from the 2016 Sedar:-
Forum Energy Plc. (“FEP”)
We currently own 18.42% of FEP. FEP was established through the consolidation in 2005 of the Philippine assets of FEC Resources, Inc. of Canada, and Sterling Energy Plc of the UK,
into one corporate entity. The current holdings of FEP are based mainly in the Philippines and include:
At the annual general meeting of Forum Energy on June 17, 2015, the shareholders passed resolutions which approved the delisting of Forum Energy from the London Stock Exchange
and the conversion of FEP from a public company to a private company.
In connection with the delisting, FEP and Philex Petroleum announced an offer by Philex Petroleum to acquire the minority interests in FEP's Ordinary Shares not held by First Pacific
Company Limited, Asia Link B.V., Philex Mining Corporation, FEC Resources Inc. and its nominee Ferlim Nominees Limited, and FEP shareholders in restricted jurisdictions for a cash
consideration of 20 pence per Ordinary Share ("Offer"). A total of 2,383,777 shares were purchased by Philex Petroleum representing 6.71 per cent of FEP.
SC 72 Reed Bank (formerly previously Geophysical Survey and Exploration Contract No. 101 (“GSEC101))
The SC72 Reed Bank concession is located in the West Philippine Sea west of Palawan Island.
The license was awarded to Sterling Energy Plc in June 2002. Exploration in the area began in 1970 and in 1976 gas was discovered following the drilling of a well. In total, four (4) wells
have been drilled to date, all located at the south west end of the license. Two (2) of the wells tested gas at rates of 3.6 mmcf/d and 3.2 mmcf/d.
In 2003, Sterling reprocessed 250 km of 2D seismic and completed a feasibility study on a GTL (gas-to-liquid) development scenario for the gas field. The seismic work and the GTL
study fulfilled the initial work commitments on the concession and Sterling was granted a twelve (12) month extension in June 2004. In 2005, Forum acquired new 250 square kilometers
of new 3D seismic data over the license area fulfilling its work commitments required under the twelve (12) month extension.
In September 2006, results of the interpretation of the 3D seismic program at the Sampaguita gas discovery indicated a significant gas accumulation.
In 2008, FEP finalized farm-out of a 30% interest in the license to a local partner Monte Oro Resources & Energy, Inc. (Monte Oro) in which FEP benefited from an immediate cash
payment of $1.7million, securing Monte Oro’s involvement and thereby qualifying the Joint Venture for the Filipino Participation Incentive Allowance (FPIA) which entitles the
Company to 7.5% of gross revenues, prior to sharing revenues with the government.
In February 2010, the GSEC101 exploration license was converted into Service Contract 72. The area of the block was reduced from 10,360 Km2 to 8,800 Km2 as part of this conversion.
In the first quarter of 2011, Forum completed 565 Km2 of 3D seismic acquisition over the Sampaguita Gas Field and 2,202 Line-Km of 2D seismic data was also acquired over the block in
order to further define additional leshare.
The interpretation of the surveys was carried out by Weatherford Petroleum Consultants (“Weatherford”). Weatherford’s report identified a number of drilling locations.
???70% interest in Service Contract 72 Reed Bank (SC 72), an offshore license which contains the Sampaguita Gas Field as well as several additional oil and gas leshare;
???66.7% interest in Service Contract 40 North Cebu (SC 40), an onshore and offshore license which contains the onshore Libertad Gas Field and Maya discovery and several other
prospects; and
???2.27% interest in Service Contract 14C1 Galoc (SC 14C1 Galoc), an offshore license which contains the producing Galoc Field.
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FEP was planning the execution of the second sub-phase work program at SC72 which was expected to involve the drilling of up to two wells before August 14, 2013. On January 17,
2013 FEP announced that it had applied for an extension to the second-sub phase of SC72 from the Philippine Department of Energy. On January 25, 2013 FEP announced that it was
granted an extension until August 14, 2015 to complete the second sub-phase of SC72.
SC 72 is located in an area which is subject to a maritime dispute between the Chinese and the Philippine governments. There are discussions being held to try and find a commercial
solution but any such commercial solution would require the full support of the Philippine government. Recognizing that the delay in implement the drilling programme were for
reasons beyond the control of Forum Energy, the Philippine Department of Energy extended the end date of Sub-Phase 2 from August 14, 2013 to August 14, 2016.
On March 4, 2015 the Philippine Department of Energy granted a force majeure on SC72 because this contract area falls within the territorial disputed area of the West Philippine Sea
which is the subject of an United Nations arbitration process between the Republic of Philippines and the People’s Republic of China.
