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Interview

Fransisco Navarro, Executive Vice President, Philodrill, Philippines

02.02.2014 / Energyboardroom

Fransisco Navarro, Executive Vice-President of Philodrill, gives an insight into the company’s successful strategies over the years, why Philodrill is the partner of choice, and how new resource discoveries will affect the growth of the company over the next 10-15 years.

Do you believe the current Filipino government’s energy roadmap is geared towards exploiting indigenous resources, and will it achieve energy stability?

Two days ago BHP Billiton left, hence the regulatory environment here in the Philippines needs to be reviewed, as it is not clear whether it is succeeding in encouraging outside players to invest in the upstream market in the country. For instance, bidding for seven blocks was thought to be imminent a while ago, yet only two have now been signed off officially. The delay and uncertainty, which will continue from this unpredicted situation, can only reduce business confidence levels. This environment has to change for the Philippines to be considered seriously as an attractive location to invest in the oil and gas sector.

Philodrill corporation is considered a pioneer in the Philippines oil exploration industry, as your legacy can be traced as far back as 1969. What has been the winning formula for Philodrill over those decades?

When the oil price falls to ten dollars, no project is viable without subsidy. Philodrill in the past looked to diversification as the route to spread risk and survive lean times. The surge into wider activities was caused by the low oil prices—in the 1980s, Philodrill broadened its commercial portfolio, since there was little other choice if we wanted the business to grow.  Adaptability and ambition has given our business the ability to thrive even when conditions were difficult; the energy to grow when the opportunity is there. Philodrill does not have a ‘greedy’ business model; the company will invest in exploratory work in an area, and once it has obtained a geological model of the area, will invite other serious players with technical and financial capabilities to participate in bringing the resource to extraction. Philodrill just finished seismic surveys in service contract area 6A two days ago with about 500km of 3D seismic tests.

This is such a high risk, expensive business and for this reason, having partners helps mitigate risk. It is a wise business decision to avoid being insular and means a safe and secure return is more likely.

Philodrill also benefits from the fact that it has historically invested in people with experience and good academic credentials. This means that whenever the company does act, it does so with professionalism—each job is done well, and every opportunity seized. Our human resources truly push Philodrill forwards.

As a local player in the Philippines, what are your competitive advantages?

Philodrill has the choice of acreage here in the Philippines and the areas we have acquired have good prospects. Wherever there has been production in the country away from Malampaya, we are present. This can be attributed to our having good, smart personnel who understand the importance of seizing these areas, the ones with good chances for further resources to be discovered.

Long study and research has pushed our efforts to locate the best areas. Information has been gathered and collected over years, and Philodrill likely has the biggest geological database other than that of the Department of Energy in the Philippines. Good records gained in the past mean that we are able to constructively direct future efforts, and such a capacity is in high demand. For this reason Philodrill from time to time also exchanges some of its information for equity in other party’s projects. We do not however, exchange this information for cash.

As you mentioned, Malampaya is the only area where Philodrill is not active. The discovery of another Malampaya would revolutionise the industry in the Philippines. How would you expect the commercial landscape to change if a second such resource was found, and how do you ensure that Philodrill is leading the search?

Philodrill has a great sense of history within the company, and this gives some perspective to answer this question. Philodrill had rights to a drill site over Malampaya in the 1980’s but the first production at Malampaya was delayed because of the prohibitive cost of drilling in deep water (1,500 feet) back then. We were aware the resource was there, but it simply was not feasible to access it. We had to sacrifice our rights back then, as the company could not afford to drill.

As for the situation today, it looks like any second Malampaya will be found in very deep waters. It might cost 60-70 million of Filipino pesos to drill one well—a figure that already is likely far out of Philodrill’s reach. Our company would need a significant partner able to cover the majority of this cost. To be able to receive financing, one would realistically face needing to drill three wells before any bank would take a request for finance seriously. There are no subsidies to support this phase of the oil prospecting process in the Philippines.

Despite this, Philodrill is confident that it can secure resources amounting to between 100 and 200 million barrels in the next five years at other sites.

In terms of Philodrill’s current projects, are they set to be the growth driver for the company’s revenues in the near future?

At least for the next three years, our current projects will be the prime generators of our income. Our revenue, we hope, will be maintained at least around PHP 2 billion. Philodrill has no debt to cover—our fiscal choices are prudent and carefully taken, which means we can concentrate on profit and generating finance to reinvest in the company.

We manage our money carefully and for the last three or four years Philodrill has been paying dividends, which this makes our shareholders happy. The company has a 10-15 year vision, where it will maintain and grow the business. Our projects are all geared to maintain production at current rates and also to ensure that Philodrill accrues larger reserves over time.

You indicated that you would be eager perhaps, to have a partner capable of working with you to reach the next Malampaya. What characteristics does Philodrill have to attract such a partner?

Along with our experience and our large database, we also represent an entity familiar with the manner of doing business here in the Philippines, the local politics and one with a solid network of contacts, which means we can see projects completed faster and more efficiently and effectively than someone less familiar with the market. This is a useful trait particularly to international players seeking to enter the Filipino market.

How do you envision Philodrill’s position in the market over the next few years?

We intend to be the local leader in the Filipino oil and gas market. In the near future, we want to expand the breadth of our exploration work and the size of our reserves. Philodrill will continue to offer support to its business partners and maintain its transparent business practises. We are very proud of our ethical means of business.

 

To read more interviews and articles on the Philippines, and to download the latest free report on the country, click here.  

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