Galoc gushes oil at 22,000 barrels a day--hold off the parties

The Galoc field off Palawan started producing oil at an initial rate of 22,000 barrels of oil per day (bopd) last October 9, Malacanang, as reported by Energy Secretary Angelo Reyes, gleefully announced during a news conference.

 The news comes at a time when the country is shrouded by a pall of gloom as a result of the financial meltdown currently experienced around the globe. It also comes on the heels of the spiraling fuel prices this past year before the price rally was abruptly stopped on its tracks by a looming global economic slowdown.

 The main operator said that the production could be in the vicinity of 20,000 bopd which is “equivalent to roughly six percent of the daily oil demand of the country,” Secretary Reyes said.

 The palace subalterns are quick to strut like peacocks as if the country has been resurrected from its economic grave.

 “The President is optimistic that this new development will positively impact on the administration’s efforts to reduce the country’s annual oil importation of $6 billion,” Presidential Executive Secretary Eduardo Ermita said. This would also translate to about $1.4 billion in foreign exchange savings for the country, for the oil well’s lifetime estimated at about three to five years, he added.

The oil field is developed by Galoc Production which is a joint venture owned by a subsidiary of the Vitol Group and Otto Energy Ltd. It formed a consortium composed of Nido Petroleum Pty Ltd., Oriental Petroleum and Minerals Corp., The Philodrill Corp., Forum Energy Philippines Corp., Alcorn Gold Resources Corp. and PetroEnergy Resources Corp.

GPC, which holds Service Contract 14C, owns 58.29 percent of SC 14, while Australia-based Nido Petroleum Ltd. owns 22.28 percent.

 So, is it now time to party as a thanksgiving to our new-found fortune?

 “We embrace this significant development as this will help immensely in our pursuit to be energy self-sufficient... We are on the right track in utilizing our indigenous sources,” Reyes said.

 Hold on. Before one gets drunk at the news, one should take a second look at the situation while still sober.

 The amount quoted was only obtained during initial flow tests which normally do not represent the long-term production potential of the well. At 2,200 meters, the reservoir will not be easily tapped, and at 320 m deep sea water, the location is not exactly shallow.

 Galoc’s crude, dubbed Palawan Light, contains undesirable high sulfur at 1.64% which makes it difficult to sell in the open market

 The Galoc field was discovered in 1981 by Philippine Cities Service Inc., a wildcatter, and initial oil production between 7,500-10,000 bopd per well was not deemed too attractive for full development due to the low oil prices at the time (about $20 per barrel) and perceived operational risks.

 The initial production value can easily sink to unprofitable levels if one studies the history of oil production in the area.

 Let us review the history of nearby West Linapacan field. Both fields are within the same service contract area.

 At a water depth of 350 m, West Linapacan is situated slightly deeper than Galoc. The field was discovered in October 1990 and was put into commercial production in May 1992.

 For the first well, the flow test recovered 2,900 bopd but actual initial production was at 1,700 bopd. Two more well were drilled and these initially produced oil at a total rate of 9,170 bopd. For the whole field the initial production was pegged at 18,700 bopd, which is slightly lower than the projected production of Galoc.

 But by December of the same year, the West Linapacan production dropped significantly. For the next few years, the field was just coasting along until 1996 when the field was shut down as production was no longer economical.

 The main culprit was inflow of sea water to the production well which makes extraction more difficult and costly. The Palawan oil reservoirs are in a fractured area and sea water contamination is to be expected. 

For Galoc, the oil-water interface is tagged at 2,100 m.

 The operator of the Malampaya gas field has had misgivings in extracting the oil portion beneath the gas reservoir precisely because of the risks involved which are similar to those at West Linapacan and Galoc.

 The delays in Galoc production, which was originally scheduled to start April, already bloated the cost from $86 million to over $210 million.

 If the government has readied the food and drinks for the Galoc coming out party, better hold off the corks and just donate the food to the needy.

 An unpleasant surprise from Galoc may be in the offing in the next few months.