Harnessing Potentials

The year 2009 was a very challenging year for the Philippines, which saw the country dealing with the consequences of the 2008 global financial and economic crisis coupled by the effects of devastating natural calamities that hit the country in the last quarter. Despite global financial stresses, the Philippine economy posted a decent 0.9% GDP growth for 2009 as it grew at a faster-than-expected pace in the fourth quarter due to the improvement in industrial output, the buoyancy of the service sector, and the measures undertaken by our country’s central bank toward withdrawing liquidity-enhancing measures.

Taking into consideration the effect of the 2008 global financial and economic crisis, we have anticipated that PNOC EC’s financial performance in 2009 will not fare as well as its 2008 performance.  The projected decrease in the net income for 2009 is due to the decline in revenues from the company’s major business units coupled by the projected increase in various operating expenses to be incurred during the year for its exploration activities.  

In spite of these difficulties, your company posted a net income of PhP 1.80 billion in 2009 and declared and paid dividends of PhP 0.75 per share amounting to PhP 1.503 billion.    With the potentials of our various project sites, and the commitment and dedication of the men and women of PNOC EC, we are confident that we can even surpass this performance in the succeeding years.

Intensified Energy Exploration

Your company continued its quest for indigenous energy resources as it further intensified its exploration efforts in its project areas located in various parts of the country.  The drilling of the Camago Malampaya Appraisal Well was also originally scheduled for 2009, but was pushed to 2010 due to the unavailability of the drilling rig.  This activity intends to verify the pressure of the Camago reservoir in order to check its connectivity to the Malampaya reservoir.  This is a remarkable opportunity for your company, which owns 10% stake in the Malampaya project with partners Shell Philippines Exploration B.V. – the operator, and Chevron Malampaya LLC who own 45% stake each in the project.

Also in 2009, geologic and geophysical studies, and data interpretations were done in SC 43 – Ragay Gulf, SC 47 – Offshore Mindoro, SC 57 – Calamian, SC 58 – West Calamian, and SC 63 – East Sabina; while new seismic data were acquired in SC 59 – West Balabac.  It was also during the year that one of the largest oil companies in the world, BHP Billiton, partnered with your company in SC 59 – West Balabac.  Alongside these, PNOC EC is undertaking the re-assessment of its SC 37 – Cagayan area to identify leads and prospects in the said area.  With the confirmation of potential structures, preparation is currently underway for a land gravity survey of the area.

Expanded Coal Business

Alongside its petroleum exploration projects, your company has strengthened its position in the coal industry by expanding its coal business with the goal of maximizing the development and utilization of indigenous coal resources, thus reducing the country’s need for imported coal.

In April 2009, PNOC EC undertook the operations of the Integrated Little Baguio project, which is a large scale coal mine located within the Malangas Coal Reservation that produces premium quality coal with a heating value of 12,000 BTU/lb.  For the most part of the year, major repairs and rehabilitation were conducted in the project to increase its production capacity.  Your company is also gearing up for the implementation of its Isabela Coal Power Plant Project within the COC 122 area and has in fact recently secured an Environmental Compliance Certificate.  The project involves the development of a coal mine and the construction of a circulating fluidized bed power plant that will utilize the low-rank coal in the area.  Once implemented, the project will be first of its kind in the country which will utilize a progressive strip mining and rehabilitation method to extract coal.  The project is expected to augment the energy requirements of Isabela while providing a stream of benefits to the host communities in the form of royalties, taxes and employment opportunities. 

Aside from harnessing the country’s local coal resources, your company has taken further steps to ensure a stable and competitive supply of coal by venturing into a coal mining business in Indonesia.  After signing a Memorandum of Agreement for due diligence with Putra Asyano Mutiara Timur last 2008, your company has started its drilling operations at the project site last August 2009, which is part of a 30-hole core drilling program designed to determine the area’s coal potential.  Results of the evaluation of the drilling program will determine the commercial viability of the coal reserves.

PNOC EC continues to operate coal terminals in Zamboanga Sibugay, Cebu, Batangas and North Harbor in Manila.  These coal terminals serve as your company’s handling facility for the local and imported coal that the company supplies to the various power plants, cement factories and other coal users in the country.

Empowering Communities

One of PNOC EC’s key values is the improvement of the lives of the communities where it operates.  Your company continues to implement Corporate Social Responsibility (CSR) Programs or what we call Kaagapay Programs through the Community Relations Section.

For 2009, the Kaagapay programs have benefited a total of 4,746 individuals for the Kaagapay sa KalusuganKaagapay sa Karunungan (Education), and 30 for the Kaagapay sa Kabuhayan  Activities in various project sites include free medical and dental services, hosting of Children’s Day activities in elementary schools and conduct of Integrated Farming and Bio-Systems (IFBS) Training Program. (Health), 724 for the (Livelihood) programs.

Future Plans

As we venture into our 34th year in the industry, we affirm our commitment to explore and develop petroleum and coal resources towards the attainment of energy independence for our country.  And to ensure the success of our projects, your company has earmarked a total of PhP 6.2 billion for petroleum and coal exploration and development.

In order to sustain the Philippines’ growing economy, our search for indigenous energy sources must be intensified and firmly reinforced with the support of our government, the industry and local communities.  Together with the dedicated men and women of PNOC EC, our partners and stakeholders, we are ready to harness our potentials and dedicate our energies towards one goal – to provide a brighter future for our country.

Rafael E. del Pilar

President and Chief Executive Officer / Director

*Delivered during the Annual Stockholders' Meeting last June 8, 2010