in 1973 accelerated the pace of exploration, as the rise in oil prices made the cost-benefit equation for offshore oil exploration attractive. Filipino and Swedish firms led by Salen Energy, a veteran offshore oil driller in the North Sea, set up a consortium in 1974 to explore for hydrocarbons in the Reed Bank.
The consortium first contracted an American firm as well as independent experts to carry out the drilling operations together. When drilling started, it took in Amoco (Standard Oil) as a major partner with a 38-percent stake and as lead exploration operator.
In April 1976, the consortium drilled its first oil exploratory well at the Sampaguita Field in the Reed Bank. To this day, the Sampaguita Field is believed to be where hydrocarbon deposits are most likely to be found.
While the consortium tried to keep the drilling secret, news eventually broke out over the consortium’s exploration. China, Taiwan and Vietnam vehemently protested. Taiwan’s statement warned that “no other country would have the right to enter into a contract for oil exploration or exploitation on the Reed Bank, which is situated within the Nansha Islands.”
With global oil production peaking in the 1970s, driving prices up, the business of oil exploration outside the US became financially viable. US firms, in particular, flocked to Vietnam and the Philippines as ideal platforms to explore oil in the Spratlys.
In May 1973, the representatives of the world’s major oil companies met with high-ranking officials of South Vietnam and two months later, Saigon officially announced the awarding of eight oil exploration tracts to Shell, Exxon, Mobil and a group of Canadian firms, several of which were on the western edges of the Spratlys.
To justify these concessions, Vietnam on Sept. 6, 1973 formally annexed the Spratly Islands through an executive order that incorporated 10 islands into the closest province Phuc Tuy. Despite the war with the North, which the South was losing, several hundred of its troops were deployed to occupy the following year five islands and two reefs.
Vietnam’s expansion into the Spratlys would continue through the years, building structures (since all the islands already had been occupied) on reefs to have the largest number of holdings among all the claimants: a total of six islands, 16 reefs and six banks.
With the Vietnamese troops acting as their de facto security detail, Shell, Exxon, Mobil and the Canadian consortium proceeded with their drilling operations in early 1974. Shell and Mobil officially announced that their wells drilled had begun to flow at a rate of 2,200 and 2,400 barrels per day, respectively. Though miniscule by most international standards, the discoveries confirmed the probability of commercially viable fields.
After the fall of South Vietnam in 1975, the communist-led Provisional Revolutionary Government of South Vietnam in 1976 junked its 1958 recognition of Chinese sovereignty in the Spratlys and issued a declaration that “reaffirms its sovereign rights to the Spratly Islands and reserves the right to defend its sovereignty.”
In response, China on June 13, 1976 declared what would be its refrain to this day: “The Nansha Islands, as well as the Xisha, Zhongsha and Dongsha Islands, have always been part of China’s territory. The government of the People’s Republic of China has time and again declared that China has indisputable sovereignty over these islands and their adjacent sea areas and that the resources there belong to China.”
Marcos discussed exploring the Reed Bank’s oil resources in June 1975 with top Chinese Communist Party officials during his state visit to Beijing and had even informed the US Embassy in Manila about this.
China, however, refused to recognize the Philippines’ right to authorize companies to explore for oil and gas in the Reed Bank. Marcos’ Foreign Secretary Carlos Romulo told media that the joint communiqué signed by Marcos and the late premier Zhou Enlai to establish diplomatic relations between the Philippines and the People’s Republic of China (PRC) had been “specific in mentioning that any dispute between the two nations be settled by peaceful means without the use or threat of force.”
Romulo asserted that “the Reed Bank is within the continental shelf of the Philippines, which was declared by the Republic of the Philippines to be within the economic exploitation [sic] zone of the country in accordance with the United Nations convention of continental shelves in 1958.”
According to Romulo, the Philippines had declared its right to explore and exploit its 200-mile economic zone in 1968 without encountering any international opposition.
Marcos ordered in August 1976 his Energy Development Board to step up exploration in Reed Bank. Operations intensified in 1977, as the consortium drilled two additional exploratory wells.
Marcos in June 1977 ordered Marines to seize and occupy two more unoccupied features in the Spratlys: Patag, which was the closest to the Reed Bank, Panata in March 1978 and Rizal Reef in July 1980.
These four features and the five earlier occupied in 1970 and 1971 — plus Ayungin Shoal where a World War 2 ship was deliberately run aground in 1999 as a makeshift post for a platoon of marines — to this day are the 10 features the Philippines occupies in the Spratlys. Vietnam, on the other hand, occupies 22 features. China occupies six features.
To justify these occupations, Marcos formally annexed the Spratly archipelago, or most of it, into Philippine territory by issuing Presidential Decree 1596 on June 11, 1978, strengthening the country’s claim over it beyond Romulo’s argument that the area is within its “exclusive exploitation zone.”
The decree gave precise geographical coordinates to mark a hexagonal area in the Spratlys, called the Kalayaan Island Group, and specified a new municipality of Palawan province. The decree declared that the islands and reefs, “including the seabed, subsoil, continental margin and airspace,” as well as the Reed Bank in this hexagon, were part of Philippine sovereign territory and “constituted as a distinct and separate municipality of the Province of Palawan and shall be known as Kalayaan.”
The decree justified the annexation on three arguments:
— That it is part of the continental margin of the Philippine archipelago;
— That it does “not legally belong to any state or nation but, by reason of history, indispensable need and effective occupation and control established in accordance with international law, such areas must now be deemed to belong and subject to the sovereignty of the Philippines”; and
— “While other states have laid claim to some of these areas, their claims have lapsed by abandonment and cannot prevail over that of the Philippines on legal, historical and equitable grounds.”
Reed Bank, however, didn’t live up to Marcos’ expectations. In March 1978, Amoco pulled out of the consortium after drilling two dry holes. There were unverified reports, however, that the United States itself had lobbied Amoco to withdraw from it and advised American firms against drilling in the Reed Bank as it was worried that this could deteriorate into a conflict with China. This would reverse the US’ huge project of rapprochement with China started by US President Richard Nixon in 1972 that led to the establishment of diplomatic relations in 1979.
Salen Energy drilled a fourth test well (Sampaguita No. 2) in May 1978, but it was subsequently plugged and abandoned. It drilled another hole in early 1979 in another spot in the Reed Bank, but no gas or oil was found. There were even reports that the exploration findings were deliberately hyped in order to push up the prices of listed Filipino oil firms that were part of the consortium.
By 1983, attempts to explore for hydrocarbons in the Reed Bank ground to a halt, although the global oil industry still believed the area to have good potential.
Fast-forward three decades later and another firm, led by the Indonesian-owned First Pacific Co., would attempt in 2011 to explore and drill for hydrocarbons in the same Sampaguita Field in the Reed Bank. It had been forgotten that decades before Marcos had attempted this without much success and that the Ramos government made a similar attempt, which only triggered Mischief Reef’s occupation by China in 1994.
While Marcos was smart and pragmatic enough not to quarrel with China over the Reed Bank, President Benigno Simeon “Noynoy” Aquino 3rd in 2011 foolishly became belligerent toward the Asian superpower to pressure it to allow First Pacific to extract gas and oil in the area.
That eventually led to the loss of Scarborough Shoal and then Ayungin Shoal, to the useless arbitration suit vs China and to the country’s serious discord with the superpower. That would have resulted in economic catastrophe for the country had Aquino’s successor Rodrigo Duterte not reversed that course.
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