Energizing Change
Our Cover With the country’s recent change in leadership and administration, it is clear that a majority are hopeful that this change will lead to a better government and sustained stability and development for the country. PNOC EC joins the rest of the country in this renewed hope for a better nation. And with its mandate of exploring for indigenous energy sources in order to provide a sustainable energy supply for the country, along with its successes and 35 years in the industry, PNOC EC can be considered an agent and “driving force” for this change. The contemporary cover design presents a fresh, young and energized approach on the Company’s exploration endeavors. The inner core of the design represents PNOC EC’s fundamental and unified energy exploration efforts through the icons representing power plants, oil rigs and offshore platforms. The outside circle on the other hand, represents the end-users and ultimate goal of the Company’s exploration efforts – a thriving and energized Filipino nation.
2
PNOC Exploration Corporation
•
2010
Annual Report
Vision We are the leading oil and gas company of choice in the Philippines with global reach in exploration and production, contributing to the company’s growth and development.
Mission We are an enterprise, whose core business is petroleum, committed to the delivery of superior economic benefits to our stakeholders through top performance in all our undertakings.
Values Teamwork. We value teamwork. Our employees and stakeholders work together harmoniously toward common goals. Integrity. We strictly adhere to ethical and moral standards of fairness and honesty in all our undertakings. People Orientation. We value the welfare and growth of our employees as well as the interest of our host communities. We actively seek social acceptance of our projects. Innovativeness. We encourage creativity and continuous improvement in the conduct of our business. Customer-driven. We perform with a high level of efficiency geared towards customer satisfaction. Concern for the environment. We properly manage the impacts of our operations to the environment. We adhere to the principles of sustainable development; balancing ecological, social and economic sustainability of our projects. Safety and Well Being. We conduct our business in a safe manner, thereby protecting the well-being of our employees and stakeholders.
Contents 2 President’s Report
20 Independent Auditor’s Report
6 Corporate Profile
21 Statement of Financial Position
7 Areas of Interest
22 Statement of Comprehensive Income
8 Operational Highlights
22 Statement of Changes in Equity
16 Corporate Social Responsibility
23 Statement of Cash Flows
17 Health, Safety and Environment
24 Notes to Financial Statements
18 Financial Highlights
40 Board of Directors
20 Statement of Management’s Responsibility for Financial Statements
42 Management Team
2010
Annual Report
44 Directory
•
PNOC Exploration Corporation
1
We are an enterprise, whose core business is petroleum, committed to the delivery of superior economic benefits to our stakeholders through top performance in all our undertakings.
Gemiliano C. Lopez, Jr.
Chairman, President & Chief Executive Officer
2
PNOC Exploration Corporation
•
2010
Annual Report
Chairman & President's R e p o r t Energizing Change 2010 was a year of optimism and change for the Philippines. During the year, our country held and successfully completed its first automated elections, where the Filipino’s clamor for a better life, sustained economic growth and deep longing for honest leadership and good governance resulted in the election of President Benigno C. Aquino III. In 2010, with the collective efforts of your Company’s employees and officers, net income improved significantly, posting a 37.68% increase from 2009’s P1,799.11 million to P2,476.97 million. This can be attributed mainly to your Company’s fiscal prudence and responsibility which resulted in increase in profits from your Company’s business units, namely: the Malampaya Project, Coal Trading and Integrated Services, and Energy Supply Base. As a result of this solid performance, PNOC EC recently declared and paid dividends amounting to P3.003 billion. From the said amount, a dividend of P2.997 billion was paid to the national government, while the remaining P6 million was paid to you, our public stockholders. During the latter part of 2010, PNOC EC shifted a substantial portion of its dollar holdings to peso time deposit primarily to mitigate the foreign exchange losses caused by the strengthening of the peso. This strategy has borne fruit in the first quarter of 2011 as evidenced by the significant rise in interest income to P51.47 million. We here at PNOC EC remain optimistic that we can surpass this performance in the succeeding years, considering the promise of our pipe-lined projects and again, with the commitment and dedication of the men and women of your Company.
2010
Energized Exploration In 2010, we continued to intensify our efforts in fulfilling our Company’s primary mandate – the exploration of petroleum and coal resources in order to secure a stable supply of energy for our country. During the year, your company accomplished the conduct of geological and geophysical studies, seismic data gathering and interpretation in our Service Contract areas located in various parts of the country. Last year, together with our partner BHP Billiton, we acquired 3,075 square kilometers of 3D seismic data in our SC 59 area - the largest and most expensive 3D seismic acquisition in our country to date. Your Company is also gearing up for potential drilling activities set for the latter part of 2011 until early 2012 in our SC 37, 58 and 63. We are hopeful that these efforts in our Service Contract areas would bring us the next oil or natural gas discovery in our country. At the same time, PNOC EC continued with its efforts in the coal industry in order to provide indigenous energy sources for our country. For its coal business, your Company produced 133,000 metric tons from its Malangas Project Operations in Zamboanga Sibugay (COC 41), and is set to undertake the development of the Lumbog area. We have just completed the engineering and development plans for Lumbog, which has an estimated mineable coal reserve of at least 1.4 million metric tons. The Lumbog mine is expected to be in production by 2012, and is the 3rd mine to be opened in our Malangas Project Operations. We have continued to aggressively explore the surrounding areas which have a potential to contain 5 to 7 million tons of coal. Hence, we are also set to undertake a 28-hole drilling program in 2011 in order to confirm this. At the same time, we have started our preliminary studies to put up a 100-MW coal fired power plant utilizing the latest clean coal technology in the area, using coal coming from our mines. Hereby, our strategy for the following years is to
Annual Report
•
PNOC Exploration Corporation
3
Community Involvement increase our current coal reserves and production in order to sustain the fuel needs of this proposed power plant. These steps are undertaken partly in response to our Government’s call for additional energy sources in Mindanao. Aside from the planned Malangas Power Plant, PNOC EC continues to venture into the power generation industry with its Isabela Coal Mine and Power Plant, which is quite similar to the Malangas power plant but this time, both the mine and power plants will be located in the province of Isabela. And after several years, we are proud to inform you that we have finally obtained an Environmental Compliance Certificate (ECC) for the project. With the ECC and together with the help and endorsement of the newly elected local government officials in the province, we are hopeful that the project will soon be completed. With the potential of our Petroleum Service Contract and Coal Operating Contract areas, together with the capabilities and efforts of our employees, we remain optimistic that we are but a few steps away from achieving energy self-reliance.
We here at PNOC EC believe that our responsibility to the country does not end with our mandate of providing a stable energy supply for the country, instead we recognize our responsibility to further improve the lives of the communities where we operate in. For this reason, your Company continues to implement its Corporate Social Responsibility Programs or Kaagapay programs in its host communities. For 2010, we have conducted a total of 13 Kaagapay programs, which have benefited 5,300 individuals for the Kaagapay sa Kalusugan (health), 500 for the Kaagapay sa Karunungan (education), and 260 for the Kaagapay sa Kabuhayan (livelihood). Activities in the various project sites include free medical and dental services, conduct of livelihood training programs, tree planting activities and typhoon assistance programs. Of course, the success of these programs will not be possible without the support and participation from the different sectors in the communities.
Forward Plans 2011 is PNOC EC’s 35th year in the industry, and as we celebrate this milestone, we further reaffirm our continuing commitment to explore and develop petroleum and coal resources to attain energy independence for our country. And to further ensure our success, we have earmarked a total of P5 billion for the year, to be spent on our exploration projects. Along with its various exploration projects, PNOC EC is also set to undertake the Compressed Natural Gas (CNG) for vehicle project, which is in line with the Department of Energy’s (DOE) existing Natural Gas for Vehicle Program for Philippine Transport (NGVPPT). The project aims to construct CNG distribution infrastructure to increase the use of CNG in public utility vehicles – our modest contribution not only in the provision of economical fuel but also to promote the use of “environment-friendly” fuel. Your company is also keen to enter the power sector with plans to construct mine mouth coal-fired power plants in Isabela and Zamboanga Sibugay. The power plants aim to improve the electricity generation in these underserved provinces. In terms of petroleum exploration, your Company is set to drill three (3) wells from 2011 until 2013. As these are mostly offshore targets, exploration and drilling costs are expected to be expensive. Accordingly, rest assured that we will exercise the necessary and reasonable care and prudence in the use of our available resources and in the selection of the most promising exploration targets. Aside from its exploration projects located in various parts of the country, your Company is also setting its sights overseas, in order to look for possible business opportunities in petroleum and coal. This is to further ensure and secure a stable supply for our nation’s ever increasing demand for energy.
4
PNOC Exploration Corporation
•
2010
Annual Report
Considering the projects your Company intends to pursue in the coming years, PNOC EC has increased its credit line facilities to P12.4 billion from P1.85 billion at the end of 2009, when the company obtained credit line from the Philippine National Bank (PNB), Standard Chartered Bank, BNP Paribas and HSBC in addition to the existing credit line with Land Bank of the Philippines (LBP). As you will see in this report for 2010, your company has strong fundamentals to meet its mandate. Still, a lot of work needs to be done. As President Aquino told us in his keynote speech during our 35th anniversary celebrations, PNOC EC will play a crucial role in our country’s quest for energy independence. We certainly have a tough journey ahead of us, particularly now that our task of finding energy sources has never been as crucial and imperative considering the recent events in the Middle East and North Africa. But with a history of successes and wisdom gained from 35 years of experience, we are confident and prepared to face any challenge that comes our way. And with the support of our national government, the industry and local communities, and together with the valiant men and women of PNOC EC, our partners and stakeholders, we are ready to maximize our potentials and commit all our energies towards one goal: energizing the nation.
2010
Annual Report
•
PNOC Exploration Corporation
5
Corporate Profile PNOC Exploration Corporation (PNOC EC) is the upstream
Aside from petroleum, PNOC EC is also engaged in the coal
oil, gas and coal subsidiary of the state-owned Philippine
industry. The company holds Coal Operating Contracts in
National Oil Company (PNOC). Initially starting out as the
various parts of the country, namely COC 41 and COC 152
Exploration Department of PNOC in April 1975, PNOC EC
(Siay) in Zamboanga Sibugay, COC 122 and 141 in Isabela
was eventually incorporated as a PNOC subsidiary and
and COC 140 in Surigao del Sur. PNOC EC also operates coal
registered with the Philippine Securities and Exchange
terminals in Zamboanga Sibugay, Cebu, Batangas, and Tondo,
Commission on April 20, 1976. PNOC EC’s shares of
that serve as its handling facilities for local as well as imported
stock are 99.79% owned by the Philippine government
coal that the Company supplies to power plants and cement
through PNOC, with the remaining 0.21% held by public
factories in the Philippines.
shareholders. PNOC EC also operates a private commercial port – the Energy PNOC EC currently holds interests in eight petroleum
Supply Base (ESB) located in Mabini, Batangas which offers
Service Contract (SC) areas, namely SC 37 (Cagayan),
berthing, cargo handling, storage and warehousing facilities
SC 38 (Malampaya), SC 43 (Ragay Gulf ), SC 47 (Offshore
to energy companies and other commercial clients.
Mindoro), SC 57 (Calamian), SC 58 (West Calamian), SC 59 (West Balabac) and SC 63 (East Sabina). The SC 38 acreage is in the production phase, while the rest are exploration blocks.
6
PNOC Exploration Corporation
•
2010
Annual Report
Areas of Interest
2010
Annual Report
•
PNOC Exploration Corporation
7
Our search for indigenous energy sources must be intensified and firmly reinforced with the support of our government, the industry and local communities. Together with the dedicated men and women of PNOC EC, our partners and stakeholders, we are ready to harness our potentials and dedicate our energies towards one goal – to provide a brighter future for our country.
8
PNOC Exploration Corporation
•
2010
Annual Report
Operational H i g h l i g h t s Natural Gas Production Service Contract No. 38 – Malampaya Gas Project PNOC EC owns 10% stake in the upstream component of the Malampaya Deepwater Gas-to-Power Project, together with Shell Philippines Exploration B.V., the Operator, (45%) and Chevron Malampaya LLC (45%). In 2010, the Malampaya project continued to provide the gas fuel requirement of its three (3) power plant customers in Batangas, namely Santa Rita (1,000 MW), San Lorenzo (500 MW) and Ilijan (1,200 MW) as well as that of Pilipinas Shell Petroleum Corporation for the gas fuel requirements in its refinery in Tabangao, Batangas and compressed natural gas for the pilot phase of the CNG public transport project of the government. Total natural gas offtake for the year was approximately 124.62 billion standard cubic feet (BCF), lower than the 133.92 BCF offtake in 2009. The decrease was primarily due to the scheduled maintenance shutdown from February 10 up to March 13, 2010.
