Granby Oil and Gas plc has provided a progress update on its farm-in to Service Contract 14C, located in the Palawan Basin, offshore Philippines, which contains the Galoc oil field.
The Philippines Department of Energy has now approved the farm in by Granby’s wholly owned subsidiary, Team Oil Ltd, and its co-venturer, Cape Energy S.A. to the Galoc Block Service Contract 14C. Granby’s and Cape Energy’s interests will be held in a joint venture company, the Galoc Production Company W.L.L. (”GPC”), which has been established to finance and develop the Galoc field. As a result of the farm-in arrangements, GPC will become operator of the Galoc Block with a 58.29% participating interest to be assigned by the Galoc Consortium companies who are farming out.
Granby’s participation and financing remains subject to signature of the GPC shareholders agreement, expected to take place later this month. Following signature, Granby (via Team Oil) is expected to have a 15.69% shareholding and board position in GPC equivalent to an indirect interest in the Galoc Block of 9.14%. The shareholders agreement will also contain the terms for financing Granby’s share of development costs. On completion, it is expected that GPC will be owned by subsidiaries of three oil and gas industry participants: Vitol Holding SARL (”Vitol”), Cape Energy Group S.A. and Granby Oil and Gas plc. A further announcement will be made in due course.
Granby’s share of development costs will be met through a funding package arranged and underwritten by Vitol for GPC’s farm-in costs. The balance of the overall development costs will be met by Nido Petroleum Philippines Pty Ltd, which is retaining its existing 22.279% interest in the Service Contract. Under the financing arrangements with Vitol, it is not envisaged that Granby will have to contribute any funds to the development programme.
Team Oil and Cape Energy first began technical work on the Galoc field in early 2004, and signed a farm-in agreement in September of that year, having identified an appropriate development solution using a novel floating production system. Team Oil also introduced Vitol to provide funding for the development, thereby clearing the way for the Galoc field to be developed.
The Galoc Oil Field lies in 320 metres of water at about 2,300 metres below sea level. Two wells, each with a sidetrack, have appraised the
field. A long term test in 1988 produced nearly 400,000 barrels of oil. GPC will submit a development plan for the Galoc Field to the Philippines Department of Energy before the end of the year. Production is scheduled to begin early 2007. The initial phase of development of two wells is expected to recover approximately 6 million barrels of oil in about 18 months, but further upside potential exists in the field that could increase reserves.
The Philippine fiscal regime is a production sharing system and is one of the most attractive by international standards.
David Grassick, Managing Director of Granby Oil and Gas, said:
“This is an excellent example of how Granby with its co-venturers can create value for shareholders. We have taken a moribund oil discovery made nearly 25 years ago and applied innovative technical and commercial thinking to bring this field to development.”
Bob Moore, Commercial Director, said:
“Using an integrated commercial and technical approach Granby has been able to work with its co-venturers to devise the development solution and arrange innovative financing for this oilfield. Completion will see a key step forward for Granby to bring cash flow to the Group through its interest in GPC.”
Following the assignment, the participating interests in the Galoc block will be:
The Philodrill Corporation: 6.39700%
Alcorn Gold Resources Corporation: 1.53075%
Basic Consolidated, Inc.: 2.27575%
Nido Petroleum Philippines Pty Ltd: 22.27900%
Oriental Petroleum and Minerals Corporation/ Linapacan Oil Gas & Power Corporation: 7.57200%
Petro Energy Resources Corporation: 1.03425%
Phoenix Energy Corporation: 0.62050%
Galoc Production Company (GPC): 58.29075%