Total E&P Philippines B.V. and foreign partner Jadestone Energy have voluntarily terminated their engagement with Service Contract (SC) 56, or their exploration venture in the Sulu Sea.
Total, which operates SC 56, and Jadestone subsidiary Mitra Energy have notified the Department of Energy of the pullout.
“SC56 was a legacy asset inherited from the previous management and only had option value through a carried well. The decision not to drill the well now removes any interest for Jadestone to continue further, requiring as it would, new deep-water frontier exploration commitments. It would also not compete with existing portfolio investment options, nor potentially some of the more interesting inorganic opportunities moving into the market in the coming 12 to 18 months,” Jadestone President and CEO Paul Blakeley said in a statement.
Total bought a 75% interest in SC 56 from Kuala Lumpur-based Mitra back in 2012 via a Farm Out Agreement. Located around 150 kilometers from Sabah, Malaysia, but well within Philippine territory, SC 56 covers an area of 43,000 square kilometers of water with depths ranging from 200 to 3,000 meters.
“We remain focused on our strategy of delivering value from producing fields and near-term developments in the Asia Pacific region, while avoiding early-phase greenfield exploration plays such as SC 56, requiring multi-year capital programmes prior to production and cashflow. Nor would the major investments in new pipelines and facilities fit our sustainability objectives which include a focus on maximizing use of existing infrastructure,” Blakeley said.
“While we have appreciated great support and cooperation, and long association with the government and regulator in the Philippines, it is now time to relinquish our interest in SC56, as we continue to deploy our production optimisation and field-life extension skills across the region,” he added.
As a condition of the surrender and termination of SC 56, the partners will be subject to a payment in respect of unfulfilled work commitments. Jadestone’s share will be met from a portion of the proceeds of the arbitration ruling announced last January.
Jadestone also anticipates that it will record a one-time impairment charge of approximately US$50.5 million (Php2.44 billion), relating to historical capitalized exploration expenditures on SC 56 predominantly associated with previous management, with no associated cash impact or tax benefit.
Total has yet to release its own statement on the pullout.