Total Malampaya condensate sales also decreased to 4.9 million barrels from 5.47 million barrels in 2009. The condensate produced was shipped to buyers in countries like Singapore, Thailand and China. The Consortium also completed the implementation of the Asset Integrity and Debottlenecking Project and the Camago Appraisal Well drilling during the year.
Petroleum Exploration and Development Service Contract No. 37 – Cagayan Basin The SC 37, which is located in the southern part of the Cagayan Basin was awarded by the Department of Energy (DOE) to PNOC EC on July 18, 1990. The Service Contract has an area of 220,000 hectares covering Santiago City in the Province of Isabela. PNOC EC’s 3-MW
2010
Annual Report
•
PNOC Exploration Corporation
9
Service Contract No. 43 – Ragay Gulf
San Antonio Gas Power Plant in Echague, Isabela harnessed the natural gas field discovered in the block in the 1980’s with the drilling of San Antonio 1. Although the 3-MW power plant was modest in size, it was the first gas-powered plant in the Philippines and signaled the birth of the natural gas industry in the country. The power plant went on stream in 1994, and was decommissioned in July 31, 2008, when its gas reserves were depleted. As part of its commitment to harness indigenous sources of energy, PNOC EC continues its assessment of the block. In July 2010, a gravity and magnetic survey was conducted over several interesting features, which were mapped interpreted to trap hydrocarbons. The results of this survey are being integrated with the seismic interpretation and other geoscientific data to determine the most prospective drilling target, which the company intends to drill in 2012. The selected drill site is located at Barangay Balintocatoc, Santiago City, Isabela, about 10 kms. west northwest of PNOC EC’s decommissioned well San Antonio 1A. The well is programmed to be drilled to a depth of 2,155 meters, and is expected to test potential gas accumulations in the Sicalao Limestone and Cabagan Formations. PNOC EC is currently scouting for drilling contractors for the appropriate drilling rig for drilling the Mangosteen Prospect, the designated name for the well. PNOC EC holds 100% interest and is the sole operator for the Service Contract.
10
PNOC Exploration Corporation
•
2010
Annual Report
The SC 43 was awarded on January 14, 2004 to PNOC EC and its partners, Premier Oil and Pearl Oil (Ragay) Limited. The block is located in Ragay Gulf, partly onshore in the Bondoc Peninsula, and the offshore area south of the Peninsula. The Service Contract covers an area of 5,280 sq. kms. After Premier Oil relinquished its interest, PNOC EC increased its participating interest to 19% in SC 43, while Pearl Oil, the Service Contract operator holds the remaining 81%. The Consortium drilled Monte Cristo 1, in 2008, and was plugged and abandoned as a dry well. Subsurface data from this well contributed invaluable information for understanding of the geology of the Service Contract area. Current exploration efforts have focused on deeper targets, which are interpreted to be equivalent to the prolific, Oligocene to early Miocene Nido Limestone in the Northwest Palawan Basin. Interpretation of the 274 sq. km. 3D seismic data acquired in 2009 dominated most of the exploration activities during the past year. The previous 2D seismic data was also reinterpreted using the information gathered from the drilling of Monte Cristo, and complimented by geological fieldwork in Bondoc Peninsula, Marinduque and Burias Island to study outcrop analogues of the potential source and reservoir rocks in the area.
Service Contract No. 47 – Offshore Mindoro The SC 47 was awarded on January 10, 2005 by the DOE to PNOC EC and Petronas Carigali Overseas Sdn Bhd. The block is located in Offshore Mindoro and Northeast of the Palawan islands, and covers an area of 10,480 sq. kms. On January 10, 2008, Petronas withdrew from the block and PNOC EC assumed operatorship and acquired Petronas’ equity, taking 97% participating interest with PetroEnergy Resources Corporation and Basic Energy Corporation holding 2% and 1% participating interests, respectively. PNOC EC continued its assessment of the prospectivity of the block focusing on the three sub-basins namely Sibay, Tablas and Semirara. About 1,500 km. 2D seismic vintage data (paper format) in these areas were vectorized (seismic reconstructed) in January 2010 which provided additional digital data set for seismic interpretation. Processing of the 1,091 km. 2D seismic data covering the Sibay area was completed in June. Reprocessing of the controlled source electromagnetic (CSEM) data, acquired in 2006 covering prospects in Sibay and Tablas, was completed in October. As a result of PNOC EC’s on-going seismic interpretation, several interesting prospects were generated increasing its prospect inventory. These prospects are currently being evaluated to determine the most attractive target, which the company intends to drill in 2012. In order to spread the risk, PNOC EC looked for strategic partners to help fund the exploration program.
Service Contract No. 57 – Calamian The SC 57 was awarded to PNOC EC on September 15, 2005. The block covers an area of 7,200 sq. kms., and is located in Offshore Northwest Palawan, west of the Calamian Islands. China National Offshore Oil Corporation (CNOOC) International Ltd, and Mitra Energy Ltd (Mitra) farmed-in into SC 57 in 2006, acquiring 51% and 21% participating interests, respectively. Although both joint venture partners, CNOOC and Mitra, have already spent for the acquisition of more than 2,000 kms. of 2D seismic data and the reprocessing of 1,078 kms. of vintage 2D data as part of their contractual obligation to the Service Contract, the Deed of Assignment to officially recognize them as partners has not yet been issued by the DOE.
While PNOC EC partners have deferred their exploration involvement, pending approval of the Deed of Assignment by DOE, PNOC EC continued its geoscientific studies of the prospects and leads that have been identified. It is expected, that once the Deed of Assignment is approved, the partners will proceed and accelerate their exploration activities in the Service Contract area.
Service Contract No. 58 – West Calamian The SC 58 was awarded to PNOC EC on January 12, 2006. This block is a deepwater acreage which covers an area of 13,440 sq. kms. in Offshore Northwest Palawan and located west of the Malampaya oil and gas field. Nido Petroleum Ltd (NIDO) of Australia farmed-in into SC 58 in 2006 and acquired 50% participating interest and operatorship of the block. NIDO is committed to carry PNOC EC up to the drilling of the first exploration well. A geochemical program that included multi-beam bathymetric survey and seabed coring covering 1,500 sq. kms. was completed in April 2010. A highly detailed bathymetry of the sea floor in the target area was mapped and 180 seabed cores were collected. The geochemical analysis of these cores indicates evidence that hydrocarbons are present and can fill the large prospects mapped in the block. These results will be used in the present evaluation to determine the extent of the source system. Additional special seismic studies are being planned to further mitigate remaining exploration risks which are critical in selecting the optimum location for the first deepwater well in SC 58.
2010
Annual Report
•
PNOC Exploration Corporation
11
PNOC EC and Nido Petroleum based in Perth, Australia have an equal 50% participation interest in SC 63, with PNOC EC as the operator. About 1,042 km. 2D seismic data were reprocessed. In 2009, a total of 754 sq. kms. of 3D seismic data was acquired in the southeastern portion of the block in the vicinity of the Aboabo A1X gas discovery well, which is currently considered as the most prospective area in SC 63. This 3D seismic acquisition satisfied the work commitment in Subphase 2a which ended on May 23, 2011. Both partners have agreed to enter the subphase of the exploration program with DOE, which calls for the drilling of an offshore exploratory well. The Joint Venture identified the current window to drill the commitment well to be between December 2011 and March 2012.
Service Contract No. 59 – West Balabac The SC 59 was awarded to PNOC EC on January 13, 2006. This block is located offshore west of Balabac Island in the Southwest Palawan Basin covering an area of 14,760 sq. kms. In 2009, BHP Billiton farmed-in into SC 59 acquiring 75% participating interest and operatorship with PNOC EC retaining 25%. In exchange, BHP Billiton will shoulder all the exploration costs up to the drilling of three (3) wells. The processing of the 393 km. 2D data, acquired in late 2009, was completed in April 2010. This 2D infill data was used to verify a series of potential carbonate build-ups similar in geometry to the Malampaya gas field. The acquisition of 3,076 sq. km. 3D seismic data, covering a trend of prospective carbonate build-ups and structural anomalies from Malaysia to Northwest Palawan, was completed in December. This 3D seismic survey, with a cost of US$23 million, is the largest single 3D coverage acquired in the Philippines to date. The 3D data is currently being processed and is expected to be completed by end 2011. The results will be the basis for identifying prospects scheduled for drilling in 2012.
Final date for spudding a well will depend on the selection of a drill site, identified from a number of prospects by our joint geoscientific group, and rig availability.
New Ventures PNOC EC continued to evaluate prospective new ventures and exploration opportunities, both here and overseas.
Downstream Natural Gas Development Projects As conceptualized by the DOE, the Batangas to Manila Natural Gas Pipeline Project (BATMAN1), and the Integrated Bataan Liquefied Natural Gas Terminal, Power Plants and Bataan to Manila Pipeline Project (BATMAN2) represent the downstream natural gas development program of the national government. The setting-up of these vital energy infrastructures will expand the use of natural gas beyond the power sector, making the environment-friendly, competitively-priced and efficient fuel available to the industrial, commercial and transport sectors. The Philippine government mandated the Philippine National Oil Company (PNOC) to spearhead the development of these downstream natural gas infrastructure projects.
Service Contract No. 63 – East Sabina The SC 63 was awarded to PNOC EC and NIDO on November 24, 2006. The block covers an area of 10,560 sq. kms. located in Offshore Southwest Palawan. SC 63 was a successful joint bid application of PNOC EC and NIDO during the DOE’s 2005 Philippine Energy Contracting Round (PECR).
12
PNOC Exploration Corporation
•
2010
Annual Report
In 2010, PNOC EC managed the technical and financial evaluation activities and assisted PNOC in the joint venture process for an unsolicited proposal from a private consortium to develop the BATMAN1.
During the same year, PNOC EC marketed PNOC’s 108.6PJ subrogated banked gas and prepared the necessary agreements for the sale. In February 2011, PNOC instructed PNOC EC to cease all activities with respect to these projects in order to focus on the upstream projects of the company. PNOC EC remains committed to providing technical support to PNOC.
Coal Exploration and Development Coal Operating Contract No. 41 – Malangas Project Operations PNOC EC operates Coal Operating Contract (COC) 41 within the Malangas Coal Reservation in Zamboanga Sibugay, straddling the municipalities of Malangas, Diplahan and Imelda. PNOC EC operates a large-scale coal mine known as the Integrated Little Baguio (ILB) colliery, which is currently the largest semi-mechanized underground coal mine in the country. As holder of the COC, the company also monitors and supports the mining operations of various small-scale coal miners within the COC 41. The Lumbog area, south of the ILB mine, was evaluated to have mineable coal reserves of approximately 1.4 million metric tons. Mine engineering and development plans for the area were completed in 2010 to determine its commercial viability and the same were presented to the PNOC EC Board of Directors for approval. During the same year, PNOC EC continued with the development of the Lalat area, which the company is undertaking with its joint venture partner, A Blackstone Energy Corporation. Accomplishments for the year include the completion of ground preparation for the main compressor building, the construction of the staff house and the development of main and ventilation shaft of the mine.
In the Malongon area, exploration drilling with a total aggregate depth of 4,003 meters was conducted. The company is set to conduct exploration drilling in the contiguous area of Sta. Barbara in 2011. For 2010, total aggregate coal production from COC 41 amounted to 132.72 thousand metric tons. The company successfully increased the coal production from the 2009 output of 91.44 thousand metric tons due to the continued development in the ILB Mines 1 and 2, and the increase in production of small-scale coal miners.
Coal Operating Contract No. 122 – Isabela Coal Mine and Power Plant Project PNOC EC is the holder of COC 122 which straddles portions of the City of Cauayan and municipalities of Naguilian and Benito Soliven in province of Isabela. The Isabela Coal Mine and Power Plant Project under COC 122 is being developed by PNOC EC in cooperation with the DOE for the Province of Isabela. The project consists of a coal mine production area and a mine-mouth power generating facility. Lignite coal will be mined from mining areas in Cauayan City, Benito Soliven and Naguilian, with total reserves of 28 million metric tons (MMT). The mine will supply coal as fuel to the power plant, which will be situated in Cauayan City and will have an initial capacity of 50MW. The project aims to promote the use of indigenous coal sources and augment the energy demand requirement of Isabela. Consequently, the project is expected to bring widespread economic benefits to the Province of Isabela while ensuring that concerns on the environment and stakeholders remain paramount.
2010
Annual Report
•
PNOC Exploration Corporation
13
In 2010, PNOC EC was granted the Environmental Compliance Certificate (ECC) by the Department of Environment and Natural Resources (DENR). Consequently, the Cauayan City Field Office was officially opened which serves as the temporary station of fieldbased personnel. In parallel, the company started (a) acquiring the cadastral maps that will be incorporated with current available maps, certified true copies of tax declaration of land properties, and partial list of Certificate of Land Titles; (b) submitting the applications for the necessary LGU permits; and (c) securing the LGU endorsements. Coordination meetings with stakeholders and government officials on the implementation of the project were also held alongside the conduct of Corporate Social Responsibility programs such as backyard farming, pump well installation, school supplies distribution, and assistance programs to the victims of Typhoon Juan.
