Visiting Perth last week at the invitation of Nido Petroleum, the Philippines Department of Energy Undersecretary Guillermo Balce told EnergyReview.net the country’s fiscal regime and world-class geology made it an exploration and development destination second to none.

“We are considered the most attractive country when it comes to incentives for oil and gas exploration and production – not only in Southeast Asia but around the world,” Balce said.

Terms include effective tax-free status for producers as the government pays any income tax on a project out of its share of profits.

David Whitby, managing director of Nido, which expects to increase its production from the Philippines with the start-up of the Galoc development during 2007, agrees with Balce’s description of the country as an attractive investment destination.

“The fiscal terms for production sharing contracts in the Philippines are without question the most positive in the region – there’s not even a close second,” Whitby said.

But fiscal terms without geological prospectivity don’t amount to much, and it is the country’s prospectivity, particularly northwest of Palawan Island, that has really whetted Whitby’s appetite.

Whitby said only 51 exploration wells have been drilled in Northwest Palawan, compared with some 280 in Australia’s Carnarvon Basin, despite the assumption by both countries that their basins contain around 3 billion barrels of recoverable resources each.

But the Carnarvon Basin yields some 300,000 bopd against 50,000 bopd from Northwest Palawan.

“So what most companies have concluded, and what we concluded about a year ago, is that we are on the verge of a new hydrocarbon frontier,” Whitby said, comparing the region with Mauritania prior to Woodside Petroleum’s Chinguetti discovery.

“The geological analogy from the Northwest Palawan links into the Pagasa turbidite in the deep waters off Kalimantan that was developed for Unocal,” he said. The Pagasa turbidite is also analogous to offshore West Africa, according to Whitby.

“One of the most amazing factors is that once we went through all the data, we found that of the 51 wells drilled, 44 of them had oil and gas shows.”

This strike rate, contrasted with the one in 10 success rate commonly achieved by explorers, indicates there is a substantial source rock that has the potential to deliver world-class discoveries, he said.

But Whitby said the water depth – often in excess of 300m – and political uncertainty in the past had caused many companies to overlook the Philippines.

“A lot of that has changed, and technical developments and of course the oil price has made everybody acutely aware that we can drill to this depth now.

“Somebody’s going to find a 500 million barrel oil field in the Northwest Palawan Basin, and we think it might as well be us,” Whitby said.

For the Philippines Government that discovery can’t come fast enough. The country is a growing consumer of energy, particularly electric power, and discoveries are lagging far behind production.

Oil market deregulation that began in 1998 continues to have a significant effect on the industry, attracting along with Nido the likes of TotalFinaElf, SeaOil, Eastern Petroleum and Trans-Asia Energy, yet the country remains the smallest oil and gas producer in the ASEAN region, with the exception of the island state of Singapore.

The industry received a boost with the discovery of the Malampaya field off the coast of Palawan, owned by Shell and Texaco with 45% stakes each, and the Philippines National Oil Company with 10%.

With an estimated 2.6 trillion cubic feet of recoverable natural gas, Malampaya is the country’s largest natural gas development and one of the largest-ever foreign investments in the country.

The field is linked to three power plants in Batangas by a 500km pipeline - among the longest deep-water pipelines in the world with more than half its length more than 180m deep.

Gas from Malampaya is used to generate some 2700MW of electricity, with the ability to produce another 500MW, but Balce said a further 3Tcf is needed to continue with the conversion of oil fired power plants to natural gas and to establish a gas distribution system, at least in the greater Manila area, for industrial and residential use.

The perception of the Philippines as an investment destination has also improved with a landmark Supreme Court ruling in February, which upheld the constitutionality of the 1995 Mining Act.

Balce said while the laws regulating the country’s energy industry are enacted under separate legislation to the Mining Act and had never been in doubt, the uncertainty surrounding the mining industry had impacted the sector.

The Philippines Government is focused not only on the large end of town, but is also very supportive of smaller players such as Nido.

“Nido is a small company but they have the money and they are serious in the oil and gas exploration business,” Balce said.

“We are very happy that Australian companies are also very serious in partnering with the Philippines in the exploration and production of oil and gas prospects and resources.”