Philippines ends South China Sea drilling ban

The Philippines has lifted a five-year moratorium on upstream drilling in an area of the South China Sea that is also claimed by Beijing, as Manila looks to boost its declining domestic gas output.

Philippine President Rodrigo Duterte late last week approved an end to the suspension of petroleum activities and ordered work to resume on three stalled projects, the energy department (DoE) said.

"We need to explore so that we may address the country's energy security," energy secretary Alfonso Cusi said. There is an "urgent imperative" to resume exploration and production activities within the country's exclusive economic zone because of the impending depletion of the Malampaya natural gas field, he said.

Output is falling at Malampaya, the country's main gas source, prompting Chevron to sell its 45pc stake in the field early this year, with Shell planning to do the same. Manila is looking to LNG imports to help maintain supplies.

The DoE has now issued a "resume-to-work" notice for three service contracts (SCs) on the Reed Bank, in waters that are subject to rival territorial claims from Beijing under its broad "nine-dash line" claim to most of the South China Sea.

Work was suspended on the projects ahead of a Permanent Court of Arbitration ruling on China's sovereignty claims in 2016. The decision, under the UN Convention on the Law of the Sea, rejected many of China's claims. But Duterte, who came to power just before the judgement was made, has consistently declined to enforce the ruling, limiting its impact. The US government formally aligned its position on the South China Sea disputes with the ruling earlier this year as part of the Trump administration's tough line on Beijing.

The three contract areas, SCs 59, 72 and 75, are operated by the Philippines' state-owned PNOC, Forum Energy and domestic private-sector firm PXP Energy respectively. PXP bought UK independent Forum in 2017.

Forum suspended all work on its exploration area in 2015 but subsequently held talks with China's state-owned CNOOC over jointly developing the project. Discussions with CNOOC on an initial agreement covering joint oil and gas development are continuing, PXP said today.

The decision to lift the moratorium was taken in good faith and with full regard to the Forum-CNOOC talks, according to Cusi. The "oasis of peace" envisaged by Manila and Beijing must also be an "oasis of prosperity", hence the need for the Philippines to secure energy supplies to drive its economy, he said.

China and the Philippines have previously reached consensus on exploration of oil and gas resources in the South China Sea, according to China's foreign ministry. "We hope the two sides will work together for new progress in the joint exploration," it said.

By Kevin Foster