Coal Operating Contract No. 141 – Isabela Coal Exploration Project (Other Areas) The DOE awarded COC 141 to PNOC EC on July 5, 2005. It is composed of three coal blocks located north and adjacent to the coal blocks of COC 122 within the municipality of Benito Soliven, Isabela. The geologic assessment indicated that the coal seams encountered in COC 122 may extend into the COC 141 area. The additional coal reserves from the area are intended to increase the economic viability of the Isabela Coal Power Plant Project in COC 122. The EMB already awarded PNOC EC a CNC for its exploration activities in the area.
Current activities include the procurement process for consultants for the Grid Impact Study and Mine Plan, and the execution of the Land Acquisition and Relocation Plan consultancy services.
In order to fulfill its work obligations, PNOC EC requested to the DOE extension of the COC’s exploration term. Although PNOC EC already programmed some activities for 2010 (such as block boundary survey and exploration drilling), the company still awaits approval of the DOE for its request.
Coal Operating Contract No. 140 – Surigao del Sur
Coal Operating Contract No. 152 – Siay
The DOE awarded COC 140 to PNOC EC on July 5, 2005. The contract area, composed of three coal blocks, is located within the municipalities of Cagwait and Tago in Surigao del Sur. PNOC EC is committed to conduct exploration activities within the area, where an estimated 2.8 million tons of coal is contained (BED, 1984).
The DOE awarded COC 152 to PNOC EC and Agusan Petroleum and Mining Corporation (APMC) on November 2008, which covers an area of around 6,000 hectares located in the municipality of Siay, Zamboanga Sibugay.
In the second half of 2008, PNOC EC obtained the Certification Precondition from the National Commission on Indigenous Peoples, Certificate of Non-Coverage (CNC) from the Environmental Management Bureau (EMB), and completed the block boundary survey. In 2009, a 15-hole drilling program was designed to confirm the presence of coal; however, drilling operations were put on hold due to unstable peace and order situation in the area.
14
In order to fulfill its work obligations, PNOC EC sought to extend the COC’s exploration term with the DOE.
PNOC Exploration Corporation
•
2010
Annual Report
PNOC EC is designated as the operator of the joint venture project, holding 49% participating interest while Agusan Petroleum holds the remaining 51%. PNOC EC and APMC will jointly explore the area with the latter paying all exploration and development costs. In 2010, after preliminary geological work and acquisition of necessary permits from the EMB and LGUs, PNOC EC finished surveying the entire perimeter of the block boundary and conducted drilling activities with total meterage of 2,483 meters. However, due to unfavourable drilling results, PNOC EC and APMC wrote to the DOE on October 11, 2010 requesting for the relinquishment of COC 152.
Indonesia Coal Project Currently, PNOC EC continues to look for opportunities in different mining areas in Indonesia with its main objective to augment supply of coal in the country.
Coal Marketing and Trading Coal Sales PNOC EC’s coal marketing and trading business continues to serve and supply the coal requirements of its industrial and power plant customers with the coal production from COC 41 and other local coal mine sources. In 2010, direct coal sales was 1.14 million metric tons, higher than 2009’s 614 thousand metric tons. The significant increase in sales can be attributed to higher demand for local coal as economic activities in the country improved during the year. PNOC EC was also able to trade 586 thousand metric tons to export market. PNOC EC also facilitated, as marketing agent, the export of 506 thousand metric tons of Philippine coal. In 2010, the company decided to impose a moratorium on international coal transactions due to the problems caused by some delivery issues, i.e. substandard quality of coal from Indonesia and non-payment by a buyer from China. Though the company lost considerable business potential in 2010 with this moratorium, the company exercised prudence and has prepared strict trading protocols to avoid similar problems in future transactions. With regard to the parties at fault in these coal trading issues, the company has vigorously pursued its claims before the courts.
Integrated Services Aside from coal sales, PNOC EC also offers integrated services such as discharging foreign and local coal shipments, stockpiling, screening, blending and hauling of coal to power plants and cement factories in the Philippines. Total actual volume handled for 2010 was 24 thousand metric tons.
PNOC EC utilizes its coal terminals in Batangas, Cebu and in Tondo, Manila, as PNOC EC’s loading, unloading, storage and handling facilities for the trading and marketing of coal to its customers
Energy Supply Base PNOC EC also manages and operates a private commercial port – the Energy Supply Base (ESB) - located in Mabini, Batangas, which offers berthing, cargo handling, storage and warehousing facilities to its clients. In 2010, the ESB accommodated a total of 325 local and foreign vessels and handled 187 thousand metric tons of local cargoes and 288 thousand metric tons of foreign cargoes. The ESB was also able to provide a total of 12.8 million liters of fuel to its clients in shipping and other industries. Additionally, the ESB was also able to lease out a total of 55,400 square meters of warehouse, office space, pipe rack and open yard space to its customers. These activities translate to a total gross revenue of P476.87 million, significantly higher than the P89.79 million registered in 2009. The ESB’s energy related customers include Nido Petroleum, BHP Billiton, CGG Veritas, Galoc Production Company, Rubicon Offshore Ltd., Pearl Oil, Philodrill, Schlumberger Overseas SA, Scientific Drilling International, BJ Well Services and Supply Oilfield Services. On the other hand, the Base’s commercial clients include but not limited to SMC Shipping and Lighterage Corporation, Connell Brothers, Arvin International Marketing, SI Resources and PLDT.
2010
Annual Report
•
PNOC Exploration Corporation
15
Exploring a Brighter Future
Corporate Social Responsibility Empowering Communities “In the conduct of our business, we at PNOC EC are committed in promoting social development programs in our project host communities by providing responsive corporate social responsibility initiatives in the areas where we operate.” CSR is a key element in attaining the company’s mission and vision. At PNOC EC, we believe that our mandate extend beyond providing a stable energy supply for the country. We recognize that PNOC EC should become an integral part of its project host communities, by maintaining mutual and harmonious relationships. Through our Community Relations Group, we implement our Kaagapay Programs, which aim to contribute to the development and improvement of the quality of life of our stakeholders by taking small combined steps and appreciation of collective efforts. . We focus our Kaagapay Programs on four areas namely Kaagapay sa Kalusugan, Kaagapay sa Karunungan, Kaagapay sa Kalikasan, and Kaagapay sa Kabuhayan in our project areas in the provinces of Isabela, Batangas, Cebu and Zamboanga Sibugay.
Kaagapay sa Kalusugan
Kaagapay sa Kalusugan Program addresses the common health concerns of our host communities. Activities include free medical and dental services. In addition, PNOC EC also conducted a two-month Supplemental Feeding Program for children ages 3 to 7, which had 250 beneficiaries from seven barangays of Cauayan City and Benito Soliven in Isabela. The activity was aimed to temporarily address the effects of the El Niño weather phenomenon in the said communities.
Kaagapay sa Karunungan
Education is one of PNOC EC’s priorities in its social agenda. We believe that helping and encouraging the children and youth to learn and value their education will provide them a brighter future and better lives. In 2011, the company will implement a more aggressive educational scholarship program.
Kaagapay sa Kalikasan
PNOC EC as an energy company is engaged in exploration, development and exploitation of natural resources. However, one of the strategic directions of the company is to lead the mining industry in the country in the promotion of responsible and sustainable mining.
16
PNOC Exploration Corporation
•
2010
Annual Report
As such, PNOC EC integrated environmentally-oriented activities such as tree planting in its mining operations. For instance, at the PNOC EC Malangas coal mining area, the company set-up a nursery for seedlings of perennial trees and planted 1,133 Gmelina and 300 Mahogany. For the next three years, we are targeting to plant 15,000 trees in the Malangas area covering 24 hectares with the participation of local farmers.
Kaagapay sa Kabuhayan
PNOC EC acknowledges the fact that its presence in the different areas of operations is temporary, thus, we aspire to provide supplemental and sustainable livelihood means to the members of our host communities. The Malangas Project Operations initiated a Livestock Dispersal Project that will benefit indigent families and local organizations. To date, the goats and chicken are being raised and nurtured by the company and subsequently will be given to target recipients. For 2010, we have conducted 13 CSR programs with a total of 6,060 beneficiaries.
Kaagapay sa Kalusugan: Kaagapay sa Karunungan: Kaagapay sa Kabuhayan
5,300 500 260
In addition to Kaagapay Programs, we also implemented a Relief Goods Operation named “PNOC para sa PINOY” during the onslaught of typhoon Juan in Isabela. PNOC EC employees together with the KBP Isabela Chapter distributed rice and canned goods, and also galvanized iron to 806 households. The success of these programs can be attributed to the valuable support and active participation of employees and partner organizations from different sectors which include government agencies, non government organizations, LGUs, people’s organization and schools, among others. In 2011, PNOC EC will continue to strengthen and enhance its CSR programs by conducting activities and sustainable projects that will provide better opportunities and improve the lives of the members of our project host communities.
Health, Safety & Environment
We at PNOC EC are committed to conduct our business in a responsible and safe manner to protect the environment and the health, safety and well-being of our employees, partners, stakeholders and the general public in the communities where we operate. For the year the following are our accomplishments:
Health and Safety •
We once more received awards from the Safety and Health Association of the Philippine Energy Sector (SHAPES) for achieving Zero Lost Time Accident (LTA) from January 2008 – October 2010 for Batangas Coal Terminal, Energy Supply Base, and Naga Coal Terminal as well as offshore projects in SC 47 (Offshore Mindoro), SC 59 (West Balabac) and SC 63 (East Sabina).
•
Assisted in the programmed plug and abandonment activity of SSB-1 and -2 wells at Sultan Sa Barongis, Maguindanao and coordinated with the different agencies to ensure that this activity will be conducted safely;
•
Coordinated with the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) to furnish us with regular weather updates;
•
Continued to conduct safety audits and monitored the safety performance of our field projects and offices;
•
Continued providing trainings in fire fighting. first aid and earthquake preparedness to improve safety awareness for all our employees in both head and field offices;
•
Assisted in the acquisition of an Environmental Compliance Certificate (ECC) for the Isabela Coal Mine and Power Plant Project in COC 122.
•
Provided technical support to field units and projects in the implementation, monitoring and control of various HSE activities and programs at the project sites;
•
•
Ensured that the plug and abandonment activity of the depleted production well at the San Antonio Gas Plant in Echague, Isabela was safely conducted;
Prepared the Multi-partite Monitoring Team (MMT) Manual of Operations (MOO) for the Malangas Project Operations and facilitated the regular quarterly meetings to monitor its compliance;
•
Conducted regular quarterly air monitoring actvities at our various coal terminals.
Environment
2010
Annual Report
•
PNOC Exploration Corporation
17
Financial H i g h l i g h t s Total Equity PNOC EC still maintains a contributed capital of P2.02 billion as of December 31, 2010, 99.79% of which was owned by the Philippine National Oil Company and the remaining 0.21% was owned by the public stockholders. The Company’s total equity improved by 15% to P11.48 billion in 2010 from P10.00 billion in 2009 brought about by the current year’s net income of P2.48 billion. Consequently, the book value per share went up to P5.73 in 2010 from P5.00 in 2009. Retained earnings increased to P9.37 billion in 2010 from P7.89 billion in 2009 as a result of the P2.48 billion net income for the year net of the P1.01 billion cash dividends paid in September and December 2010. Of the P9.37 billion retained earnings, P7.50 billion was appropriated for capital expenditures and various oil, gas and coal exploration projects.
Total Assets Total assets as of December 31, 2010 is P15.18 billion, higher by P1.68 billion from December 2009 level of P13.50 billion as a result of the increase in both current and non-current assets amounting to P1.52 billion and P0.15 billion, respectively. Growth in current assets was primarily attributed to the increase in cash and cash equivalents. Cash equivalents consist of money market placements or short-term time deposits, which are made for varying periods up to three months depending on the immediate cash requirements of the Company. Increase in non-current assets can be attributed to the investment in treasury notes and capitalized exploration costs for coal projects tempered by the reduction in property, plant and equipment on account of the period’s recognition of depreciation, depletion and amortization.
18
PNOC Exploration Corporation
•
2010
Annual Report
Total Liabilities Total liabilities inched up to P3.70 billion in 2010 from P3.50 billion in 2009. The increase was primarily due to the short-term loan with the Land Bank of the Philippines which was already paid in April 2011. This increase was cushioned by the settlement of major accounts net of additional liabilities to contractors and suppliers for the period. This resulted to the improvement of the Company’s Debt-to-Equity ratio from the 2009 level of 0.35:1 to this year’s level of 0.32:1.
