French major Total and Asia Pacific-focused Jadestone Energy have decided to relinquish and terminate its Service Contract 56 (SC56), offshore Philippines, following a decision not to drill an exploration well.
Jadestone said on Wednesday that its wholly-owned subsidiary, Mitra Energy (Philippines SC-56), together with operator Total, have notified the Philippines Department of Energy of the voluntary surrender of their entire interest in, and termination of, SC56.
As a condition of the surrender and termination of SC56, the partners will be subject to a payment in respect of unfulfilled work commitments, Jadestone added.
Jadestone’s share will be met from a portion of the proceeds of the arbitration ruling announced on 9 January 2020.
Namely, Jadestone’s Mitra SC56 in November 2017 started the arbitration action in response to a breach of the 2012 farm-out agreement between Mitra SC56 and Total, claiming that, among other things, Total failed to drill an exploration well on the deepwater Halcon prospect, located within the block covered by SC56 in the Sulu Sea, offshore the Philippines.
In January 2020, the tribunal found in favour of Mitra SC56 , concluding that Total breached the agreement, awarding monetary damages to Mitra SC56 of $11.075 million, less specific expenditures incurred prior to the breach to be agreed or determined if the parties cannot agree; and legal costs of approximately $4.3 million.
Jadestone also said it anticipates to record a one-time impairment charge of approximately $50.5 million.
This is relating to historical capitalised exploration expenditures on SC56 predominantly associated with previous management, with no associated cash impact or tax benefit.
Paul Blakeley , Jadestone President and CEO, commented on the decision to exit the Philippines acreage: “We remain focussed on our strategy of delivering value from producing fields and near-term developments in the Asia Pacific region, while avoiding early-phase greenfield exploration plays such as SC56, requiring multi-year capital programmes prior to production and cashflow. Nor would the major investments in new pipelines and facilities fit our sustainability objectives which include a focus on maximising the use of existing infrastructure.
“SC56 was a legacy asset inherited from the previous management and only had option value through a carried well. The decision not to drill the well now removes any interest for Jadestone to continue further, requiring as it would, new deep-water frontier exploration commitments. It would also not compete with existing portfolio investment options, nor potentially some of the more interesting inorganic opportunities moving into the market in the coming 12 to 18 months.
“While we have appreciated great support and cooperation, and long association with the government and regulator in the Philippines, it is now time to relinquish our interest in SC56, as we continue to deploy our production optimisation and field-life extension skills across the region”.