Tycoon hopeful for Xi, Duterte energy deal in South China Sea

By Cecilia Yap on 5/24/2017

MANILA (Bloomberg) -- One of the most prominent tycoons in the Philippines is increasingly optimistic that President Rodrigo Duterte can strike a deal with China to share oil and gas deposits in a disputed part of the South China Sea.

“At some point a commercial deal will be made that will enable us to develop the prospect,” Roberto Ongpin, whose company, Atok-Big Wedge Co. Inc., holds a minority stake in a gas field in the South China Sea, said in an interview on Thursday. “It will be astronomical.”

Since taking power last year, Duterte has sought to improve ties with China that deteriorated under predecessor Benigno Aquino. The two countries agreed to work out “mutually acceptable approaches” to the South China Sea at formal talks that began last week, an early step toward reaching a deal to exploit what may be the Philippines’s largest gas field.

Ongpin has a history with Duterte: He was forced to sell his Philippine gaming assets after the president targeted him in a crackdown on online gaming. Still, Ongpin said he believes the Philippine leader’s approach toward the world’s second-biggest economy is moving in right direction.

“There’s no way you can bump heads with China,” he said by phone.

Ongpin said his company now owns 20% of Forum Energy Ltd., which has a 70% stake in the Sampaguita gas field west of the Philippines’ Palawan province. The discovery is estimated to contain 11.4 Tcf of natural gas, according to a third-party assessment commissioned by PXP Energy Corp. PXP owns 80% of Forum.

Atok-Big Wedge shares rose 3.2% as of the noon break in Manila, poised for its biggest gain since May 11. The stock has risen 29% this year against the benchmark Philippine stock index’s 14% advance.

Gas shortage

That’s more than four times the 2.7 Tcf of reserves in Malampaya gas field, the largest in the Philippines, which currently fuels several power plants and generated hundreds of billions of pesos worth of royalties for the government. Supply from the Malampaya gas field will last only until 2024, prompting the Energy Department to consider importing liquefied natural gas to ensure stable supplies.

In dealings with President Xi Jinping, Duterte has set aside an international court ruling last July that said China had no historic rights to the resources in waters claimed by the Philippines. The case was brought by Aquino’s administration, which had criticized a deal in the 2000s between the Philippines, China and Vietnam to cooperate on energy exploration across a large swath of disputed waters.

Still, many obstacles remain.

War talk

In a speech last Friday, Duterte said that Xi had threatened to go to war with the Philippines after he expressed an intention to unilaterally drill for oil in disputed areas of the South China Sea during an unspecified meeting. Duterte’s new Foreign Secretary Alan Peter Cayetano walked back the comments on Monday, telling reporters that Duterte made the statement in reaction to domestic critics.

Duterte’s opponents say his overtures to China have undermined the Philippines’s territorial claims and left the country with little room to maneuver.

China foreign ministry spokeswoman Hua Chunying declined to comment on Xi’s meeting with Duterte, and said disputes should be resolved through dialogue and negotiation. “Pending final settlement, we advocate shelving the dispute for common development," Hua said.

China has previously sought to disrupt Philippine attempts to exploit the resources. In 2011, a Chinese surveillance vessel chased away a survey ship doing work for Forum Energy.

PXP Energy Chairman Manuel Pangilinan said on May 19 that his group is awaiting the outcome of the bilateral talks between the Philippines and China, adding that a code of conduct in the South China Sea would be key to proceeding with any development.

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