Sales Revenue Performance PNOC EC’s actual sales revenue for the period ending December 31, 2010 of P8.82 Billion is composed of revenues from the Company’s major business units, 54% of which came from the SC 38 Malampaya Gas-to-Power Project, 41% from Coal Operations and the remaining 5% from the Energy Supply Base (ESB) and Rig 1. Net sales increased by 31.3% from P6.72 billion to P8.82 billion primarily due to a significant increase in the average gas and condensate prices, higher volume of coal sold during the year and rise in bunkering services rendered due to increase in various drilling activities of energy-related customers and new customers gained through increased marketing efforts of ESB.
Profitability PNOC EC’s net income shoot up to P2.48 billion in 2010, an increase of 33.3% from P1.80 billion in 2009 attributed mainly to the increase in average gas and condensate prices, increase in volume of coal sold and lower operating expenses incurred during the year than last year. In 2010, net income represented 28.1% of total revenue compared to 26.8% of total revenue in 2009.
2010
Annual Report
•
PNOC Exploration Corporation
19
S t a t e m e n t o f M a n a g e m e n t ’s R e s p o n s i b i l i t y f o r
Financial Statements The management of PNOC Exploration Corporation (PNOC-EC) is responsible for all information and representations contained in the statement of financial position as at December 31, 2010 and 2009 and the statements of comprehensive income, statements of changes in equity and statements of cash flow for each of the three years in the period ended December 31, 2010. The financial statements have been prepared in conformity with Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration for materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company. The Commission on Audit (COA) – pursuant to Section 2.1, Article IX-D of the Constitution; has independently audited the financial statements of the Company in accordance with the Philippine Standards on Auditing and has expressed their opinion on the fairness of presentation upon completion of such examination, in their report to the Board of Directors and Stockholders.
GEMILIANO C. LOPEZ, JR. Chairman and CEO
LOURDES S. GELACIO Vice President, Corporate Services Division
Independent
Auditor’s Report Republic of the Philippines COMMISSION ON AUDIT Commonwealth Avenue, Quezon City
THE BOARD OF DIRECTORS PNOC Exploration Corporation Energy Center, Fort Bonifacio Taguig City, Metro Manila Report on the Financial Statements We have audited the accompanying financial statements of PNOC Exploration Corporation (a subsidiary of the Philippine National Oil Company), which comprise the statement of financial position as at December 31, 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Philippine Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Qualified Opinion Cash amounting to P28.299 million is restricted as a trust fund to serve as a Directors’ and Officers’ Liability Insurance. The fund, which will be used to defray costs that may arise in case any of the Company’s directors and officers gets involved in legal disputes as a result of their official acts, is devoid of legal basis. Further, it contravenes Section 4 of Presidential Decree 1445 which provides that government funds or property shall be spent solely for public purposes. Qualified Opinion In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion, the financial statements present fairly, in all material respects, the financial position of the PNOC Exploration Corporation as of December 31, 2010 and its financial performance and its cash flows for the year then ended in accordance with Philippine Financial Reporting Standards. Report on the Supplementary Information Required Under Revenue Regulations 15-2010 Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required by the Bureau of Internal Revenue on taxes, duties and license fees disclosed in Note 39 to the financial statements is presented for purposes of additional analysis and is not a required part of financial statements prepared in accordance with Philippine Financial Reporting Standards. Such supplementary information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. COMMISSION ON AUDIT
EDNA D. SANTOS State Auditor V May 17, 2011
20
PNOC Exploration Corporation
•
2010
AnnuAl REpoRt
PNOC EXPLORATION CORPORATION (A Subsidiary of the Philippine National Oil Company)
Statement of
Financial Position December 31, 2010 (In Philippine Peso)
Notes
(As restated) 2009
2010
ASSETS Current Assets Cash and cash equivalents Short-term investment Trade and other receivables - net Due from affiliates Inventories Prepaid expenses Total Current Assets
5 6 7 36 8 9
3,985,907,148 51,863,820 955,562,275 10,369,845 441,733,689 493,184,652 5,938,621,429
1,244,804,829 742,029,003 1,205,624,680 208,671,408 517,581,890 497,001,201 4,415,713,011
Non-current Assets Property, plant and equipment - net Investment in treasury notes Investments in joint ventures Investment in PNOC Malampaya Production Corp. Trade accounts receivable Exploration and development costs Deferred tax asset Other assets Total Non-current Assets
10 11 12 13 14 15 31 16
8,202,849,511 211,778,494 130,851,942 625,000 14,767,329 523,238,797 119,955,695 36,215,498 9,240,282,266
8,311,186,114 130,851,942 625,000 33,033,596 462,347,571 113,352,237 34,737,821 9,086,134,281
15,178,903,695
13,501,847,292
TOTAL ASSETS LIABILITIES AND EQUITY Current Liabilities Short-term loans payables Trade and other payables Total Current Liabilities
17 18
394,965,000 519,796,437 914,761,437
581,447,432 581,447,432
Non-current Liabilities Due to affiliates Unearned revenue Liability for future abandonment costs Other long-term liabilities Total Non-current Liabilities
36 19 20 34
EQUITY
17,560,736 2,616,432,507 76,832,757 73,956,469 2,784,782,469 3,699,543,906 11,479,359,789
15,167,578 2,758,240,290 70,848,211 72,748,370 2,917,004,449 3,498,451,881 10,003,395,411
TOTAL LIABILITIES AND EQUITY
15,178,903,695
13,501,847,292
See accompanying Notes to Financial Statements.
2010
AnnuAl REpoRt
•
PNOC Exploration Corporation
21
PNOC EXPLORATION CORPORATION (A Subsidiary of the Philippine National Oil Company)
Comprehensive Income
Statement of
For the year ended December 31, 2010 (In Philippine Peso)
Restated 2009
Restated 2008
Notes
2010
24 25
8,822,759,519 (4,891,672,222)
6,719,301,809 (3,478,164,805)
8,670,861,559 (3,622,508,973)
26 27 28 29 30
3,931,087,297 227,487,827 (490,893,315) (19,819,596) (185,000,568) (12,288,173)
3,241,137,004 100,618,404 (544,861,506) (6,385,755) (96,579,097) -
5,048,352,586 125,974,551 (408,524,044) (13,988,765) 157,498,792 (73,383,313)
3,450,573,472
2,693,929,050
4,835,929,807
(980,727,752) 7,120,790
(945,540,745) 50,719,072
(1,699,800,600) (82,091,904)
2,476,966,510 1.24
1,799,107,377 0.90
3,054,037,303 1.52
REVENUES COST OF SALES GROSS PROFIT OTHER INCOME ADMINISTRATIVE EXPENSES OTHER EXPENSES FOREIGN EXCHANGE GAIN/(LOSS) FINANCE COSTS PROFIT BEFORE TAX INCOME TAX EXPENSE Current Deferred
31
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Basic/Diluted Earnings Per Share
32
See accompanying Notes to Financial Statements.
Statement of
Changes in Equity
For the year ended December 31, 2010 (In Philippine Peso)
Share Capital (Note 21) 2,002,253,065
Share Premium (Note 21) 22,424,950
Treasury Shares (at cost) (Note 21) (734,924)
Donated Capital (Note 22) 89,308,406
Appropriated Retained Earnings (Note 23) 3,000,000,000
Unappropriated Retained Earnings (Note 23) 1,634,946,422 3,054,037,303 -
6,748,197,919 3,054,037,303 -
2,002,253,065
22,424,950
(734,924)
89,308,406
2,800,000,000 5,800,000,000
(2,800,000,000) 1,888,983,725
9,802,235,222
Balance, January 1, 2009 Prior Period Adjustment
2,002,253,065
22,424,950
(734,924)
89,308,406
5,800,000,000
1,888,983,725 (94,779,591)
9,802,235,222 (94,779,591)
Balance, January 1, 2009 as restated Net Income Dividends Appropriation for investment projects and capital expenditures
2,002,253,065
22,424,950
(734,924)
89,308,406
5,800,000,000
1,794,204,134 1,799,107,377 (1,503,167,597)
9,707,455,631 1,799,107,377 (1,503,167,597)
400,000,000
(400,000,000)
Balance, January 1, 2008 Net Income Dividends Appropriation for investment projects and capital expenditures Balance, December 31, 2008
Balance, December 31, 2009 Balance, January 1, 2010 Net Income Dividends Appropriation for investment projects and capital expenditures
22,424,950
(734,924)
89,308,406
6,200,000,000
1,690,143,914
10,003,395,411
2,002,253,065
22,424,950
(734,924)
89,308,406
6,200,000,000
1,690,143,914 2,476,966,510 (1,001,002,132)
10,003,395,411 2,476,966,510 (1,001,002,132)
1,300,000,000
(1,300,000,000)
7,500,000,000
1,866,108,292
22,424,950
See accompanying Notes to Financial Statements.
22
PNOC Exploration Corporation
•
-
2,002,253,065
2,002,253,065
Balance, December 31, 2010
Total Equity
2010
AnnuAl REpoRt
(734,924)
89,308,406
11,479,359,789
PNOC EXPLORATION CORPORATION (A Subsidiary of the Philippine National Oil Company)
Statement of
Cash Flows For the year ended December 31, 2010 (In Philippine Peso)
Note
2010
5
26,868,014,213 68,362,668 (22,126,218,259) 4,810,158,622 (12,288,171) (928,399,141) 3,869,471,310
19,619,029,590 51,373,503 (17,821,955,521) 1,848,447,572 (1,051,437,102) 797,010,470
16,721,136,594 58,228,695 (12,025,500,698) 4,753,864,591 (80,517,387) (1,638,118,683) 3,035,228,521
CASH FLOWS FROM INVESTING ACTIVITIES Exploration and development costs Capital expenditures Investment in joint ventures Net cash used in investing activites
(60,891,226) (459,888,973) (520,780,199)
(77,073,013) (198,779,069) (18,100) (275,870,182)
(40,662,401) (88,312,413) (96,240,001) (225,214,815)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loan drawdowns (US$9.0 million) Payment of loan from PNOC - SC No. 38 Related Payment of cash dividends Net cash used in financing activites
398,295,000 (1,001,002,132) (602,707,132)
(1,503,167,597) (1,503,167,597)
(1,092,941,815) (200,000,000) (1,292,941,815)
(4,881,659)
22,532,714
(18,771,454)
CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers Interest income Cash paid to suppliers, affiliates and employees Cash Generated from Operations Interest paid Income taxes paid Net cash from operating activites
5
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
2009
2008
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
2,741,102,320
(959,494,595)
1,498,300,437
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
1,244,804,829
2,204,299,424
705,998,987
3,985,907,149
1,244,804,829
2,204,299,424
CASH AND CASH EQUIVALENTS AT END OF YEAR
5
See accompanying Notes to Financial Statements.
2010
AnnuAl REpoRt
•
PNOC Exploration Corporation
23
PNOC EXPLORATION CORPORATION (A Subsidiary of the Philippine National Oil Company)
Notes to
Financial Statements (In Philippine Peso)
Processing of the 1,091.60 km of 2D seismic data was completed by Fairfield Vietnam in June 2010. Seismic interpretation and prospect generation of this newly processed data commenced thereafter and still ongoing.
Seismic reconstruction (vectorization) of 1,452.27 km of 2D seismic vintage data (paper format) was completed by Fugro Data Solutions in January 2010. EMGS completed the reprocessing of the 2006 Controlled Source Electromagnetic (CSEM) data in October 2010. Geological and geophysical works such as petrophysical evaluation of wells were done in the Maniguin and Semirara areas of the block to determine potential drilling targets.
Calamian (SC 57)
PNOC EC has a wholly-owned subsidiary, the PNOC Malampaya Production Corporation, which, as of December 31, 2010, has not yet started its operations. The financial statements of PNOC EC are prepared separately since the Company is itself a subsidiary of the Philippine National Oil Company (PNOC) which owns 99.79% of the Company’s outstanding shares of stock while 0.21% is owned by the public.
PNOC EC has 28% stake in SC 57 with partners China National Offshore Oil Corporation (CNOOC) and Mitra Energy Limited (“Mitra Energy”) holding 51% and 21%, respectively. The Company continued to coordinate with the DOE on the approval of its request for the transfer of the participating interests in SC 57 to CNOOC and Mitra Energy.
PNOC EC prepared alternative seismic programs for the block to further evaluate previously mapped prospects.
The Board of Directors approved and authorized for issue the Company’s financial statements on May 16, 2011 per Board Resolution No. 5-9, Series of 2011.
