Looking to Palawan reefs for an 'East Texas' oil bonanza

Francis A. Gibson stretched out the seismic charts on the large table. "If we are right on this shoreline thesis, then you have a major oil province," said the petroleum exploration consultant, pointing to various formations of wiggly lines on the charts.

The Philippines government hopes Mr. Gibson is right and that the new finds offshore of west Palawan Island do prove to be a major field. The rising cost of imported oil has been among the nation's worst economic problems.

However, the government planners are cautious in their estimates of future oil production. The latest 10-year energy program anticipated domestic oil production rising from 14 million barrels in 1980 to a peak of about 47 million barrels by 1988. That implies one commercial discovery every year.

Actually, because of some production problems at the first sizable field, the Nido field off of Palawan, domestic production won't reach its target this year. But Mr. Gibson, a geophysicist retired some years ago from Mobil International, is highly optimistic.

"This is an East Texas," he says of the area offshore from the westernmost island of the Philippines and referring to the largest oil field in the mainland United States. He believes the offshore Palawan field is the result of an "overthrust belt" -- a continental plate pushing over a sedimentary basin.

Other oil experts -- including some in the same oil consortium -- cast doubt on such optimistic predictions. However, they do expect to find numerous small "reef pinnacles" filled with oil. They see this field as an extension of the oil fields of Borneo and the Indonesian Archipelago.

Whatever, Mr. Gibson's employers, two Philippine companies named Basic Petroleum & Minerals Inc. and Landoil Resources Corporation, are encouraged by his enthusiasm -- and by the results of their exploration so far.

For instance, the two affiliated companies participate in a consortium headed by Philippines Cities-Service (a subsidiary of Cities Service Company, Tulsa, Okla.) that made two successful wildcat finds this past summer.

One of these, Pandan No. 1, some 31 miles northeast of the Nido fields, tested at 6,326 barrels per day with a 1.5 inch choke (the size of the opening on the well pipe) at one level; 6,000 barrels per day with a 56/64 inch choke at a deeper level. It will require more drilling to determine if it's a "commercial find," or a pool large enough to justify production expenses, according to a press release June 18.

Some 4.2 miles east of Pandan No. 1, the same group struck oil again in early August. This time the well, Libro No. 1, produced 1,600 barrels per day with a 1.5 inch choke during a test.

In his so-called Bloc B area, the consortium is owned more than one-third by Cities Service; a little less than one- third by Husky Oil; about 3 percent Oriental Petroleum & Minerals Corporation; around 18 percent Basic Oil and Landoil Resources; and about 12 percent Philippine-Overseas Drilling & Oil Development Corporation.

Oil exploration in the Philippines got under way in 1899 with the first hole drilled onshore in Cebu Island by Smith Bell under a Spanish royal grant.

Though some 300 wells were drilled onshore after that, they produced little oil though providing considerable geological data. A revitalization of oil exploration began after President Ferdinand E. Marcos enacted a new form of oil exploration contract as one of his early martial law decrees in 1972. Under the old Petroleum Act of 1949, potential oil- bearing lots were let out in small lots to groups that had to have a preponderance of native Filipinos. There was little inducement for them to exploit their leases. Foreigners could provide only 40 percent of the capital of any exploration company.

The best oil prospects are apparently offshore. "You have to look offshore for sediments," Mr. Gibson noted. "There's not much you can do about that." This meant that new technology and higher capital costs would be needed. Thus Mr. Marcos adapted the oil exploration system used by Indonesia to Philippines conditions, providng a "production sharing" arrangement.

Noting the changed law, Industry Minister Robert V. Ongpin commented, "Without it we still wouldn't be drilling that first offshore well."

The oil under these "service contracts" belongs to the state, which gets 60 percent of any profits. The contractor gets 40 percent of profits. Expenses are first recouped from early production. To ensure action, leases were granted with the provision that three wells had to be drilled in two years. Individual blocks were increased in size to 5,000 hectares each (2.47 acres to one hectare) , and often allocated in blocks of four. Since the companies were having trouble completing three wells in two years in such a relatively unexplored area , the system was altered later to allow a one-year preparation period for geoseismic work. (Because of the exploration success in the Palawan field, this provision was recently dropped in that area.)

The results of the change in the game's rules became evident. In 1972 only $ 500,000 was spent in oil exploration on a few miles of seismic work. In 1978, with higher oil prices and a desire of the international oil companies for diversification of their petroleum sources, the companies spent $100 million.

This year close to 40 exploration wells will likely be drilled, mostly off Palawan.

The original Palawan find, Nido No. 1, was drilled by Cities Services at the end of 1975. The discovery proved noncommercial. Production might have lasted six weeks, guessed Allen Hatley, a vice-president of Citgo International Petroleum Company in Houston (the international operation of Cities Services). But it showed that oil in significant quantities exist in the Palawan Shelf. Between July 1977 and February 1978, the Cities Services consortium discovered more oil in two areas southwest of the Nido No. 1 discovery that did contain large enough oil reserves to justify development. A $52 million production platform was built and crude began to flow in February 1979. By August it was producing at 40,000 barrels per day; but signs of water resulted in a cutback to 7,500 barrels a day. It could run out of commercil oil as soon as next year.

Meanwhile, a consortium led by Amoco discovered oil northeast of the Nido find. This Cadlao offshore field is scheduled to start production in early 1981 .

Then the Cities Services group found more oil with the so- called Matinloc No. 1 and 2 wells north of the Nido complex, wells drilled in 1979 and earlier this year. Further prospects in this area are being drilled (including the Pandan and Libro finds), with the results to determine production plans. Results of a South Pandan well now being drilled will be crucial, according to Mr. Hatley. The Matinloc, Pandan, and Libro reefs would have to be combined to justify the expense of a production platorm, he indicated.

However, Basic Petroleum talks of an initial level of production of 25,000 barrels a day next year. Energy Minister Geronimo Z. Velasco speaks of production of 10,000 to 20,000 barrels a day starting in the last quarter of 1981. President Marcos has expressed the hope that domestic production could meet 20 percent of the nation's oil needs later next year.

It would take only one major find of the scale of the Forties field in the North Sea to supply all of the oil needs of the Philippines, something the government projections do not count on. Whether such a field is there or not is anyone's guess. Said a Shell Oil executive: "It is difficult to forecast Philippine oil production -- so little is known of the geology."