Under the terms of the force majeure, all exploration work at SC72 is immediately suspended (effective from 15 December 2014) until the DOE notifies the Company that it may commence
drilling. As a result, the second sub-phase of SC72 was put on hold until further notice.
It is anticipated that the terms of the second sub-phase and all subsequent sub-phases will be extended by the term of the force majeure.
On July12, 2016, the Permanent Court of Arbitration in the Hague ruled in favor of the Philippines against China over territorial disputes in the South China Sea. China has rejected the
ruling. It is uncertain whether this ruling will resolve the dispute between the parties.
FEP is also continuing to discuss potential partnerships with regards to SC72 to assist and augment in the successful acceleration of the development of the project.
SC 40 North Cebu
FEP holds a 66.7% interest in the SC 40 (Cebu) contract area is located in the Visayan Basin in the central part of the Philippines archipelago. The license area covers the northern area
of Cebu Island and the adjacent offshore areas in the Central Tañon Strait and Visayan Sea. Since 1994, a total of fifteen (15) wells have been drilled offshore in the Visayan Basin,
thirteen (13) of these on the acreage covered by SC 40 (Cebu).
The Libertad Gas Field is situated within SC40. The field was discovered in the late 1950's, but was not developed. In 1993, a testing program was carried out on two (2) wells and
during 1994 and 1995, five (5) additional wells were drilled on Libertad. One of these wells tested gas and subsequently was completed as a gas producer.
In 2004, FEP carried out a feasibility study to determine the most commercially viable option for the development of the Libertad Gas Field. The results of this work recommended a
development plan using three (3) GTE generators, with a maximum of 3.0 MW.
During December 2005, the Department of Energy formally granted a Declaration of Commerciality for the development of the onshore Libertad Gas Field. The Declaration of
Commerciality allowed the retention of the portion of SC40 which contains all the currently identified prospects and discoveries.
During 2009 the Department of Energy approved the Gas Sale & Purchase Agreement in respect of the development of the Libertad Gas Field for a 1 MW gas turbine power plant. In
February 2012, commercial production at the Libertad Field commenced and, as at 31 December 2013, the field has produced 144 million cubic feet of gas gross. However these revenues
are not material to FEP’s cash flow. Having received a resource assessment from Petroleum Geo-Services Asia Pacific Pte Ltd (PGS), an independent competent person, on 19 February
2013 the investment in SC40 was impaired in 2012 by US$25.4 million to US$3.25 million. An important factor in this assessment was that third parties had experienced a dry hole while
drilling within the Tañon Straits which significantly reduced the likelihood of commercially viable hydrocarbon deposit in the offshore part of SC40.
SC 14C1 Galoc
FEP’s largest producing asset is the Galoc oil field located offshore northwest Palawan and has an area of 163 square kilometres and contains the Galoc oil field which was first put in
production in 2008. Production from the Galoc development reached 1.7 million barrels gross in 2013. FEP has a 2.27% interest in the field and received US$2.1 million after deduction of
share of operating costs from crude sales from the field during the year. The second phase of development was completed in November 2013 with the drilling of two additional
production wells. Total oil production from the four wells was 2.8 million barrels in 2014 at and achieved an average selling price of $105.80 per barrel. FEP secured US$2.58 million of
financing from BNP Paribas in 2012 to help fund its share of development costs for this phase of the project , which was repaid in June 2014. In 2015 production from the Galoc field was
2.43 million barrels which achieved an average selling price of $53.8 per barrel.
FEP anticipates lower revenues from the Galoc oil field in 2016 due to lower oil prices and a decline in production. Gross production is forecast to decrease 2016. Further development
of the Galoc field has been deferred until market conditions for oil improve.
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Basic Petroleum & Minerals Inc. (“BPMI”)
In May 2005, FEP entered into an agreement with Philippines-based Basic Consolidated Inc. (“BCI”), whereby the parties agreed to work under an exclusivity period towards finalizing
the purchase by FEP of BCI’s petroleum interests in the Philippines, held through a wholly-owned subsidiary, BPMI. This culminated in February 2006 with the signing of a Share
Purchase Agreement whereby FEP agreed to acquire 100% of BPMI in exchange for 933,759 shares of FEP and deferred consideration.
The acquisition was approved by BCI shareholders at the company’s Annual General Meeting on March 29, 2006.
BPMI assets included interests in nine (9) Philippine offshore fields, specifically the Galoc Field (2.27% participating interest) which commenced production in the fourth quarter 2008
and is currently in full production with 2.5 million barrels gross produced in 2009, and 2.69 million barrels gross in 2010. FEP received net revenues of $0.8 million in 2010 and 2009.