West Calamian (SC 58)
PNOC EC has 50% participating interest in SC 58 with Nido Petroleum Philippines Pty. Ltd. (“Nido Petroleum”) as the operator. Under the agreement, Nido Petroleum will fund the work program that includes 2D and 3D seismic surveys and the drilling of the first well. Petroleum Geo Services (PGS) completed the reprocessing of the 2006 2D seismic data in September 2010. Fugro Survey Pte. Ltd. completed the seabed coring (150 cores) and multi-beam bathymetric survey (1,291.48 km) in May 2010. Results of geochemical analysis of cores, with numerous cores exhibiting micro-seepage, indicate the presence of mature and generative source rocks. The seabed coring results will be integrated with the newly reprocessed 2D seismic data.
West Balabac (SC 59)
On April 16, 2010, the DOE approved the transfer of operatorship from PNOC-EC to BHP Billiton with 25% and 75% participating interests, respectively.
Fairfield Vietnam completed the reprocessing of the 2009 363.40 line km of 2D seismic data in April 2010. CGG Veritas completed the acquisition of a total of 3,075.85 km2 of new 3D seismic data in December 2010. It is currently the single largest 3D seismic acquisition in the country. Processing of this 3D seismic data is being done by WesternGeco in Houston, Texas.
1. GENERAL INFORMATION
PNOC Exploration Corporation (PNOC EC or the Company) was incorporated under Philippine laws and was registered with the Securities and Exchange Commission under Registration Certificate Number 67111 on April 20, 1976. The Company’s common shares are listed in the Philippine Stock Exchange (PSE).
The registered office address and principal place of business of PNOC EC is at Building 1, Energy Center, Merritt Road, Global City, Taguig City, Philippines.
In line with PNOC’s mandate to provide and maintain an adequate supply of energy, the Company takes the lead in energy exploration and development. It has entered into service contracts with Department of Energy on oil, gas, and coal exploration projects where the Company has either 100% ownership or is in joint venture with other partners.
2. STATUS OF OPERATIONS
24
OIL AND GAS EXPLORATION AND PRODUCTION
The Malampaya Project
PNOC EC owns a 10% stake in the upstream component of the Malampaya Deepwater Gas-to-Power Project (SC 38), together with Shell Philippines Exploration B.V., the Operator (20%), Shell Philippines LLC (25%), and Chevron (45%). Commercial gas production from Malampaya commenced on January 1, 2002. The Malampaya Project provides the gas fuel requirements of its three power plant customers in Batangas, namely Sta. Rita (1,000 MW), San Lorenzo (500 MW) and Ilijan (1,200 MW), as well as the gas requirements of Pilipinas Shell Petroleum Corporation (PSPC) in Tabangao. In 2010, the Project produced 118.52 billion cubic feet (BCF) of gas and 4.86 million barrels of condensate. The condensate produced was shipped to buyers in Singapore.
Other Pre-operating Projects
Downstream Natural Gas Infrastructure Development Projects
East Sabina (SC 63)
The Batangas to Manila Natural Gas Pipeline Project (BATMAN-1), and the Integrated Bataan Liquefied Natural Gas Terminal, Power Plants and Bataan to Manila Pipeline Project (BATMAN-2) represent the overall downstream natural gas infrastructure development program of the National Government, as conceptualized by the Department of Energy (DOE). The setting up of these vital energy infrastructures will expand the use of natural gas beyond the power sector, making the environment-friendly, competitively-priced and efficient fuel available to the industrial, commercial and transport sectors.
The Company and Nido Petroleum jointly entered into SC 63 with the former as Operator on November 24, 2006. Each of the company has 50% participating interests in SC 63 and equally share the exploration costs. Pre-stack Depth Migration processing of the 754.19 km2 of the 2009 3D seismic data was completed by PGS Australia Ltd. in August 2010. Seismic interpretation and prospect generation of the newly processed data commenced thereafter and are still on-going.
The ownership of the BATMAN projects was reverted back from PNOC EC to Philippine National Oil Company (PNOC) in 2009. However, PNOC engaged the services of the Company as project implementor/service provider for the BATMAN Projects.
PNOC EC also conducted other geological and geophysical work for SC 63 through various experts. PNOC EC and DOE completed the joint project on the evaluation of four wells in April 2010. Downunder Geoscience completed the petrophysical evaluation of selected SC 63 wells in May 2010. Midland Valley, UK-based structural experts, completed the sub-surface structural interpretation of the 3D seismic data in November 2010.
In 2010, PNOC EC started evaluation of the unsolicited proposal to finance and develop BATMAN 1 submitted by ABACUS. However, negotiations were terminated in June 2010 due to ABACUS’ failure to submit documentary requirements.
COAL OPERATIONS
The Company holds five (5) coal operating contracts (COCs) with the DOE under which it conducts activities for coal exploration or development and production of coal resources. While currently mining coal reserves in the contract area of COC No. 41 (known as the Malangas Project Operations) within the Malangas Coal Reservation located in Zamboanga Sibugay, PNOC EC is preparing to develop the coal reserves located in two other coal areas in Isabela (covered by COC-141 and COC-122) in connection with the objective of establishing a mine-mouth power plant project.
Coal Operating Contract (COC) No. 41 – Malangas Coal Project
PNOC EC operates Coal Operating Contract (COC) No. 41 within the Malangas Coal Reservation in Zamboanga Sibugay straddling portions of the municipalities of Malangas, Diplahan and Imelda. PNOC EC also supervises mining operations of various small-scale coal miners.
During the year, actual production at the Integrated Little Baguio (ILB) Mines 1 and 2 amounted only to 62,299.35 metric tons (MT) representing only 65% of the targeted volume of production. Coal production came from SD3, SD4 and SD5 panels of the ILB Mines. Lower production was due to the delayed arrival of necessary underground supports and scarcity of timber supplies in the area.
During the year, the Company continued negotiations with the SC 38 Malampaya Consortium, National Power Corporation (NPC), Power Sector Assets and Liabilities Management Corp. (PSALM) and the DOE for the access to PNOC’s subrogated banked gas (SBG). PNOC EC proceeded with the drafting of the SBG Offtake Agreement among PNOC, NPC, PSALM and DOE, Tie-in Agreement among PNOC, NPC and PSALM and the drafting of the terms of reference (TOR) for the sale of PNOC’s subrogated banked gas. However, the PNOC Board of Directors deferred the sale of SBG in November 2010.
Further to the deferment of the sale of the SBG, the PNOC Board also directed the PNOC Management to validate its business plan and strategy with regard to the development of the BATMAN projects to include the enhancement of the Sucat and Malaya power plants. Relative to these, the forward plan includes the preparation of the TOR for the engagement of a consultant to validate PNOC’s business plan and development strategy and to assist PNOC in preparing the bid documentations for the bidding of the consultancy services. PNOC EC is currently waiting for PNOC’s directive on the project.
Also in 2010, PNOC EC conducted preliminary survey of potential sites for a natural gas-fired power plant in Southern Luzon.
Cagayan (SC 37)
PNOC EC continued its re-assessment of SC 37 where it holds 100% equity. Reconnaisance fieldwork to prepare the gravity and magnetic survey locations were done in January 2010. The land gravity, geomagnetic and geodetic survey was completed by Seastems Inc. in July 2010 and the data processing and data interpretation were completed in December 2010. The survey results are being integrated by PNOC EC with other geological and geophysical (G&G) data in the area to further refine its prospect mapping and to determine potential drilling targets in the block.
In February 2010, daily load curtailment schedule has also been implemented in Mindanao due to the generation insufficiency brought about by the shutdown and non-availability of power generation units/ plants. The Project was only allowed to operate at 0.7 megawatt (MW) against the contracted demand of 1.4 MW. In this regard, all development activities at the ILB Mines have been slowed down in order to maximize utilization of allocated power. These concerns posed significant effects in the development of all succeeding production panels, resulting to a drop in production for 2010.
Ragay Gulf (SC 43)
PNOC EC and Pearl Oil (Ragay) Ltd., the Operator, increased its equity from 15% to 19% and 64% to 81%, respectively, after Premier Oil withdrew from the block.
Also in 2010, development of SDLA-1 production panel was continued and development of LAS-3 and LAN-3 panels were started immediately upon arrival of the Roadheader including the Main and Ventilation Shafts of ILB Mine 1. The Company also continued development of the Main and Ventilation Shafts of ILB Mine 2 using the conventional method, simultaneous with the development of GLAS-1 and GLAN-1 panels as the next source of production.
Coal Exploration and Development
CGG Veritas conducted the Pre-stack Time Migration (PSTM) processing of the 272 km2 3D seismic data. The potential drilling targets, however, cannot be properly mapped and imaged from the newly processed data. Additional processing, Pre-stack Depth Migration (PSDM), will be done on the 3D seismic data to resolve these concerns.
Coal Operating Contract (COC) No. 41 – Exploration Projects (Other Areas)
Core drilling of exploration holes with 3,750 meters aggregate depth was started in December 2009 in the Malongon area. As of December 31, 2010, total actual drilled meterage was 4,003.49 meters (106.8%). Based on the results of the core drilling, thick coal seams (i.e., ≥1m) were intercepted in 5 out of 17 boreholes. The excess meterage is part of the liquidated damages incurred by the contractor, Mega Philippines Incorporated. Part of the payment for the liquidated damages will be used for the construction of communal water well in Brgy. Poblacion, municipality of Diplahan.
Offshore Mindoro (SC 47)
With the withdrawal of Petronas Carigali Overseas Sdn Bhd (“Petronas Carigali”) on January 10, 2008, the Company now has 97% participating interest. Its other partners are Petro Energy Resources Corporation and Basic Energy Corporation with 2% and 1% participating interest, respectively.
PNOC Exploration Corporation
•
2010
AnnuAl REpoRt
In the Lalat area, development is still on-going. The area is in joint venture with A Blackstone Energy Corporation (ABEC). In 2010, the concreting of the ventilation portal has been completed and construction of field staff’s living quarters is 85% done. Also during the year, designs and essential permits were secured for the construction of the explosives magazine. Various activities such as Multi-partite Monitoring Team (MMT) meeting were conducted to fulfill the terms and conditions of the issued Environmental Compliance Certificate (ECC).
Coal Operating Contract (COC) No. 140 – Surigao Coal Exploration
The exploration period of COC No. 140 expired in July 2009. Last June 2009, PNOC EC has already requested the Department of Energy (DOE) for the extension of the COC’s exploration phase and is still waiting for its approval.
A follow-up was made last March 23, 2010 where the DOE’s Energy Resources Development Bureau (ERDB) informed that the request is pending at the Office of the Secretary. Last April 28, 2010, PNOC EC was informed that then Energy Sec. Jose C. Ibazeta returned to ERDB the application of PNOC EC to complete the exploration term of COC 140. A meeting was called by the ERDB on May 13 to discuss with PNOC EC the concerns of former Sec. Ibazeta. Sometime on May 21, additional documents to substantiate PNOC EC’s claims on security problems were submitted to the Contracts Division of the DOE. In a meeting with PNOC EC management last October 13, 2010, DOE Sec. Jose Rene D. Almendras approved in principle the Company’s request for a 2-year extension of COC 140.
Coal Operating Contract (COC) No. 122 – Isabela Coal Mine-mouth Power Plant Project
PNOC EC is the holder of COC No. 122 which straddles portions of Cauayan City and the municipalities of Naguilian and Benito Soliven in Isabela. The estimated PhP5.0 Billion project involves putting up a power plant with a generating capacity of 50 MW that will utilize the low-rank coal in the province.
The Environmental Compliance Certification (ECC) was issued in February 2010. Following the award of the ECC, PNOC EC set out to comply with the conditions of the certification. Subsequently, the Company conducted the procurement for the following consultancy services: Front End Engineering and Design (FEED), Grid Impact Study (GIS), Mine Plan Design Consultancy, and the Land Acquisition and Relocation Plan (LARP). The engagement of a Competent Person (CP) to certify the coal reserves to comply with requirement of the Philippine Stock Exchange was revived in December 2010.
Sustainable social development is considered part and parcel of PNOC EC’s strategic direction. To demonstrate this objective, Corporate Social Responsibility (CSR) programs and activities were continuously implemented to improve the quality of life of its stakeholders. CSR programs include medical outreach, supplemental feeding project, backyard vegetable gardening, school assistance program, and donations to community projects.
Coal Operating Contract (COC) No. 141 – Isabela Coal Project
The exploration period of COC No. 141 expired in July 2009. Last June 2009, PNOC EC has already requested the Department of Energy (DOE) for the extension of the COC’s exploration phase and is still waiting for its approval.
A follow-up was made last March 23, 2010 where the DOE’s Energy Resources Development Bureau (ERDB) informed that the request is pending at the Office of the Secretary. Last April 28, 2010, PNOC EC was informed that then Energy Sec. Jose C. Ibazeta returned to ERDB the application of PNOC EC to complete the exploration term of COC 141. A meeting was called by the ERDB on May 13 to discuss with PNOC EC the concerns of former Sec. Ibazeta. Sometime on May 21, additional documents to substantiate PNOC EC’s claims on social acceptability problems were submitted to the Contracts Division of the DOE. In a meeting with PNOC EC management last October 13, 2010, DOE Sec. Jose Rene D. Almendras approved in principle the Company’s request for a 2-year extension of COC 141.
