In September 1997, FPI transferred its interest in SC 40 (Cebu) to FEI, at that time a wholly owned subsidiary of FPI. SC 40 (Cebu) is now held 100% by FEI. The original term of the service contract was for seven years from 1995. In September 2003 FEI extended the contract for a further three years, with the following work programme commitments:
- drill one well and acquire a minimum of 250 kilometres of seismic in year 8;
- drill two wells in year 9; and
- drill two wells in year 10.
The requirement to acquire the seismic data was deferred by one year by the DOE to not later than the end of September 2005, the end of year 9. FEI has the option to declare a field within the contract area commercial and thus relinquish 87.5% of the licence area and convert the licence into a development contract for a minimum 25 year period. There are also two production bonuses to pay to the DOE as follows:
- US$1,000,000 upon production reaching 25,000 bopd.
- US$2,000,000 upon production reaching 50,000 bopd.
- US$3,000,000 upon production reaching 75,000 bopd.
RECOVERABLE COSTS
In any year FEI can recover from the gross income received under SC 40 (Cebu) all recoverable costs provided that the amount does not exceed 70% of total gross income in any year. Operating expenses exceeding 70% of gross income, including from those years when there was no income, can be recovered in subsequent years.
In those years where operating expenses are below 70 % it is possible to allocate the difference between the actual operating expenses and 70 % against the recoverable costs. FEI is required to remit to the DOE an amount equal to 60 % of the remaining gross income less FPIA of 7.5 % The remaining net income is subject to Philippine income tax, which shall be paid by the DOE out of its receipt of funds detailed above.
The Directors have declared the Libertad Gas Field commercial and the project is currently under joint venture with Philippine partner, DESCO, to generate power using on site generators.