The Service Contract 40 area was originally awarded as a Geophysical Survey and Exploration Contract (GSEC) No. 69 to a consortium led by Forum Pacific, Inc. (FPI). The concession was subsequently converted to a service contract, SC 40, in 1995.
In September 1997, FPI transferred its interest in SC 40 (Cebu) to Forum Exploration, Inc (FEI), at that time a wholly owned subsidiary of FPI. SC 40 (Cebu) is now held 100% by FEI. The original term of the Exploration Period 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 data 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. Said survey was completed in June 2005 and, along with a well drilled in 2003, fulfilled the company’s Year 8 commitments.
SC 40 entered the Production Period following the signing of the Joint Determination of Commerciality on Libertad Gas Field on November 25, 2005. This also automatically extended its term for 25 years and deferred the company’s Years 9-10 commitments under the Exploration Period. In addition, a Libertad Production Area totaling 8,000 hectares had been approved.
Only 12.5% of the original area, in addition to the Libertad Production Area, will be retained upon full implementation of the Libertad field development and upon completion of the G&G studies. 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.
Forum and the Department of Energy 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.