Coal Operating Contract (COC) No. 152 – Siay Coal Exploration Project
In November 2008, COC No. 152 was awarded to both PNOC EC and Agusan Petroleum and Minerals Corporation (APMC), the winning bidders for six coal blocks located in Siay, Zamboanga Sibugay that were offered during the 2006 Philippine Energy Contracting Round (PECR 2006). The new contract, which designates PNOC EC as the Operator, grants the two companies a minimum of two years to conduct joint exploration activities in Coal Blocks 41-H-315, 316, 355, 356, 357 and 395.
Coal Trading
Aside from coal exploration and production, the Company also engages in coal trading activities. PNOC EC continued to cater to the coal requirements of the cement industry and the Naga power plant located in Cebu with coal production from COC No. 41, other coal sources both local and foreign. Aside from coal sales, PNOC EC also offers integrated services consisting of discharging foreign and local coal shipments, stockpiling, screening, blending and hauling of coal to various cement plants in the Philippines.
ENERGY SUPPLY BASE
Energy Supply Base (ESB) is located in Mabini, Batangas, with excellent berthing, cargo handling, storage and warehousing facilities that continues to serve the needs of various oil and energy-related companies. Although initially set up to cater to logistical support needs of the energy industry, ESB’s services now extends to other commercial clients with the granting by the Philippine Ports Authority (PPA) of a permit to operate as a private commercial port under Certificate of Registration No. 291 on October 8, 1996. The permit is coterminus with the 25-year foreshore lease agreement of ESB with the Department of Environment and Natural Resources (DENR) effective May 3, 1996, which will expire on May 3, 2021. ESB is also a Customs Bonded Warehouse which helps companies to expedite the unloading and loading of cargoes at ESB ports.
The Company has entered into a 25-year long term lease with Zamboanga Development and Management Corporation (ZDMC) for a one-hectare land area and 61,100 square meters foreshore area for the latter to put up a grains bulkhandling, storage and jetty facilities (the first in Southern Luzon area) to achieve a sustainable logistics development program for the country. ESB also has long term lease contracts with a variety of companies including importers, service contract holders, logistics companies and a telecoms company. ESB, as the only energy base in the Philippines, aims to contribute to the exploration industry by providing prompt and efficient service to the increasing needs of oil, gas and other energy related companies, as well as commercial clients.
3. BASIS OF FINANCIAL STATEMENT PREPARATION
The accompanying financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRSs) and the applicable practices of the oil and gas industry not covered by the existing PFRS/PAS. PFRS include statements named PFRS and Philippine Accounting Standards (PAS) and interpretations issued by the Financial Reporting Standards Council (FRSC).
The financial statements of the Company have been prepared using the measurement bases specified by PFRS for each type of asset, liability, income and expense. These financial statements have been prepared on the historical cost basis except for trade and other receivables, inventories, assets held for sale and property, plant and equipment.
The measurement bases are more fully described in the accounting policies that follow: • trade and other receivables – at fair value net of allowance for probable losses (refer to Note 4d); • inventories – parts and supplies at lower of cost or net realizable value and coal inventories at moving average (refer to Note 4f); • property, plant and equipment – at cost net of accumulated depreciation, depletion and amortization (refer to Note 4h).
The financial statements are presented in Philippine peso, which is the Company’s functional currency. All values are rounded to the nearest peso, except when otherwise indicated.
The accounting policies adopted are consistent with those of the previous financial year, except for adoption of the following new and amended PFRS and Philippine Interpretations, which became effective beginning January 1, 2010. •
On September 14, 2010, APMC and PNOC EC began discussions on their plan to relinquish COC 152 due to unfavorable drilling results. On October 11, 2011 PNOC EC and APMC submitted a letter to the DOE Secretary requesting for the relinquishment of COC 152 which expired on November 12, 2010. A technical presentation on PNOC EC and APMC’s relinquishment request was given to the Energy Resource and Development Bureau, Legal Division, and Compliance Division of the DOE on November 25, 2010. On Dec. 15, 2010, the ERDB requested PNOC EC to prepare and submit the coal exploration report to better evaluate the technical justification for the relinquishment of the COC. Indonesian Coal Projects
PNOC EC intends to establish strategic alliance and venture into coal mining business in Indonesia in order to ensure a stable and competitive supply of coal for the Philippine market.
Definitive agreements between PNOC EC and Putra Asyano Mutiara Timur (PT PAMT) were pursued initially in 2007. Following PT PAMT’s acquisition of the requisite KP for Exploration in July 2008, PNOC EC commenced the conduct of legal, technical and financial due diligence in Indonesia.
In March 2010, PNOC EC and PAMT completed the drilling of 47 exploration holes (by contractors CV Koperasi Bangun Gandrung Sejahtera and PT Trikarya Intidrill Persada) and geologic mapping over a 300 ha area in the western side of the coal block. In March, PT Intilog Indonesia completed geophysical logging of 15 drillholes validating the coal seam thickness per drillhole. On 26 March 2010, PT Surtech Utama Indonesia completed the borehole survey of all drillholes in the project area. A total of 30 samples from cores and outcrops were analyzed for coal quality.
Meanwhile, the legal due diligence was completed after PAMT submitted all the documents required by PNOC EC including the amended Indonesian Mining Law which was released publicly in February 2010.
In February, PNOC EC and PAMT engaged the services of PT Runge to evaluate the project’s economic viability. The final report of PT Runge was submitted in May 2010 reported 3.2 MMT of in situ reserves, of which 1.1 MMT can economically be mined. The results of the in-house assessment on the in-situ resources within the western part of the coal concession indicate a total mineable reserve of about 2.2 million MT which does not meet PNOC EC’s criteria for a viable overseas project. PNOC EC started preparing the technical report for the Ampah Coal Project in October.
PFRS 3, Business Combinations (revised) and PAS 27, Consolidated and Separate Financial Statements (Amended) The revised standards are effective for annual periods beginning on or after July 1, 2009. PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after this date. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results.
In February 2010, H. O Noveloso Survey finished surveying the entire perimeter of the COC 152 block. In March of the same year, APMC awarded the drilling contract for a total meterage of 12,800 meters to Construction & Drilling Specialists, Inc. (CDSI). APMC hired one field geologist to oversee the drilling operations and one community relations (ComRel) Assistant to facilitate drilling activities in the COC area. The core drilling started on April 2010 with 2 rigs operating in the San Isidro area. An additional 2 rigs were added later upon start of drilling in the Paruk Area. A pre-Field Based Investigation (pre-FBI) Conference in connection with our application for Certification Precondition (CP) was held on June 8, 2010 at the NCIP Regional Office in Pagadian City. Additional geologic mapping was conducted from 28 July to 10 August 2010 to ascertain the extents of the coal-bearing formations. A total of 7 holes were drilled with a total meterage of 2,483 m as of year-end 2010.
PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. PFRS 3 (Revised) will be applied prospectively while PAS 27 (Amended) will be applied retrospectively with a few exceptions.
Adoption of the following changes in standards and Philippine Interpretation based on International Financial Reporting Interpretations Committee (IFRIC) interpretations did not have any significant impact on the Company’s financial statements. • • •
PFRS 2, Share-based Payment (Amendment) – Group Cash-settled Share-based Payment Transactions PAS 39, Financial Instruments: Recognition and Measurement (Amendment) – Eligible Hedged Items Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners
Improvements to PFRS
In May 2008 and April 2009, the International Accounting Standards Board (IASB) issued omnibus amendments to the following standards, primarily with a view of removing inconsistencies and clarify wording. The adoption of the following amendments resulted in changes to accounting policies but did not have significant impact on the financial position and performance of the Company.
PFRS 8, Operating Segments
PFRS 8 clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker (CODM).
PAS 7, Statement of Cash Flows
PAS 7 states that only expenditure that results in recognizing an asset can be classified as a cash flow from investing activities.
Other amendments resulting from the Improvements to PFRS to the following standards did not have any impact on the accounting policies, financial position or performance of the Company.
Issued in May 2008 • PFRS 5, Noncurrent Assets held for Sale and Discontinued Operations
On December 15, 2010, the PNOC EC Board approved the termination of the Heads of Agreement between PNOC EC and PT Putra Asyano Mutiara Timur (PAMT) on the basis of marginal measured mineable coal reserves.
2010
AnnuAl REpoRt
•
PNOC Exploration Corporation
25
Effective in 2011
PAS 24, Related Party Disclosures (Amended)
The Amended standard is effective for annual periods beginning on or after January 1, 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements of government-related entities. The Company does not expect any impact on its financial position or performance. Early adoption is permitted for either the partial exemption for government-related entities or for the entire standard.
PAS 32, Financial Instruments: Presentation (Amendment) – Classification of Right Issues
The Amendment to PAS 32 is effective for annual periods beginning on or after February 1, 2010 and amended the definition of financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency.
Interest revenue is accrued on a time-proportion basis, by reference to the principal outstanding and at the effective interest rate applicable.
b.
10% Interest in Service Contract 38
The Company records its 10% participating interest in the Malampaya Gas Project under the criteria “jointly controlled assets”. Under this criteria, the Company recognizes in its separate financial statements its share of the jointly controlled assets, classified according to the nature of the assets rather than as investment; any liabilities that it has incurred; its share of any liabilities incurred jointly with other venturers in relation to the joint venture; any income from sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and any expenses that it has incurred in respect of its interest in the joint venture.
Estimated abandonment and site restoration cost is provided using the accrued liability method and computed based on units of production and estimated proved reserves.
c.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term money market placements that are readily convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and that are subject to insignificant risk of change in value.
d.
Trade and Other Receivables
Trade and other receivables are stated at fair value, net of allowance for probable losses. The allowance is established by charges to income.
Philippine Interpretation IFRIC 14 (Amendment), Prepayments of a Minimum Funding Requirement
e.
Allowance for Probable Losses
The amendment to Philippine Interpretation IFRIC 14 is effective for annual periods beginning on or after January 1, 2011, with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset.
Allowances for probable losses, estimated by the Company’s management based on prior experience and their assessment of current economic environment, are provided at the following approved rates applied to the period the receivable is outstanding:
Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
Philippine Interpretation IFRIC 19 is effective for annual periods beginning on or after July 1, 2010. The Interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in consolidated statement of comprehensive income.
Effective in 2012
PFRS 7, Financial Instruments: Disclosures (Amendments) – Disclosures – Transfers of Financial Assets
The amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011. The amendments will aloow users of financial statements to improve their understanding of transfer transactions of financial assets, including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures is a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.
PAS 12, Income Taxes (Amended) – Deferred tax: Recovery of Underlying Assets
The amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012, provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will, normally, be through sale.
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate
The Interpretation, effective for annual periods beginning on or after January 1, 2012, covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion.
f.
Over 120 days Over 1-2 years Over 2-3 years Over 3 years
………………. ………………. ………………. ……………….
15% 35% 75% 100%
The receivable of the SC 38 Malampaya Project are not provided with allowance for probable losses. This is in view of the Project being in operation as a specialized industry where both the SC 38 Project Consortium and its customers strictly adhere to their reciprocal obligations. Moreover, the Project’s GSPA, as well as the related contracts, provides reasonable assurance to the SC 38 Project Consortium for the appropriate collection of its accounts receivable. Financial Instruments
Financial instruments are recognized in the statement of financial position, when the Company becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Company commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.
Financial instruments are recognized initially at fair value. Except for financial instruments valued at fair value through profit or loss (FVPL), the initial measurement includes transaction costs. The Company classifies its financial assets into the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, available for sale (AFS) investments, and loans and receivables. For financial liabilities, the Company classifies them into financial liabilities at FVPL and other financial liabilities. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, reevaluates such designation at every reporting date.
Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefit.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset with the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented at gross in the statement of financial position.
Effective in 2013
PFRS 9, Financial Instruments: Classification and Measurement
PFRS 9, as issued in 2010, reflects the first phase of the work in the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, hedge accounting and derecognition will be addressed. The completion of this project is expected in middle of 2011.
Fair Value of Financial Instruments
Improvements to PFRS (issued in May 2010)
Improvements to PFRS is an omnibus of amendments to PFRS. The amendments have not been adopted as they become effective for annual periods on or after either July 1, 2010 or January 1, 2011. The Company expects o impact on the financial statements from the adoption of the following amendments:
The fair value of financial instruments traded in active markets at reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without deduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.
