Thinking Pinoy: For Reed Bank, Sec. Del Rosario, MVP offered Spratlys to China

August 2, 2016

For Reed Bank, Sec. Del Rosario, MVP offered Spratlys to China

After a little more digging, documents show that Del Rosario and MVP have been interested in Reed Bank way before 2011, and they will do all they can – including committing treason – just to get it.
(Featured Image, L to R: First Pacific Director and PH Foreign Sec. Albert del Rosario, First Pacific Chairman Anthoni Salim, and First Pacific CEO Manny V. Pangilinan)

What do we know so far?

Albert del Rosario was the Philippine Ambassador to the United States from 2001 to 2006. While still an ambassador, he joined First Pacific as an Independent Non-executive Director in June 2003 then served as a Non-executive Director starting 2004. While still a First Pacific Director, del Rosario was appointed as Foreign Affairs Secretary. He resigned from First Pacific a month later, then rejoined First Pacific’s board in June 2016 [FP].

In “The South China Sea Decision and Perfecto Yasay’s Face”, ThinkingPinoy explained how the South China Sea enjoyed an uneasy peace until March 2011 until Foreign Secretary Albert del Rosario allowed Salim-MVP’s Forum Energy to start look for hydrocarbons beneath Reed Bank.

In “On Sec. Albert del Rosario, is there anybody worse than Karen Davila”, ThinkingPinoy explained how del Rosario, throughout his term as Foreign Affairs chief, made decisions that favored Salim-MVP’s hydrocarbon interests in the South China Sea, in violation of the Anti-Graft and Corrupt Practices Act and the Code of Conduct for Public Officials.

Del Rosario, Salim, and Manny V. Pangilinan (MVP) belong to the top management of First Pacific, the parent company of the Salim-MVP Group, which includes Philex Petroleum and Forum Energy [FP].

With that said, ThinkingPinoy dug deeper into the issue by examining Forum Energy’s situation prior to the March 2011 Reed Bank Incident. After all a foreign relations debacle of this magnitude should be rooted on something that has been going on for years, and going on for years it actually did.

That is, after I did a little more digging, I discovered documents showing that Del Rosario-Salim-MVP’s First Pacific has been interested in Reed Bank way before 2011.

1: Why the sudden interest in Reed Bank?

Sterling Energy first explored Reed Bank in the 1970s and natural gas was found. 2D Exploration in the 1970s focused on oil because gas was considered non-commercial at that time. An exploration well was drilled on South Reed Bank on four different years: 1976, 1978, 1982, and 1984. The 1976 and 1984 exploratory wells (Sampaguita-1 and -3A) yielded natural gas but results are inconclusive [US SEC].
The Sampaguita Gas Discovery is inside Reed Bank, one of the contested areas in the South China Sea.

Nothing happened in Reed Bank for the next two decades, mainly because this area (called the Sampaguita Gas Discovery), aside from being generally non-commercial, was too remote.
However, two things happened [OGJ]: [1] natural gas technology advanced throughout the years, making it commercially viable, and more importantly, [2] the exploitation of nearby Malampaya Gas Field in 2001 resulted to the construction of a gas pipeline from Palawan to Batangas.

That is, Sampaguita’s operators can just piggyback on the existing Malampaya pipeline, allowing it to drastically cut down on costs, as I quote [OGJ]:
"While (Sampaguita) was always of note to many explorationists, it was of little commercial value in earlier years. No one was particularly interested in a stranded gas deposit in the South China Sea 500 miles southwest of Manila. This has changed dramatically with the presence of a major gas pipeline to Luzon whose origin point at Malampaya field is only about 100 miles to the northeast.”

In short, everyone knew there was gas in Reed Bank, but gas wasn’t a big thing back then. However, gas has become more useful over the years. Coupled with Reed Bank’s proximity to the 2001 Malampaya Pipeline, the once-ignored area suddenly showed lots of promise.