FEP also had nominal production from the SC6/14 Nido/Matinloc fields, which are contained within this block.
Previously, FEP also reported that its interest in the West Linepacan oil discovery was farmed-out for a 2.275% interest carried through development.
On May 10 2011, FEP announced that it had come to a settlement with Basic Energy Corporation ("BEC") in relation to certain of its service contracts in the NW Palawan area, offshore
Philippines.
In the course of an arbitration process, on 10 May 2011, BEC and FEP signed a settlement agreement (the "Agreement") in relation to disputes relating to BEC's share in the historical
cost recoveries arising from Service Contract 14 A and B (Nido-Matinloc Blocks), Service Contract 14-C (Galoc Block), and other blocks of Service Contract 14 and Service Contract 6,
pursuant to the Sale and Purchase Agreement executed by BEC and FEP on 3 April 2006 (the "SPA").
In February 2012, FEP announced that the settlement agreement was not completed because not all required third party consents were obtained within the agreed timeframe resulting in
the process going into arbitration.
On June 21, 2012 FEP has disclosed that FEP and BEC have agreed to a settlement under which FEP shall pay BEC the amount of $2,400,000, which is the remaining balance of a
$10,000,000 payment stipulated in the Sales and Purchase Agreement, plus an additional $2,000,000 with $1,000,000 of the $2,000,000 paid in December 2012 and the balance of the
$2,000,000 paid in December 2013.
Metalore Mining Corp.
MMC commenced preliminary mining operations at the beginning of October 2005, with iron ore extraction mainly being recovered as strewn boulders and debris recovered from routing
of the mine access roshare leading to the main iron ore body. As of March, 2006, Metalore had successfully completed and shipped its first iron ore contract. Difficulties were
encountered prior to this with overburdens of pyrites, where iron ore had been anticipated, and with environmental compliance.
Mining operations were suspended in September 2006 because of problems caused by six (6) typhoons which hit the area in a three (3) month period and due to intervention by the
local government of the Province of Bulacan who are in dispute with the central government (DENR) about who has jurisdiction over the mining operations.
Metalore also decided to suspend mining operations under the Small Scale Mining Permits because of the limitations on equipment, namely the maximum of two (2) heavy
excavators/bulldozers per 20 hectares.
Metalore has filed an application for an Exploration Permit over a total of 841 hectares which includes the small scale mining areas in which we were previously operating. Metalore
management believed this would be approved after the May 2007 political elections and an MPSA would be granted, which is the relevant permit for large scale mining. To date there
has been no further developments and Metalore operations continue to be abandoned.
MPSA148 (Philex Gold Joint Venture)
The surface investigation and limited diamond drilling that started in mid-2005 have identified gold-bearing jasperoid horizons in two (2) prospects, Lascogon and Danao, Philippines.
Starting in July 2006, some 3,000 meters of reverse circulation (RC) drilling over a 30 hectare (approx. 75 acres) area was done covering four (4) prospects. To date, we have spent in
excess of $1,000,000 evaluating the property. Most of the effort has focused on the southern portion of the holding and has encountered numerous positive shows of gold and copper,
but not in sufficient quantities to warrant entering commercial production.
In 2007, further trenching, drilling, sampling and assays were conducted on MPSA 148. These were done initially on the Lascogon and Danua areas, then later, surveying, drilling and
sampling on the Nabago prospective area.
Exploration during fiscal 2009 on the Lascogon Project was limited to trenching activities as recommended by project consultant IRES to provide additional basis for resource
estimation. Limited work was completed on the property during fiscal 2010.
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We received a technical report in respect of the Lascogon Project in 2010 prepared by Mr. Dexter S. Ferriera (a senior geostatistician and mining engineer at Independent Resource
Estimation or IRES) in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects. We evaluated the technical report and determined that the work
completed on the Lascogon Project to date did not determine an economically viable gold reserve. Accordingly, we have fully written down our investment in Lascogon.
In May 2012, we received a capital call from Lascogon Mining in the amount of 100 million Philippine Pesos or approximately $2,400,000. The capital call was made to address Lascogon
Mining’s current deficit and to fund the upcoming work program and exploration budget. We were given until December 21, 2012 to forward the requested funds or have our 40%
interest diluted to 1.08%. We did not forward funds and therefore our interest in Lascogon Mining was diluted to 1.08 %.
The current mining exploration phase of the MPSA expired in January 2014. The decision by the mining regulator in 2015 to decline the granting of an extension has been appealed
however it is uncertain when the result of this appeal will be known nor is the outcome certain. .
