This piece of good news nearly fell below the radar.The Department of Energy (DOE) announced this week the signing of eight new Petroleum Service Contracts (PSCs) for oil exploration. The deals went though a transparent and competitive selection process as required by law. Altogether, the eight contracts translates into $207 million in investments over a seven-year period.
Significantly, one of the contracts sealed involves exploration and, hopefully, extraction of natural hydrogen. This is considered green fuel with many possible applications in industry and transport.
$207 million is not a staggering sum. But these contracts represent something truly consequential for the country’s energy security. Since 1989, when the Malampaya wells began producing natural gas for the country, there has been a drought of new investments for oil and gas exploration.
Somehow there was a misfit between standing policy and investor expectations. Exploration is a capital-intensive and high-risk venture. It requires mobilizing the best technologies for geological and geophysical surveys as well as extensive seismic and aeromagnetic studies.
Securing our energy future is a task that cannot be undertaken small scale. It requires inviting in the best companies in the world to take a stake in energy exploration and, ultimately, energy production.
We have vast natural resources on land and in our seas. We have been slow in exploiting these resources for national development because of many hindrances. The main deterrent for potential investors is the uncertainty and unpredictability of exploration projects due to unclear or nonexistent regulations.
The few global companies capable of undertaking exploration projects for oil and gas are not there to do charity or perform philanthropy. They expect firm assurance of profitable return for venturing in exploration.
The DOE under the leadership of Sharon Garin worked hard to clear the uncertainty. The eight deals announced this week became possible after the DOE committed to providing special allowances for the service contractors. The goal was to reinvigorate investments in our upstream energy industry.
Department Circular No. DC2025-09-0017, titled ‘Grant of Special Allowances for Petroleum Service Contractors,’ implements constitutional mandates to protect exploration investors. This served as an open invitation for all those willing to invest in uncovering our vast natural resources.
The new circular offers service contractors special allowances deductible from gross proceeds. While preserving government’s 60 percent share, operating expenses of up to 70 percent will be reimbursed. This offers not just relief but also assurance to investors that government is committed to playing its part in harnessing the country’s natural resources for development.
Additionally, government is introducing additional allowance for marginal petroleum operations when annual operating expenses surpass the 70 percent recovery allowance. To encourage production in the newly discovered petroleum fields in frontier regions, the DOE is offering a five percent allowance on gross proceeds to the initial commercial development.
The grant of the special allowances mentioned above is inspired by successful policy models adopted by Malaysia and Indonesia that offer more substantial exploration investment incentives. Our two neighbors offer a more generous package including reduced tax rates, accelerated capital allowances, investment allowances and export duty waivers.
Because of the generous fiscal incentives they offer, the economies of our two neighbors have successfully attracted investors to help grow their upstream energy sectors. This is the reason our two neighbors are well ahead of us in this regard.
The new incentives for exploration continues our government’s effort to build up our upstream energy production. Two years ago, government extended Service Contract 38 which governs the Malampaya gas field. Two new wells are being dug in the service area with $893 million in additional investments.
The two new wells are of critical importance. They will extend the availability of indigenous natural gas on which a large part of our power production relies – until new fields are developed.
We may not see full energy self-sufficiency in our lifetime. But the innovative energy policies recently adopted move us towards a robust upstream energy industry.
Overstated
The Palace was quick to react to SEC Chairman Francis Lim’s pronouncement that P1.7 trillion in market capital evaporated over the recent weeks because of uncertainty created by the raging infrastructure corruption scandal.
At first glance, that did seem to be a gross overstatement. Our equities market is small even by regional standards. Such a volume of loss would have been truly earthshaking.
It turns out the loss quoted was from an erroneous report circulating in social media. Lim was quick to acknowledge his error. The real estimate of market loss during the specified period under consideration amounts to P180 billion.
The corrected estimate is roughly just a tenth of the first figure quoted by Lim. Still, given the smallness of our capital market, a loss of P180 billion is still awesome.
The raging corruption scandal is taking a tremendous toll on our economy. We will likely end the year with GPD growth below even our most conservative estimates. Acknowledging the corrosive impact of the corruption scandal on our economic performance, the BSP and the Monetary Board surprised the market by cutting interest rates by 25 basis points.
Lowering the interest rate regime intends to spur business activity. But this will also take a toll on the peso. We have the distinction of having both the worst performing stock market and the worst performing currency in Asia.