PFRS 3, Business Combinations PFRS 7, Financial Instruments: Disclosures PAS 1, Presentation of Financial Statements PAS 27, Consolidated and Separate Financial Statements Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which observable market prices exist, and other relevant valuation models.
HTM Investments
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quoted non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as HTM investment when the Company has the positive intention and ability to hold to maturity. If the Company were to sell more than an insignificant amount of HTM investments, the entire category would be tainted and would have to be reclassified as AFS investments. Furthermore, the Company would be prohibited to classify any financial assets as HTM investments for the following two years.
After initial measurement, HTM investments are measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are integral parts of the effective interest rate. Gains and losses are recognized in the statement of income when the HTM investments are derecognized or impaired, as well as through the amortization process.
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are carried at amortized cost using the effective interest method less any allowance for impairment. Gains and losses are recognized in the consolidated statement of income when the loans and receivables are derecognized or impaired, as well as through the amortization process.
• • • • •
The accounting policies set out below have been applied consistently to all periods presented in these financial statements. a.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, title has transferred, selling price is fixed or determinable and collectibility of the selling price is reasonably assured.
Revenue from sale of gas, condensate and oil of the Malampaya Project is recognized upon delivery in accordance with the provisions of Gas Sales and Purchase Agreement (GSPA) with customers and the Joint Operating Agreement entered into by and among the SC 38 partners. Delivery of natural gas is recognized when the gas arrives at the designated delivery points at the power plants and meets the required quality specifications set out in the relevant GSPA.
26
actually taken and contracted volume is made to determine the deficiency or shortfall. The SC 38 consortium is bound to deliver the deficiency volumes in the future.
Issued in April 2009 • PFRS 2, Share-based Payment • PFRS 5, Noncurrent Assets held for Sale and Discontinued Operations • PAS 1, Presentation of Financial Statements • PAS 17, Leases • PAS 36, Impairment of Assets • PAS 36, Intangible Assets • PAS 39, Financial Instruments: Recognition and Measurement • Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives • Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation
Billings for undelivered gas are credited to deferred income and recognized as revenue upon delivery. Under the “take-or-pay” provision of the GSPA, buyers shall pay the full contracted volume or quantity even if there is no delivery of the produced gas during the period. Annual reconciliation of volume
PNOC Exploration Corporation
•
2010
AnnuAl REpoRt
Loans and receivables are classified as current assets if maturity is within 12 months from the reporting date. Otherwise, these are classified as noncurrent assets.
Classified under loans and receivables are cash and cash equivalents, trade and other receivables, Due from related party and short-term investment.
AFS Investments
AFS investments are those non-derivative financial assets that are designated as such or are not classified as financial assets designated at FVPL, HTM investments or loans and receivables.
They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions.
AFS investments are initially measured at fair value plus directly attributable transaction costs. After initial measurement, AFS investment are subsequently measured at fair value with unrealized gains and losses being recognized as a separate component of equity until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in the statement of comprehensive income. The Company uses the specific identification method in determining the cost of securities sold. Unquoted equity securities are carried at cost, net of impairment. Interest earned or paid on the investments is reported as interest income or expense using the effective interest rate. Dividends earned on investment are recognized in the statement of income when the right of payment has been established.
AFS investments are classified as current if these are expected to be realized within 12 months from the reporting date. Otherwise, these are classified as noncurrent assets.
AFS investments include quoted and unquoted investments in government securities and membership equity shares.
Amortized cost is calculated by taking into account any related issue costs, discount or premium. Gains and losses are recognized in the statement of income when the liabilities are derecognized, as well as through the amortization process.
Financial Asset
A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: a. b. c.
the right to receive cash flows from the asset has expired the Company retains the right to receive cash flows from the asset, but has assumed as obligation to them in full without material delay to a third party under a “pass through” arrangement; or the Company has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred the control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a “pass-through” arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Other Financial Liabilities
g.
Inventories
Other financial liabilities, which include loan payable, trade and other payables, due to related parties and long-term debt are initially recognized at fair value of the consideration received less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest method.
Parts and supplies are stated at the lower of cost or net realizable value while coal inventories are measured using the moving average method of inventory costing. Cost includes invoice amount, net of trade and cash discounts. Cost is calculated using the moving average method. Net realizable value represents the estimated selling price less all estimated costs to sell. The condensate inventory is valued at prevailing market price.
Impairment of Financial Asset
The Company assesses at each reporting date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired, if and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Assets Carried at Amortized Cost
For assets carried at amortized cost, the Company first assesses whether an objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment.
AFS Investments
For AFS Investments, the Company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired.
In the case of equity investments classified as AFS, impairment indicators would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of income, is removed from equity and recognized in the statement of income. Impairment losses on equity investments are not reversed through the statement of income. Increases in fair value after impairment are recognized directly in the statement of changes in comprehensive income.
AFS Investments Carried at Cost
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The carrying amount of the asset is reduced through the use of an allowance account.
Assets Held for Sale
Assets classified as held for sale are measured at the lower of the carrying amount and the fair value less costs to sell.
i.
Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation, depletion and amortization and any impairment in value.
The initial cost of property and equipment consists of its purchase price and costs directly attributable to bringing the asset to its working condition and location for its intended use. Subsequent expenditures relating to an item of property, plant and equipment that have already been recognized are added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Company. All other expenses relating to an item of property, plant and equipment that is described as ‘repairs and maintenance’ are charged to profit or loss in the period these are incurred. Depreciation for non-SC 38 assets is computed on a straight-line method over the estimated useful lives of the assets ranging from 5 to 20 years. The cost of SC 38 project-related wells, platform and other facilities includes acquisition costs and capitalized exploration and development costs. The carrying values are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their estimated recoverable amount. Depreciation, depletion and amortization (DD&A) of wells, platform and other facilities are computed using the unit-of-production method based on the estimated proved reserves. Depreciation of other SC 38 Project-related facilities and equipment are computed using the straight-line method based on the estimated useful life of 21 years. Gain or loss arising from the disposal or retirement of an asset is determined by computing the difference between the sales proceeds and the carrying amount of the asset and is recognized as income or expense for the period. Construction in progress is stated at cost and is not depreciated until such time that the assets are completed and/or put into operational use.
j.
Exploration and Development Costs
PNOC EC adopts the successful efforts method of accounting for its oil and gas operations. All exploration costs, except the cost of exploratory wells, are charged to expense as incurred. Costs of exploratory wells (including stratigraphic test wells) are initially capitalized and deferred pending the outcome of the drilling operation. If proved reserves are discovered, the associated costs are capitalized and amortized as the related proved developed reserves are produced. However, if the exploratory well or stratigraphic test well proves to be dry, the accumulated drilling costs are charged to expense.
Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale that should be expected to qualify for recognition as a completed sale within one year from the date of classification.
In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in the statement of income. If, in a subsequent year, the fair value of a debt instrument increases and that increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the statement of income.
h.
If there is an objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between the asset’s carrying value and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial assets’ original effective interest rate which is the effective interest rate computed at initial recognition. The carrying value of the asset is reduced through the use of an allowance account and the amount of loss is charged to the statement of income. If in case the receivable has proven to have no realistic prospect of future recovery, any allowance provided for such receivable is written off against the carrying value of the impaired receivable. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in the statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at reversal date.
Derecognition of Financial Assets and Liabilities
Development costs, which include the costs of drilling development wells, are capitalized regardless of whether or not proved reserves are found while production costs are expensed as incurred.
Capitalized cost is amortized using the “unit-of-production method” whereby property acquisition costs (net of accumulated DD&A) are amortized over the estimated proved reserves.
For coal exploration and other projects, the Company uses the full-cost method of accounting. Under this method, all costs directly incurred in the acquisition, exploration and development of a project area, including directly-related overhead costs, are capitalized. All exploration cost, likewise, are tentatively deferred pending determination on whether the area contains coal reserves of commercial quantity. When coal reserves of commercial quantity is proved, cost is amortized over proved reserves using the unit-of-production method.
k.
Impairment of Assets
The carrying values of long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets or cashgenerating units are written down to their recoverable amounts. Recoverable amount is the greater
2010
AnnuAl REpoRt
•
PNOC Exploration Corporation
27
of net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s-length transaction. In assessing value in use, the estimated future cash flows are discounted to their present value using pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For an asset that does not generate independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in the statements of income. If at balance sheet date there is an indication that an impairment loss may have decreased, reversal of an impairment loss is recognized as income in the income statement. The increased carrying amount due to reversal should not be more than what the depreciated historical cost would have been if the impairment had not been recognized. l.
Investment in Joint Ventures
A joint venture is a contractual arrangement whereby the group and other parties undertake an economic activity that is subject to joint control.
Where a group of companies undertakes its activities under joint venture arrangements directly, the group’s share of jointly-controlled assets and any liabilities incurred jointly with other venturers are recognized in the financial statements of the venturers and classified according to their nature.
Liabilities and expenses incurred directly in respect of interests in jointly-controlled assets are accounted for on an accrual basis. Income from the sale or use of the group’s share of the output of jointlycontrolled assets, and its share of joint venture expenses, are recognized when it is probable that the economic benefits associated with the transactions will flow to/from the group and their amount can be measured reliably.
Current and deferred taxes are recognized as an expense or income in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly in equity, respectively.
q.
Contingencies
Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefit is remote. Contingent assets are not recognized in the financial statements but disclosed when an inflow of economic benefits is probable.
r.
Subsequent Events
Post-year-end events that provide further evidence of existing conditions affecting Company’s financial position at the balance sheet date (adjusting events) are reflected in the financial statements. Postyear-end events that are indicative of conditions that arose subsequent to balance sheet date are disclosed in the notes to the financial statements when material.
s.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the financial statements. Actual results could differ from such estimates.
The Company reports its 10% interest in SC 38 using joint venture proportionate consolidation. The Company’s share of the assets, liabilities, income and expenses are combined with the equivalent items in the Company’s financial statements on a line-by-line basis.
Investments in joint venture include accumulated intangible costs directly attributable to exploration and development activities such as the expenses incurred to acquire the legal right to explore, and the costs of exploratory drilling and testing. In accordance with the successful-efforts method of accounting, non-drilling costs and other pre-operating expenses such as corporate overhead, except those expenses which are directly related to exploratory drilling activities, are expensed as incurred.
t.
Earnings Per Share
Earnings per share is computed based on the net income for the year divided by the weighted average number of outstanding shares during the year. There are no dilutive potential common shares outstanding that would require disclosure of diluted earnings per share in the income statement.
m.
Trade and Other Payables
u.
Segment Reporting
Trade and other payables are stated at their nominal values.
n.
Retirement Benefit Plan
For purposes of financial reporting, PNOC EC’s reportable segments are: SC 38 Malampaya Project and Coal Trading and Integrated Services.
Retirement benefits are provided to all regular full-time employees through a defined benefit plan.
Financial information on the Company’s reportable segments is presented in Note 38.
A defined benefit plan is a retirement plan that defines an amount of retirement benefit than an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of retirement plan remains with the Company, even if plan assets for funding the defined benefit plan have been acquired. The retirement plan is tax exempt, funded, noncontributory and administered by a trustee.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded 10% of the higher of the defined benefit obligations and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. Past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, the retirement plan, past service cost is recognized immediately. The defined benefit asset or liability recognized in the statement of financial position comprises the present value of the defined benefit obligation less past service cost not yet recognized and less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the sum of any past service cost not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.
5. CASH AND CASH EQUIVALENTS
This account consists of the following:
2010 Cash on hand and in banks Cash equivalents
2009
768,414,579 3,217,492,569
30,785,708 1,214,019,121
3,985,907,148
1,244,804,829
Cash in banks earn interest at the respective bank deposit rates. Cash equivalents consist of money market placements or short-term time deposits, which are made for varying periods of up to three months depending on the immediate cash requirements of the Company and earn interest at the prevailing short-term deposit rates.
6. SHORT-TERM INVESTMENT
The determination of the Company’s obligation and cost of retirement and other retirement benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 35 and include, among others, discount rates, expected return on plan assets and salary increase rate. In accordance with IAS, actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.
This account consists of the following:
BANK Development Bank of the Philippines Land Bank of the Philippines
2010
2009
51,863,820
447,555,996 294,473,007
51,863,820
742,029,003
The Company normally makes an actuarial valuation every two (2) years to check the recommended funding scheme and to adjust contributions due to deviations from the actuarial assumptions arising from the investment yield, mortality gains and losses, employee turnover, and benefit forfeitures.
Short-term investment with Land Bank of the Philippines includes Investment in Treasury bills amounting to P50.77 million at 4.15% maturing on February 9, 2011 and placement in Investment Management Account (IMA) amounting to P1.09 milion at 3.4% maturing on July 28, 2011.
o.