With these two developments, Sampaguita suddenly became a hot item.

2: Salim-MVP gets Reed Bank

Salim-MVP’s interest in Reed Bank rose in 2005, a year after del Rosario changed his job description from “independent non-executive director” of First Pacific to “non-executive director” of the same company.

In 2005, Independent firm PGS said the Sampaguita Gas Discovery can rival the size of the Malampaya Gas Field. PGS, however, noted that “the application of modern technology is required to confirm the size, productibility and commerciality of this discovery”, as available data was over 20 years old [US SEC].

PGS’s 2005 statement were issued in response to Sterling Energy’s plan to sell its 100% stake in Reed Bank to newly-incorporated UK-based Forum Energy. Forum Energy is majority-owned by Del-Rosario-Salim-MVP’s First Pacific through its subsidiary Philex Petroleum [TP: Philex].
Forum Energy officially acquired the Reed Bank Contract, called GSEC 101, on 18 May 2005 [US SEC].

On 19 August 2005, Forum Energy announce the completion of its 3D Seismic Survey over the Sampaguita Gas Discovery [FEC]. A year later, the company said the Sampaguita Gas Discovery is “a world class asset” after confirming a minimum of 3 trillion cubic feet (TCF) of gas reserves. It plans to conduct more tests on the sands in Reed Bank to potentially double this figure [FEC].

At this point, Salim-MVP’s rights over Reed Bank were granted by the Department of Energy’s (DoE) Geophysical Survey and Exploration Contract (GSEC) 101. This GSEC had to be converted into a Service Contract (SC) to add the right to commercially extract gas.The DoE notified Forum Energy that the formal signing of the Service Contract (SC 72) was to be held on August 2008 [FEC]. DoE eventually issued SC 72 in February 2010 [FEC].

2008 was also the year when Philex Petroleum further increased its stake on the Sampaguita Gas Field by buying shares from Canadian FEC Resources, one of the Reed Bank’s stakeholders [FEC], enabling it to gain 51% ownership of FEC. Consequently, Philex Mining Chief Operating Officer (COO) Jose Ernesto Villaluna, Jr. [Bloomberg] was named President and CEO of FEC [FEC].

Forum Energy conducted and completed the controversial Reed seismic survey in March 2011 [FEC], triggering a chain of events that led to the UNCLOS arbitration case [TP: Yasay’s Face].

3: Too much info? Here’s A Quick Recap

It’s time to recap what has been discussed so far.

The first Reed Bank exploration was done in 1976-1984 during the Marcos Era and gas was indeed found. At that time, however, technological constraints made gas unprofitable. That is, the Marcos Era surveys were focused on finding crude oil and not natural gas.

Nobody cared about Reed Bank until natural gas has finally become useful two decades later. Adding the construction of pipelines for Palawan’s Malampaya Gas Field in 2001, Reed Bank suddenly became a very attractive asset.

The Salim-MVP group started to move in 2005 as it acquired Reed Bank exploration rights. The group successfully conducted Reed Bank seismic surveys on the same year but it will take another year to interpret the data.

The 2005 seismic survey returned very encouraging results in 2006, and Salim-MVP requested the DoE to allow it to extract gas from Reed Bank. DoE issued the permit, called SC 72, in 2008.

During that same period, the Salim-MVP group increased its stake on Reed Bank by buying shares from other stakeholders, finally enabling it to have a controlling stake on the Reed Bank contract by the time it was issued in February 2010. This was about four months before President Gloria Macapagal-Arroyo stepped down to be replaced by President Benigno “Noynoy” Aquino”.

4: PH-China-Vietnam Joint Exploration

As mentioned in a previous section, Salim-MVP acquired rights over Reed Bank in May 2005. About a year before that, however, a three-nation agreement that directly affected Reed Bank was forged.

The respective governments of the Philippines, China, and Vietnam signed a deal to jointly explore the South China Sea for oil and natural gas. This was after China moved to ease South China Sea tensions by proposing the said venture [ASJ].

