Spratlys row generating interest in PNOC unit

Controversy over a pre-exploration project is priming investors’ appetite for the Philippine National Oil Co.-Exploration Corp.’s (PNOC-EC) secondary offering, tentatively slated later this year, analysts said. The government is studying the stake sale of PNOC-EC, which has a market capitalization of P8.39 billion, and the only PNOC subsidiary left on the exchange after the privatization of the firm’s geothermal unit. "So far, the controversy over the JMSU (Joint Marine Seismic Undertaking) is putting [PNOC-EC] in a prime spot," said an analyst who is advising potential investors, and who declined to be named. The national oil company’s agreement with China National Offshore Oil Corp. (CNOOC) and Vietnam Oil and Gas Corp. (PetroVietnam) for seismic studies in the Spratly Islands off Northern Palawan was recently questioned in the media for being "biased" towards foreign interest. Politics aside, the source said, "All this is reminding us that there is a whole bank [sic] of reserves of oil within our waters, and that is a big thing in the era of $100 per barrel of oil." The sale of 1.5 billion primary and 600 million secondary shares in PNOC-EC had been set for the first quarter this year, but was moved to make way for the auction of one of its service contracts. Citibank has already been chosen as financial advisor for the stake sale. PNOC-EC shares barely trade in the market due to a very small public float. On Thursday, in the first transaction for the year, a one-time deal hiked its preferred shares up by 40% to P24.50 apiece. Common shares, untraded since May last year, have stayed at P2.24 apiece. "This is an insignificant rise, since it is not complemented by significant value. It’s worth only about P60,000," said Claire Quiray, analyst at Accord Capital Equities Corp. "You cannot define its impact." Ms. Quiray however said that people are paying attention, and that the shares could be pulled either way by speculation. Joseph Y. Roxas, president of Eagle Equities Inc., meanwhile, emphasized that the shares are "illiquid." "They not tradeable. PNOC-EC is [about 99% owned] by the government now. But the issue over the exploration contract has a long-term effect on the company, in the sense that whatever comes out of it is [commercially] important," he said. Both Mr. Roxas and Ms. Quiray said the government should continue with the contract, and eventually pursue an exploration agreement. "[Not continuing with the deal is] like saying the Philippines is rich in resources, and then you don’t know where they are, and you don’t use them," Mr. Roxas said. PNOC-EC has passed the halfway-mark for a 2D and 3D seismic study of some 11,022 kilometers, but results from data processing could only be known after a year. The three-country agreement is worth $15 million, and was "designed to be scientific in nature and does not affect territorial claims of the respective countries of the area." PNOC-EC holds the country’s largest acreage of service contracts, and controls the government’s 10% stake in the Malampaya service contract, involving a gas-rich field in the South China Sea. — Maria Kristina C. Conti/BusinessWorld