Philippines - Petroleum Exploration Promotion Project

Document of The World Bank FOR OFFICIAL USE ONLY FtE COPY Report No. P-3297-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON PROPOSED LOANS IN AN AMOUNT EQUIVALENT TO $37.5 MILLION TO THE REPUBLIC OF THE PHILIPPINES AND THE PHILIPPINE NATIONAL OIL COMPANY TO BE GUARANTEED BY THE REPUBLIC OF THE PHILIPPINES FOR A PETROLEUM EXPLORATION PROMOTION PROJECT September 8, 1982 This document has a restricted distribution and may be used by recipients only in the performanee of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Peso (P) (100 centavos) P 1.00 = US$0.120 US$1.00 = P 8.3 GLOSSARY AND ABBREVIATIONS BD - Barrels per Day BED - Bureau of Energy Development BOE - Barrels of Oil Equivalent km - Kilometer MMbbls - Million barrels MMBOE - Million Barrels of Oil Equivalent NPC - National Power Corporation ODA - Official Development Assistance PNOC - Philippine National Oil Company PNOC-EC - PNOC Exploration Corporation PNOC-EDI - PNOC Energy Drilling Incorporated FISCAL YEAR Government: January 1 to December 31 PNOC January 1 to December 31  FOR OFFICIAL USE ONLY PHILIPPINES PETROLEUM EXPLORATION PROMOTION PROJECT Loan and Project Summary Borrowers: Republic of the Philippines and Philippine National Oil Company (PNOC) Guarantor: Republic of the Philippines Beneficiaries: Bureau of Energy Development (BED) and PNOC Exploration Corporation (PNOC-EC) Amount: $37.5 million equivalent (including capitalized front-end fee) of which $13.5 million to Republic of the Philippines and $24.0 million to PNOC. Terms: 20 years, including 5 years of grace, at 11.6% per annum. Project Description: The primary objectives of the project are the rekindling of interest of oil companies in exploration for oil and gas in the Philippines, and the extension of exploration activities to relatively unexplored onshore areas; strengthening the exploration capacity and technical capabilities of the two implementing entities is a further important objective. BED's proposed program consists of: (a) an aeromagnetic survey of about 168,000 line km; (b) offshore seismic surveys of about 8,400 line km; and (c) regional basin evaluations over 15 onshore and offshore areas integrating the newly acquired data. The results of this countrywide assessment of the petroleum prospects in the Philippines, which would highlight areas where immediate further explora- tion was warranted, would be assembled in the form of a promotional package available to any interested oil company. PNOC's proposed program comprises a step-wise exploration program in each of three or more onshore areas held by PNOC-EC and includes: (a) gravity surveys and geological studies; (b) 4,400 line km of land seismic surveys; (c) drilling of 6 wells if warranted; and (d) technical assis- tance, training and seismic data reprocessing. PNOC-EC would seek private sector participation at appropriate points in the course of implementing its exploration program, by inviting oil companies to form joint ventures to continue/expand activities in an area. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - 'Chances are good that, as a result of the proposed project, exploration interest in the Philippines would pick up significantly. BED's basin evaluation program, to be completed by 1985, would enable the oil companies to focus on well-defined prospective areas without a prior major evaluation effort on their part. Once PNOC-EC's 1982-85 exploration program is fully under way, its operations are likely to attract joint venture partners, and there is a fair chance that a cluster of oil/gas fields similar to northwest Palawan will be discovered. Close monitoring of project activities by the Bank and implementing entities with regard to the timeliness and quality of the results is planned to minimize the risks of falling behind schedule and of drilling structures which are not fully evaluated. Moreover, the step-wise nature of the project helps to ensure minimum investment of time and money in areas which subsequently prove to be uninteresting. The risks of finding that no case can be made for further exploration in the Philippines or of finding no oil/gas, while certainly present, are considered small.  - iii - Cost Estimate: Local/a Foreign Total --$ Million----- BED Component Aeromagnetic survey 0.4 3.8 4.2 Offshore seismic survey 0.6 6.1 6.7 Regional basin evaluation 0.9 1.1 2.0 Base cost 1.9 11.0 12.9 Physical contingencies 0.3 1.2 1.5 Price contingencies 0.3 1.1 1.4 Total Component Cost 2.5 13.3 1L5.8 Front-end Fee - 0.2 0.2 Total Financing Required for BED Component 2.5 13.5 [L6.0 PNDC Component Geological studies 0.4 0.2 0.6 Gravity surveys 0.2 - 0.2 Land seismic surveys 14.5 9.6 24.1 Exploration drilling 5.4 8.0 13.4 Technical assistance - 0.9 0.9 Base cost 20.5 18.7 39.2 Physical contingencies 3.3 3.4 6.7 Price contingencies 4.2 3.5 7.7 Total Component Cost 28.0 25.6 53.6 Front-End Fee - 0.4 0.4 Total Financing Required for PNOC Component 28.0 26.0 54.0 Total Project Cost 30.5 38.9 69.4 Total Financing Required 30.5 39.5 70.0 /a Includes taxes of about $2.7 million.  - iv - Financing Plan: Local Foreign Total ----------$ Million---------- World Bank Loan to Government 13.5 13.5 to PNOC - 24.0 24.0 Government 2.5 - 2.5 PNOC 28.0 2.0 30.0 Total 30.5 39.5 70.0 Estimated Disbursements: Bank FY 1983 1984 1985 1986 1987 ------------$ Million