Philippine Oil Well starts its production

After numerous delays, the Galoc oil field off northwest Palawan has finally produced oil, boosting the country’s hope to become 60-percent energy self-sufficient by 2010.

First discovered in 1981 and appraised in 1988, the Galoc field was left undeveloped due to the risks associated with its development and the then low price of oil.

Delays in the delivery of the first oil mean that its operators have missed this year’s oil price rally. Global crude oil prices are now around $89 a barrel, well off highs near $150 a barrel in mid-July.

In a joint statement, Energy Secretary Angelo Reyes and Jeff Davison, chief operating officer of service contract operator Galoc Production Co. (GPC), said the first well opened at 10:45 a.m., with first oil on board the vessel by 11:20 a.m.

GPC had repeatedly missed its first oil targets this year due mainly to bad weather.

Based on the consortium’s timetable, flow testing would be conducted over the coming weeks to stabilize production. Upon stabilization, production is expected to reach 20,000 barrels a day from the two wells.

6 percent of oil demand

For the remainder of 2008, production should average around 17,000 barrels a day.

“We are expecting to get 20,000 barrels a day in the first 90 days of commercial production. That will provide for 6 percent of the daily oil demand of the country,” Reyes said.

Independent appraiser Gaffney, Cline and Associates had estimated the production rate at the Galoc field to reach 23,000 barrels a day, on average, for the first year of production.

The Galoc field, 65 km northwest of Palawan, holds oil reserves estimated at 10 million barrels.

The new crude will raise the Philippines’ domestic oil output by some 70 percent to 42,500 bpd, a welcome addition to the country, which imports nearly all of its requirements.

But Galoc’s crude, also called Palawan Light, could find it hard attracting customers as it has a higher sulphur content than most Asia-Pacific grades, at 1.64 percent.

It is also coming on stream at a time of weakening oil demand in Asia, even as Vietnam has started selling first cargoes of its new light sweet Song Doc crude.

Reduction in imported oil

In June, Reyes said Galoc’s output would be aimed at local refineries.

Malacañang officials hailed the extraction of oil from the Galoc field saying this would reduce the country’s dependence on imported oil and save the country millions of dollars.

“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, and in turn will also contain the increasing cost of food and other commodities,” Executive Secretary Eduardo Ermita said, reading from a statement.

This, he added, would translate into $1.4 billion foreign exchange savings for the Galoc oil well’s lifetime of three to five years.

The country imported some $8.8 billion worth of oil last year, up from $8 billion the previous year. The total imports reached 120.1 million barrels in 2007.

GPC owns 58.29 percent of the Galoc contract area covered by Service Contract 14C, while Australian firms Nido Petroleum Ltd. and Otto Energy Ltd. hold 22.28 percent and 18.28 percent, respectively.

Other shareholders include local companies The Philodrill Corp. (7.03 percent), Oriental Petroleum and Minerals (4.96 percent), Linapacan Oil, Gas and Power (2.61 percent), Forum Energy (2.27 percent), Alcorn Gold Resources (1.53 percent), and PetroEnergy Resources (1.03 percent).

Vitol and European trader Trafigura will be the two main marketers of Palawan Light.

The Philippines also wants to drill oil from its Malampaya gas field off the Palawan coast and expects to start producing oil from its largest hydrocarbon discovery in less than two years.