If you and your friends discover a treasure trove that could provide you long term income, what would you do?
Sell out to your friends.
At least that was what two of the Filipino minority partners—Alcorn Gold Resources (PSE:APM) and Petroenergy Resources (PSE:PERC)-- in the Galoc oil production field did. On June 24, the consortium operating the Galoc field off Palawan declared the “commerciality” of the resource. Two days later, the aforementioned minority partners sold their interests (at 1.53 and 1.03% interests, respectively) to unnamed consortium members at $800,000 per percentage point.
The other participants in the project with their corresponding interests are as follows: Galoc Production Co. W.L.L. (58.29%); Nido Petroleum Phils Pty Ltd (22.28%); Philodrill Corp. (7.02%); Philodrill Corp. (7.02%; PSE:OV); Oriental Petroleum and Minerals (7.58%; PSE:OPM); and Forum Energy (2.27).
The identical reason cited by the minority partners is that their respective interests are too small to obtain a significant revenue stream considering the risks involved. Which could also be interpreted that the resource is not as good as it is touted to be.
The total amount of oil lifted from the field since October of last year has already exceeded 1.3 million bbls of oil, which is really a decent amount. The Department of Energy has been trumpeting that the field should produce from 17,000 to 20,000 bopd (barrels of oil per day) which corresponds to 6% of the country’s daily demand, but the operators are more circumspect, saying that the average production should be around 12,000 to 14,000 bopd. Nido Petroleum, one of the consortium members, and its parent firm listed at the Australian Stock Exchange (ASX:NDO), has a broader range of production target at 10,000 to 15,000 bopd, for planning purposes.
Unlike our energy planners, investors have not really been giving standing ovation at the seemingly sweet smell of money wafting from the oil patch. From a high of A$ 0.46 near the start of production, NDO’s share prices plummeted down to A$ 0.06 before recovering to current prices of about A$0.13 – 0.14. Share prices of the Filipino partner firms, all of which are listed at the local bourse, have not really been influenced to a significant degree from Galoc announcements.
Sell out to your friends.
At least that was what two of the Filipino minority partners—Alcorn Gold Resources (PSE:APM) and Petroenergy Resources (PSE:PERC)-- in the Galoc oil production field did. On June 24, the consortium operating the Galoc field off Palawan declared the “commerciality” of the resource. Two days later, the aforementioned minority partners sold their interests (at 1.53 and 1.03% interests, respectively) to unnamed consortium members at $800,000 per percentage point.
The other participants in the project with their corresponding interests are as follows: Galoc Production Co. W.L.L. (58.29%); Nido Petroleum Phils Pty Ltd (22.28%); Philodrill Corp. (7.02%); Philodrill Corp. (7.02%; PSE:OV); Oriental Petroleum and Minerals (7.58%; PSE:OPM); and Forum Energy (2.27).
The identical reason cited by the minority partners is that their respective interests are too small to obtain a significant revenue stream considering the risks involved. Which could also be interpreted that the resource is not as good as it is touted to be.
The total amount of oil lifted from the field since October of last year has already exceeded 1.3 million bbls of oil, which is really a decent amount. The Department of Energy has been trumpeting that the field should produce from 17,000 to 20,000 bopd (barrels of oil per day) which corresponds to 6% of the country’s daily demand, but the operators are more circumspect, saying that the average production should be around 12,000 to 14,000 bopd. Nido Petroleum, one of the consortium members, and its parent firm listed at the Australian Stock Exchange (ASX:NDO), has a broader range of production target at 10,000 to 15,000 bopd, for planning purposes.
Unlike our energy planners, investors have not really been giving standing ovation at the seemingly sweet smell of money wafting from the oil patch. From a high of A$ 0.46 near the start of production, NDO’s share prices plummeted down to A$ 0.06 before recovering to current prices of about A$0.13 – 0.14. Share prices of the Filipino partner firms, all of which are listed at the local bourse, have not really been influenced to a significant degree from Galoc announcements.
The bailout of the minority partners tells more about the prospect than the official news.
First, the amount involved.
According to a presentation made by Nido, the revenues to be expected depends on the price of oil as well as the amount of production sown on the plot below at production levels between 10,000 and 15,000 bopd.
At a projected average oil price of between $65 to $70/bbl for the year 2009 (The price has since dropped to about $62, from about a high of $73, but that is another story), Nido’s share of the revenues amounts to around $50 million (a conservative amount), which translates to about $220 million for the whole consortium. That means about $2.2 million per percentage point participation.
This is the amount of revenue expected by, say, PetroEnergy which has a 1.03% interest, for the whole of 2009. Compare this with its revenue of $1.8 million for the first quarter 2009 from its small interest in an oil field in Gabon, Africa, which could be annualized to $7.2 million assuming steady oil prices and production.
Now, according to the existing production sharing agreement, for every $100 oil revenue, $70 goes to cost recovery, $7.50 goes to so-called “Filipino participation incentive allowance"and $11.22 as production allowance to the operator. The rest is booked as profit, with $6.77 of it to the government and $4.51 to the investor participant.
Now, figure out the amount due to the minority participants.
Moneywise, there is a compelling reason to take the money today, and run, “considering the risks involved”, as the backtracking participants put it.
Second, the risks are real. Production has not been consistent, with the wells shut from December to February 25 this year due to technical problems. And lately, there has been an interruption “after the mooring and riser system was detached from its floating production storage and offloading facility”. In layman’s term, a technical problem.
Production wont be accelerated soon. At the moment the consortium is actively looking for a strategic partner to help foot the bill required for further development of the field.
We have also pointed out earlier that a potential field problem that could arise is sea water intrusion owing to the fractured geology of the area, as shown by the adjacent West Linapacan field which only produced a short time.
Bailing out early may prove to be a smart move for the minority participants.
We have also pointed out earlier that a potential field problem that could arise is sea water intrusion owing to the fractured geology of the area, as shown by the adjacent West Linapacan field which only produced a short time.
Bailing out early may prove to be a smart move for the minority participants.
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