Reuters: All Oil and 20 trillion cubic feet Gas Produced in Recto Bank would NOT be exported- Philippines

Philippines says gas from disputed field should be used domestically

The Philippines will insist that any gas produced from an offshore field a unit of Philex Petroleum Corp hopes to develop with China's CNOOC Ltd be used domestically, a senior energy official said on Wednesday.

London-listed Forum Energy Plc, a unit of Philex, is holding talks with CNOOC, the Hong Kong-listed unit of China National Offshore Oil Company, for a possible joint venture to explore for oil and gas reserves in an area of the West Philippine Sea, a deal that may later lead to a production agreement, Energy Secretary Jericho Petilla said.

Service Contract 72 in the Reed Bank holds the Sampaguita field, which is estimated to have 20 trillion cubic feet of natural gas, dwarfing Malampaya, the Philippines' current sole gas producer with only about 2.7 tcf of gas.

"What I know is they are having regular meetings, that's the way to move forward," Petilla told reporters. "Certainly, we will not agree that it (the gas) will be sold elsewhere when we actually need it," he said.

Manila needs to find a replacement for the natural gas produced in the Malampaya field, which is expected to operate only until 2024, Petilla said.

Any deal would have to be reviewed by government lawyers, but Manila is open to an ownership structure of SC 72 similar to that of Malampaya, he said.

Malampaya is 90 percent owned by a consortium led by Shell Philippines Exploration B.V. of Royal Dutch Shell Plc and 10 percent held by a state agency.

China says it owns the Reed Bank, but SC 72 falls within the Philippines' 200-mile exclusive economic zone (EEZ), with Manila insisting on sole sovereignty over the waters.

"We maintain that the area that Forum Energy is exploring is clearly within our EEZ and therefore any exploitation of the same has to be in conformity with our laws," Philippine President Benigno Aquino said in a forum with foreign press.

Forum approached CNOOC as early as last year for an agreement on a joint exploration venture so that the gas resources in the SC 72 block could be developed despite the sovereignty dispute.

Forum Energy has extended its drilling programme for SC 72 by two years to August 2015 due to the territorial dispute.

Forum had earlier disclosed plans to conduct a survey to identify and evaluate other gas prospects near the Sampaguita gas field and the Reed Bank, despite problems with previous survey and drilling attempts due the diplomatic wrangling between Manila and Beijing.

When asked about how sovereignty issues raised by China and the Philippines over the waters weigh on the discussions between Forum and CNOOC, Petilla said: "Those are the governments, I'm hopeful of the commercial (talks)."

There was no immediate reply from Forum Energy when asked about the talks.