This was made possible through a joint undertaking of their respective state-owned oil companies Philippine National Oil Corporation (PNOC), China National Offshore Oil Corporation (CNOOC), and Vietnam Oil and Gas Corporation (PetroVietnam). Called the “Joint Marine Seismic Undertaking (JMSU)”, the project covers a well-defined area that includes Reed Bank [VCCI].

The three-year JMSU, with the option to extend, was signed on 01 September 2004 between Philippines and China [UPD]. Vietnam joined in March 2005 [VCCI].

According to the Vietnamese Ministry of Foreign Affairs, under the agreement, the firms are committed to strictly adhering to the 1982 UN Convention on the Law of the Sea and the 2002 ASEAN-China Declaration on the Conduct of Parties in the South China Sea [VCCI].

At this point, it’s clear that the South China Sea issue has been in the works even before PNoy assumed office.

5: Pres. Noynoy Aquino’s stance

The JMSU lapsed in July 2008 and was not extended. As to why, here’s a good reason according to the Philippine Star:
“The decision on whether to extend the JMSU is crucial especially for Forum Energy PLC, which is optimistic that it could bag one contract in the Sampaguita prospects in offshore Palawan once the tri-partite agreement expires… The existence of the JMSU apparently affected the application for conversion of Forum Energy [Star] .”

DoE eventually issued the SC 72 Reed Bank Contract to Salim-MVP in in February 2010 [FEC].

The JMSU met fierce opposition from the Aquino Administration.

In January 2011, Pres. Aquino said, “Yung isa sa mga diniscuss naming ngayon yung joint seismic study na nag-e-encroach din sa ating territorial waters but nag-lapse na. Pero that shouldn't have happened [ABS].

(One of the issues we discussed today was joint seismic study that encroaches our territorial waters. The contract may have lapsed but it shouldn’t have happened in the first place.)

A month later in February 2011, Aquino appointed First Pacific Director Albert del Rosario as Foreign Affairs secretary. Two weeks after the appointment, del Rosario authorized the Salim-MVP company to conduct seismic surveys on Reed Bank, leading to a chain of events that culminated into the South China Sea arbitration case [TP: Yasay’s Face].

6: Something doesn’t add up

China tried to reach out several times but it was constantly rebuffed by Foreign Affairs Secretary del Rosario, insisting that the former should not take part. However, given what has been discussed in the previous sections, I believe the Philippine Government had (or had) two options:


The Chinese and Vietnamese Governments aren’t stupid: they know the 60/40 PH law on foreign ownership. China and Vietnam would not have bothered to talk to us if they were unwilling to acknowledge that, as the PH Supreme Court can simply declare any ensuing contract unconstitutional and all their efforts and resources will be wasted.

In short, what I can see is a 60-40 deal where PNOC holds a 60% stake while CNOOC and PetroVietnam owns 20% each. Now, it can be argude that they are unlikely to accept such a deal.

The problem, however, is we never asked. Remember that the JMSU was just a pre-exploratory undertaking. And before anything productive happened, the JMSU expired and was never renewed.

And by the way, who benefitted from JMSU’s lapse? The Salim-MVP group.
Now, this leads us to…


This is what the Aquino administration wanted at the onset as Aquino wanted Salim-MVP to exploit Reed Bank instead of CNOOC-PNOC, and that’s what Ambassador Cuisia and Del Rosario want right now.

Assuming that Forum Energy indeed manages to drill on Reed Bank, who stands to benefit? At best, it will be a 40% Indonesian, 60% Filipino venture. But it doesn’t end there. Manny Pangilinan is a known puppet of Indonesia’s Salim Group, and it is general knowledge that his money is Salim’s money, hidden through corporate layers that make it difficult for the government to detect foreign ownership issues [MT].

7: Which is the Better Deal? Let's do a little math

We know for a fact that whichever option we choose, whatever we do, local companies do not have the technology to drill in the South China Sea or anywhere in the country for that matter. That is, foreign participation is necessary because we need their technology.

