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Energy

Manila asserts 'economic rights' in lifting South China Sea ban

Duterte OKs drilling, raising hopes for joint exploration with Beijing

Philippine President Rodrigo Duterte has lifted a six-year moratorium on oil exploration in the South China Sea.    © Reuters

MANILA -- The Philippines' decision to allow its contractors to resume drilling for energy resources in disputed areas of the South China Sea is based on the country's "economic rights," Manila's energy minister said on Friday.

Secretary Alfonso Cusi said he expects Beijing to respect Manila's "unilateral" decision and insisted the move will not affect a possible joint resource exploration by the two countries in the South China Sea, talks for which have been hampered by the pandemic.

"We trust China will respect our sovereign decision. I'm sure they also want us to be successful economically," Cusi said in a virtual news conference.

President Rodrigo Duterte approved the lifting of a six-year moratorium on oil and gas exploration in disputed waters on Thursday. The news sent shares of PXP Energy, a Manila-listed service contract holder, surging by 50% the following day.

Lifting the ban, Cusi said, could help address the Philippines' energy security and boost economic activity amid a recession. The energy department expects $25 million in initial investments once drilling activities resume and is processing more service contract applications.

Beijing, which claims nearly the entire South China Sea, has yet to publicly react to Manila's move.

Cusi said Philippines did not inform Beijing prior to the lifting of the ban, which was imposed by Manila in 2014 amid an arbitration case against Beijing over competing territorial claims in the South China Sea.

"I cannot speak on behalf of China, but based on the pronouncement made by their foreign secretary that the place [South China Sea] is an oasis of peace, then it follows we can do the activity freely, as the country that has the economic rights," he added.

Chinese ships have routinely patrolled near the areas covered by the service contracts, Philippine military official have said. Recently, Chinese ships were embroiled in a stand-off with vessels operating under energy explorations licensed by Vietnam and Malaysia.

In case of a Chinese protest, Cusi said Manila will stand by its position but will not engage in a conflict. "We have to stand up for our rights," he said.

Duterte, who came to power in 2016, placed the territorial dispute on the backburner and forged closer economic ties with China.

PXP unit Forum, another service contract holder, has been in talks with China National Offshore Oil Corp. over possible team-up, according to Cusi. With the lifting of the drilling ban, "I am sure they will expedite their talks," the minister said.

PXP and Forum hold Service Contracts 75 and 72, respectively, which cover areas located off the west coast of Philippines' Palawan island. PXP is under Hong Kong-listed First Pacific and run by Filipino businessman Manuel Pangilinan.

PXP's shares hit the 50% increase ceiling on Friday, closing at 7.72 pesos a piece, up from 5.15 pesos at Thursday's close.

Service Contract 72, located in the Reed Bank, is the site of the Sampaguita Gas Field, which is estimated to contain about 2.6 trillion cubic feet of contingent gas resources, according to PXP.

"Once the moratorium on SC 72 is lifted, our immediate plan for North Bank [area] is to conduct a 2,600-sq.-kilometer 3D seismic survey to further evaluate the prospect, which could eventually lead to drilling for an exploratory well," PXP President Daniel Carlos told stockholders early this year.

Service Contract 59, operated by state-run Philippine National Oil Company-Exploration, was also allowed to resume operations.

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