DITO not only a telco play but may also be a beneficiary of the South China Sea exploration resumption

Chinese dilemma in oil & gas exploration in South China Sea

Among the areas in the South China Sea, Reed Bank is the most promising area for oil and gas exploration.  Recto Bank is said to contain most of the oil and natural gas in the South China Sea. For this fact, China is not keen on giving this up to the Philippines without participation in the exploration. Chinese coast guard has been patrolling the area intimidating Philippine ships.

To solve the Chinese dilemma, it was proposed that Chinese state-owned companies be brought on board as partner in the Reed Bank exploration.

Manny Pangilinan fails to bring on board China, China not keen on partnering with MVP

Oil and gas exploration in Reed Bank are covered by Service Contract 72 (SC 72) and operated by Forum Energy Ltd. which has a 70% stake in SC 72. PXP Energy has a 67.19% controlling interest in Forum Energy Plc with 48.76% held directly and 18.43% held indirectly through FEC Resources, Inc., a 54.99%-owned subsidiary.  Manny Pangilinan (MVP) led, and Hong Kong based First Pacific holds an effective economic interest of 42.4% in PXP Energy.

Since 2012, MVP has been negotiating with China National Offshore Oil Corporation (CNOOC), a Chinese state-owned oil company, for a deal but produced no result.

Dennis Uy gets Chinese support and seals partnership

While MVP failed to woo the Chinese, Davao-based tycoon Dennis Uy has been successful in bringing in the Chinese particularly CNOOC. In May 2019, after a series of engagement talks, a Memorandum of Understanding (MOU) was entered into by State-owned firm Philippine National Oil Co. (PNOC), Phoenix Petroleum (PNX) and CNOOC Gas and Power Group Co. Ltd (CNOOC G&P). The MOU will allow the three companies to explore and discuss business opportunities and cooperation in relation to the equity investment in Tanglawan Philippine LNG Inc. and other companies relating to the project, PNOC facilities, market development, PNOC banked gas, and future energy projects.

Tycoon Dennis Uy in an agreement with the MVP group was set to acquire a significant interest in PXP Energy but the deal was cancelled. Dennis Uy allowed the forfeiture of his deposits for PXP shares in favor of PXP. After the cancellation of the deal, Dennis Uy sealed a partnership with CNOOC. That could only mean that the Chinese are not keen on partnering with the MVP group.

Dennis Uy’s Udenna acquires stake in Malampaya, set to become Malampaya operator

Just this March 2020, Dennis Uy’s Udenna Corp. completed the acquisition of the 45% stake in the Malampaya gas project from Chevron. Udenna Corp. is also set to acquire the 45% stake of the Malampaya operator, Shell Philippine Exploration, as it exercises its right of first refusal on those stakes. Udenna Corp. and other Dennis Uy companies have been recipients of loans from the Bank of China, providing the group with critical funding sources for expansions and acquisitions.

The Reed Bank is adjacent to the Malampaya gas fields. The Malampaya infrastructures could easily be tapped for the development of Reed Bank. Reed Bank could be brought online just as Malampaya is nearing depletion and the same Malampaya infrastructures could bring Reed Bank onshore.

Among the companies of Dennis Uy, it is Udenna Corp. which has the direct involvement in the upstream oil and gas industry with its stake in Malampaya. It is also set to takeover the operations of Malampaya once the acquisition of Shell’s stake is completed.

DITO’s primary assets is the advances to Udenna

DITO the publicly traded company has the advances to Udenna Corp. as its primary assets. With that link it could end up as winner in the resumption of exploration in the South China Sea. DITO could also be a gas and oil exploration play aside from being a telco play.

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Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent viewpoint.  Accuretti Systems Inc. in day to day trading may have owned, or is considering buying or disposing, the shares of the companies mentioned in this commentary.