Overall Performance
Forum Energy Plc (“Forum Energy”)
As June 30, 2017 the Company held 6,550,000 shares representing a 8.03% interest (18.42% December 31,2016) of the capital of Forum Energy, a private company, which has participating interests in 11 petroleum
blocks in the Philippines, five of which are in production and six of which are in the exploration and appraisal stage. Forum Energy and the Company are both ultimately under the control of PXP Energy
Corporation (“PXP”) and are therefore affiliates. The Company advises that: (i) the sole nature of its petroleum activities is as a holder of 8.03% of the shares of Forum Energy; and (ii) outside of information
publicly made available by Forum Energy, it is not privy to information of the status of Forum Energy’s oil and gas activities on any of its projects.
On March 23, 2017 as a result of Forum Energy issuing new shares for both cash and in settlement of amounts at a price of US$0.30 per share, the Company’s interest in Forum Energy was diluted from 18.42% to 8.03%. As a result of this dilution, the Company considers that it no longer has signficiant influence with respect to Forum Energy.
Forum Energy’s principal asset is a 70% participating interest in Service Contract 72 (“SC72”) (previously Geophysical Survey and Exploration Contract No. 101 (“GSEC101”), a petroleum license located offshorewest of Palawan Island, the Philippines. Forum Energy has completed its work programme commitments for SC72 Sub-Phase 1 of the Exploration Phase from February 15, 2010 to August 14, 2011. The
Sub-Phase 1 work programme completed included the acquisition of 564 km2
of 3D seismic data over the Sampaguita gas field, and 2,202 km of high resolution 2D over the remainder of the 8,800 km2 contract
area.
Forum Energy’s share of the Sub-Phase 1 work programme was estimated to cost approximately $7.4 million, and was funded through a $15 million facility agreement with Forum Energy’s then ultimate parent company, Philex Mining Corporation (“Philex Mining”).
In August 2011, Forum Energy entered Sub-Phase 2 of SC72, which includes a commitment to drill up to two wells before August 2013. On April 24, 2012, Forum Energy announced receipt of a report by Weatherford Petroleum Consultants on the interpretation of the SC72 seismic data acquired in 2011. The announcement included a summary of volumetric estimates of unrisked resources initially in place in the Sampaguita Gas Field and North Bank prospect in SC72. The volumentric estimate by Weatherford is said to be an improvement in the resources previously known and supports the case to proceed with the drilling program which is estimated to have a total cost of $75 million. Forum Energy was unable to commence the Sub-Phase 2 drilling programme in 2012 due to an ongoing territorial dispute between the Philippine and Chinese governments. 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 (“DOE”) granted a force majeure on Service Contract 72 ("SC72") because this contract area falls within the territorial disputed area of the West Philippine Sea which was then 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.
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.
The following is a brief description of the properties of Forum Energy currently in production. The reserves reported in the Company’s Form 51-101F1 Statement of Reserve Data and Other Oil and Gas Information
(“Form 51-101F1”) was based on the independent reserves estimation of the Galoc oil field. The reserves from the Nido, Matinloc and Libertad fields were not included in the Company’s Form 51-101F1 due to lack of materiality.
(a) Service Contract 14 Block C1 Galoc
Forum Energy has a 2.27% participating interest in Service Contract 14 Block C1 Galoc (“Galoc”)
located offshore northwest Palawan. Galoc 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 delivered 1.73 million barrels gross in 2016 (2.43 million barrels gross in 2015).
In 2015, Forum Energy’s investment in Forum Energy Philippines Corrporation (“FEPCO”) was
impaired by US$14.00 million based on the result of an assessment on Galoc’s future cash flows. The
Galoc Oil field, the primary oil producing asset of FEPCO, was valued based on its current estimated
reserves of 20.81 MMB; future oil price forecasts of US$43.10/bbl to US$91.60/bbl, from 2016 to 2024,
respectively and; discount rate of 10%. These factors reduced the valuation of the field to US$2.38
million which resulted in an impairment charge of $14.0 million.