If we will give a minimum of 40% of Reed Bank revenues to the Indonesians anyway, why not give a maximum of 40% to the Chinese instead? Wouldn’t that be a better deal?

Besides, the 60% Filipino stake in Option A will be held by PNOC, a government-owned company, so that all PNOC revenues will go directly to the government. That is, the PH government will receive taxes and fees PLUS PNOC’s profits.

Now, compare that to the 60% Filipino stake in Option B where Salim-MVP has the greatest benefit, while the Government will earn only through taxes and fees, but the profits will remain in Salim-MVP hands.

To illustrate, suppose the Sampaguita Gas Field yields Php 120 in profits, and the PH government levies 20 pesos in taxes and fees, leaving 100 pesos to be distributed to shareholders.

In Option A, Php 40 goes to CNOOC and Php 60 goes to PNOC. In short, the PH Government earns Php 80 out of Php 120 profit.

In Option B, Php 40 goes to Salim and other foreign owners, Php 60 goes to Manny Pangilinan. In short, the PH Government earns 20 pesos out of the Php 120.

That is, if we talk to the Chinese, we can get 80 out of every 120. If we insist on Del Rosario’s stance, we get 20 out of every 120.

I think this is a no brainer, but the Aquino Administration insists on the Salim-MVP Option, saying that we have to defend our sovereignty or some other nationalistic bullshit. But if it were the case, then why did Manny Pangilinan, with Aquino’s and Del Rosario’s blessings, try to strike a deal with China’s CNOOC in 2012 [GMA]?

What’s worse, MVP even offered the Spratlys to the Chinese at that time and I quote:
“In an aide memoire… dated May 7, 2012, Pangilinan reported on his meeting with CNOOC… and listed his 11-point proposal (to)… the Chinese... The… proposal includes a Framework Agreement between Philex and CNOOC ‘relating to an area of mutual interest which will be defined as the area covered by SC 72’…’Other disputed areas (such as the Spratlys) could be included by agreement’. [ABS]”

Wait a second...

Del Rosario wants us to choose Option B because "sovereignty", and when push cam to shove, he offered our sovereignty just to get Reed Bank?

So MVP, Del Rosario’s backdoor negotiator, wanted Reed Bank so badly, he’s willing to surrender the Spratly Islands? MVP is del Rosario’s representative, he wouldn’t have done that without del Rosario’s imprimatur.

These two are taking the Filipino People for fools.

Why in the hell would the Philippines risk going into war just for the interest of del Rosario and Pangilinan?

Despite it all, Karen Davila thinks they’re “patriots” [TP: Dear Karen].

ThinkingPinoy is willing to go hardline on China, only if Salim-MVP surrenders SC 72 to PNOC.

But surely, it won’t.

8: Epilogue

I have given up on most of Big Media:
  1. Salim-MVP owns TV5 [BM]
  2. Salim-MVP owns the Philippine Star [Star]
  3. The Inquirer's President and CEO's husband is the president of Chamber of Mines [Inq, CoM], which is not very happy with the current administration  [ABS].
  4. GMA plays it safe, maybe because MVP may want to buy it again [ABS].
  5. ABS-CBN is essentially a Liberal Party ally, it's a no-brainer.
And we are left with only one major news outlet: Rappler.

But Rappler adores del Rosario. To date, Rappler has praised del Rosario like he’s some candidate for beatification. To date, not a single Rappler article tackled del Rosario’s conflicts of interest [TP: Worse than Karen].

Rappler, do you seriously want your financers, the Omidyar Network [Rap], to learn about what you’re doing? Surely, there’s a clause somewhere in the contract that allows the Omidyars to pull out their investments when you betray public trust.

I guess you’re not scared of losing funding. Are you planning to knock on MVP’s doors too?

After all, MVP said before that he wants you too [Rap].



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