Ranhill and Phil-Mal Awarded SC-64 in the Sulu Sea

Ranhill Berhad together with Phil-Mal PetroEnergy Corporation have signed a Service contract with the Government of the Republic of the Philippines, acting through the Department of Energy in respect of exploration, development and exploitation of petroleum resources for Service Contract 64. SC-64 covers an area of 12,600 sq km and is located offshore northeast of Borneo in the Sulu Sea of Philippines

This block comprises a portion of the Sandakan Basin and contains four previously drilled wells and 5200 km of seismic lines. Several International Oil Companies including Arco and Occidental have studied the area in the early seventies and concluded that the area is oil and gas prone. Petroleum system in the Sandakan basin has been proven and presence of reservoir quality sandstones has been confirmed by well log, core data and petro-graphic analysis.

The Philippine Service Contract contains certain terms which are favorable toward the contractors, among others:-

• That the Contractors will receive special allowance, called Filipino Participation Incentive Allowance (FPIA) for taking Philippine partners. Participation ranges from 15% to 30 %, yielding an incentive of 1.5% to 7.5% of the gross revenue respectively. That the Contractors can recover petroleum costs from the gross revenue up to a limit of 70% each calendar year. Un-recovered costs are carried forward.
• That the Contractors will receive 40 % of the remaining profits after cost recovery and FPIA. The remaining 60 % goes to the Philippine Government.
• That the Contractors will pay the Philippine Income Tax after deducting all expenses and FPIA.

The SC provides for a Production Period which is 25 years, extendable up to a maximum of 50 years.

The exploration period is for 7 years consisting of 6 sub-phases, commencing on the date of signing of the SC and is extendable for another 3 years. If commercial discovery is made, the Production Period is for 25 years.

Contractors shall commence Petroleum Operations not later than six months after the Effective Date. Within the first 6 months, Contractors are obligated to conduct a geological and geophysical study of the area costing approximately US $50,000. Within the next 18 months, the Contractors will have to acquire, process and interpret 2200 km of 2D seismic costing approximately US $1,600,000. The total firm commitment for the first sub-phase (6 months + 18 months) is approximately US $1,650,000.

The various payments of bonus by the Contractors to the Philippines Government, at the respective stages are as follows:-

• A signature bonus equivalent to US $50,000) within 60 days from the date of signing of the SC;
• A discovery bonus in the sum of the total sum of US$200,000, within 60 days following the date of commencement of commercial production,
• A production bonus in the sum of US$500,000.00 after cumulative Petroleum production from the Contract Area has reached 25,000 Barrels of crude oil per day;
• A production bonus in the sum of US $1,000,000, after cumulative Petroleum production from the Contract Area has reached 50,000 Barrels of crude oil per day; and
• A production bonus in the sum of US $2,000,000, after cumulative Petroleum production from the Contract Area has reached 75,000 Barrels of crude oil per day.

The SC can be terminated by the Contractors at the end at each sub-phase of the Exploration Period.

If during the Production Period, the Contractors fail to continue production of Petroleum in the Contract Area for more than 1 year without the approval of the Philippines Government, then the Philippines Government may unilaterally terminate the SC.

The Contractors may assign part or all of its rights and/or obligations under the SC to its affiliate with prior notice to the Philippines Government, subject to any procedures and guidelines issued or to be issued by the Philippines Government. The assignment shall be effective subject to:-

• Submission by the Contractors to the Philippines Government of written agreement reflecting the assignment;
• A Guarantee in writing by the Contractors to the Philippines Government for the performance of the assigned obligations

The SC is in line with Ranhill's strategic plan to increase the Energy Division's revenue, and to enhance its profile within the oil and gas industry.