Foreign Currency Transactions
The Company converts into local currency its foreign currency-denominated transactions using, whenever appropriately applicable, the average and actual foreign exchange rate prevailing during the month and date of transaction, respectively. Monetary assets and liabilities that are denominated in foreign currencies are restated using the closing exchange rate at balance sheet date. The Company’s foreign currency denominated assets and liabilities were restated based on prevailing exchange rate of US$1.00:P46.425 in 2009 and US$1.00:P47.655 in 2008. Non-monetary assets and liabilities are translated at historical exchange rates. Foreign exchange gains and losses arising from foreign currency fluctuations are recognized in profit or loss for the period.
The 2009 balances pertain to placements in Investment Management Account (IMA) high-yield savings with the Development Bank of the Philippines and Land Bank of the Philippines with a term of 91 days to 345 days at varying interest rates.
p.
Income Taxes
The income tax expense represents the sum of the tax currently payable and deferred.
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are neither taxable or deductible. The Company’s liability for current tax is calculated using the tax rates and tax laws applicable to the periods to which it relates.
Deferred income tax is accounted for using the balance sheet liability method on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to: (a) temporary differences between the financial reporting bases of assets and liabilities and their related tax bases; (b) net operating loss carryover, or NOLCO; and (c) the carryforward benefit of the excess of the minimum corporate income tax, or MCIT, over the regular corporate income tax. Deferred tax assets and liabilities are measured using the tax rates applicable in the years in which those temporary differences are expected to be recovered or settled and NOLCO are expected to be applied provided such tax rates have been enacted or substantially enacted at the end of the reporting period.
28
taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on an net basis.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same
PNOC Exploration Corporation
•
2010
AnnuAl REpoRt
7. TRADE AND OTHER RECEIVABLES
This account consists of the following:
2010 Trade SC 38 Malampaya Project Coal Projects Energy Supply Base PNOC Head Office Allowance for probable losses Non-trade Allowance for probable losses
501,204,140 345,137,607 149,568,040 5,968,373 1,001,878,160 (75,549,152) 926,329,008 30,871,301 (1,638,034) 29,233,267 955,562,275
2009 422,566,054 737,610,919 37,247,320 5,337,805 1,202,762,098 (33,372,585) 1,169,389,513 41,841,758 (5,606,591) 36,235,167 1,205,624,680
Trade receivables on SC 38 Malampaya Project consists mainly of the Company’s 10% share in the SC 38 Consortium’s receivables on gas and condensate sales in the amount of P500.22 million and share in aggregate other receivables in the amount of P0.98 million.
Non-trade accounts receivables consists of the Company’s 10% share in the non-trade receivables of the SC 38 Consortium and claims from employees, officers and others.
The net increase in allowance for probable losses on trade receivables in the amount of P42.18 million was due to the significant defaults in payment of Coal and ESB customers, changes in customer payment terms and high probability that the amount due will not be received in full.
The allowance for probable losses for trade and non-trade receivables is established based on a regular review of the age and status of accounts relative to historical collections, changes in payment terms and other factors that may affect collectability.
8.
INVENTORIES This account consists of the following:
The roll-forward analysis of allowance for probable losses for trade and non-trade receivables is presented below:
2010 Non-Trade
Trade 33,372,585 42,176,567 75,549,152
Balance at the beginning of year Write-off of uncollectible accounts Provision for probable losses Recoveries Balance at end of year
Total
5,606,591 (3,968,557) 1,638,034
38,979,176 38,208,010 77,187,186
2009 Non-Trade
Trade Balance at the beginning of year Write-off of uncollectible accounts Provision for doubtful losses Recoveries Balance at end of year
11,789,243 21,583,342 33,372,585
2010 Coal Parts and supplies Condensate Fuel and lubricants Allowance for obsolescence
14,862,853 24,116,323 38,979,176
426,924,607 61,549,285 32,185,202 1,724,143 522,383,237 (4,801,347)
441,733,689
517,581,890
Condensate inventory pertains to the Company’s 10% share in the undelivered stock of SC 38 Malampaya Project stored in its offshore Concrete Gravity Structure in offshore Palawan with a volume of 16,436.62 bbls. On the other hand, coal inventory represents the undelivered stock of the Company in its various Coal Terminals with a total volume of 102,590.167 metric tons.
Parts and supplies inventories pertains substantially to the 10% share of the Company in the aggregate parts and supplies inventory of SC 38 Consortium valued at P70.07 million in 2010 and P61.55 million in 2009.
Prepaid income tax pertains to the Company’s 10% share in the tax component of the unearned revenue on the undelivered gas of the “take or pay” deficiency per GSPA with customers of the SC 38 Malampaya Project.
Other prepaid expenses consists mainly of prepaid insurance, deposit on Letters of Credit, input VAT, the Company share in the aggregate prepaid assets of the SC 38 consortium, and the excess cash call payments to Shell Philippines Exploration B.V. for the Company’s share in the operational expenditures of SC 38.
Total
3,073,610 2,532,981 5,606,591
2009
284,045,531 70,074,328 67,406,011 25,009,166 446,535,036 (4,801,347)
9. PREPAID EXPENSES
This account consists of the following:
2010 Prepaid income tax Taxes withheld by customers Other prepaid expenses
2009
263,217,821 140,190,573 89,776,258
241,854,154 139,941,685 115,205,362
493,184,652
497,001,201
10. PROPERTY, PLANT AND EQUIPMENT
This account consists of the following:
General plant facilities
Wells and related facilities
Drilling equipment
COST January 1, 2010 Additions Disposals December 31, 2010
197,637,390 38,941,435 (10,409,598) 226,169,228
89,250,000 89,250,000
ACCUMULATED DEPRECIATION January 1, 2010 Provision Disposals December 31, 2010
(146,971,957) (8,662,544) 7,735,442 (147,899,059)
(89,249,999) (89,249,999)
NET CARRYING AMOUNT December 31, 2010
78,270,169
1
121,216,560 121,216,560
Marine equipment and facilities
Furniture, fixtures and equipment
Transportation equipment
Scientific Wells, platform and equipment other acilities
Other property and equipment
50,531,552 1,704,197 52,235,748
119,003,878 17,335,260 (120,230) 136,218,908
37,637,347 2,497,342 (7,620,536) 32,514,153
20,186,950 7,656,499 27,843,449
11,546,138,120 371,418,537 11,917,556,657
38,103,169 38,103,169
(97,649,400) (97,649,400)
(28,616,011) (1,309,803) (29,925,814)
(57,831,898) (18,108,661) 116,596 (75,823,963)
(19,003,219) (5,302,312) 2,363,467 (21,942,063)
(10,790,553) (1,164,655) (11,955,207)
(3,455,685,326) (523,928,306) (3,979,613,633)
(9,186,248) (1,814,437) (11,000,685)
23,567,160
22,309,934
60,394,945
10,572,090
15,888,241
7,937,943,025
27,102,484
Construction In Progress
6,465,759 20,335,703 26,801,461
-
26,801,461
Total
12,226,170,724 459,888,973 (18,150,364) 12,667,909,333
(3,914,984,610) (560,290,717) 10,215,505 (4,465,059,822)
8,202,849,511
General plant facilities
Wells and related facilities
Drilling equipment
Marine equipment and facilities
COST January 1, 2009 Additions Disposals December 31, 2009
191,481,468 6,155,922 197,637,390
89,250,000 89,250,000
121,216,560 121,216,560
42,929,453 7,602,099 50,531,552
ACCUMULATED DEPRECIATION January 1, 2009 Provision Disposals December 31, 2009
(140,576,327) (6,395,630) (146,971,957)
(89,249,999) (89,249,999)
(97,649,400) (97,649,400)
(27,560,167) (1,055,844) (28,616,011)
23,567,160
21,915,541
NET CARRYING AMOUNT December 31, 2009
50,665,433
1
Furniture, fixtures and equipment
101,061,532 17,942,346 119,003,878
Transportation equipment
Scientific equipment
Wells, platform and other facilities
29,816,513 9,929,289 (2,108,455) 37,637,347
18,922,570 1,264,380 20,186,950
11,389,130,571 157,007,549 11,546,138,120
(41,461,366) (16,370,532) (57,831,898)
(16,119,534) (4,992,137) 2,108,452 (19,003,219)
(9,933,840) (856,713) (10,790,553)
(2,900,165,543) (555,519,784) (3,455,685,327)
61,171,980
18,634,128
9,396,397
8,090,452,793
Wells, platforms & other facilities and other property & equipment pertain to the Company’s 10% share in the aggregate assets of the SC 38 Malampaya Project.
Management believes that, based on the assessments performed, there are no impaired assets.
2010
AnnuAl REpoRt
•
Other property and equipment
38,103,169 38,103,169
(7,371,812) (1,814,435) (9,186,247)
28,916,922
Construction In Progress
7,588,274 (1,122,515) 6,465,759
-
6,465,759
Total
12,029,500,110 198,779,070 (2,108,455) 12,226,170,725
(3,330,087,988) (587,005,075) 2,108,452 (3,914,984,611)
8,311,186,114
PNOC Exploration Corporation
29
11. INVESTMENT IN TREASURY NOTES
12. INVESTMENTS IN JOINT VENTURES
Coal Mine Development (Lalat & ILB Areas) 10% Share in Investment of SC 38 Consortium Ragay Gulf
COC 41 SC 38 SC 43
2010
2009
33,321,719 1,463,936 96,066,287
33,321,719 1,463,936 96,066,287
130,851,942
130,851,942
In compliance with successful efforts method of accounting for oil and gas projects, P96.07 million drilling expenses were capitalized.
13. INVESTMENT IN PNOC MALAMPAYA PRODUCTION CORPORATION
Cash – restricted pertains to the balance of the trust fund placed in savings deposit with the Land Bank of the Philippines which is intended to cover indemnity benefits of directors and officers who are involved in any action or suit filed against the Company.
Surplus property pertains to the cost of levied properties for unpaid and delinquent rentals, including interest, on the use of the ESB open yard.
Claims receivable consist mainly of the remaining estimated claim from the Government Service Insurance System on the reported loss of various properties damaged by typhoon “Caloy” at the Energy Supply Base at Batangas.
Special deposits account pertains to returnable deposits.
This account consists of the following oil, gas and coal exploration projects in partnership with other oil companies:
Permit No.
Investment in Treasury notes pertains to the 2.68 years placement with Land Bank of the Philippines amounting to P211.78 million at a coupon rate of 8.75% maturing on March 3, 2013.
This account consists of investments in the PNOC Malampaya Production Corporation (PMPC), a whollyowned subsidiary of the Company, whose primary purpose is to prospect, explore, dig, and drill for, exploit, extract, produce or purchase or otherwise dispose of, import, export, and handle trade and generally deal in, refine, treat, reduce, distill, manufacture and smelt, any and all kinds of petroleum and petroleum products, oil, gas and other volatile substances. As originally envisioned, PMPC was to serve as the corporate vehicle for the privatization of PNOC EC’s 10% participating interest in Service Contract 38.
2010 National Power Corporation First Gas Power Corporation FGP Corporation
Short-term loans payable pertains to the US$9.0 Million short-term foreign currency deposit unit (FCDU) loan with Land Bank of the Philippines for PNOC EC’s share in the drilling costs for Malampaya Camago 2 Appraisal and Development Well maturing on May 2011.
18. TRADE AND OTHER PAYABLES
This amount represents only the 25% paid up capital of PMPC as required by the Securities and Exchange Commission. Having been non-operational since its incorporation, PMPC is in capital deficiency.
This account consists of the Company’s share in receivables, including interests, from the “take or pay” deficiency or the undelivered gas of the Malampaya Project for the years 2003 to 2006. These are receivables from:
Land, leases and easement refer to a piece of land in Cotabato that was transferred to PNOC EC by a Deed of Absolute Sale dated April 27, 1999. The property was used in previous exploration project which was written off in 2004.
17. SHORT-TERM LOANS PAYABLES
This account consists of the following:
2010 Accounts payable and accrued expenses Other current liabilities Taxes Payable Liability for annuity
14. NON-CURRENT TRADE ACCOUNTS RECEIVABLE
Investments in shares of stock represent the cost of investments in proprietary club membership shares.
2009
411,692,422 57,644,741 49,719,731 739,543
450,502,539 82,727,141 47,478,209 739,543
519,796,437
581,447,432
Accounts payable and accrued expenses are inclusive of the Company’s 10% share in the aggregate obligation of SC 38 Consortium in the amount of P81.84 million in 2010 and P177.57 million in 2009, accounts payable to suppliers and contractors amounting to P155.64 million in 2010 and P255.94 million in 2009 and the remaining P174.29 million in 2010 and P16.99 million in 2009 pertains to accrued expenses.
2009
14,767,329 -
15,622,040 10,086,298 7,325,258
Payables to suppliers and contractors and accrued expenses pertain to purchases of goods and services for the Company’s business operations.
14,767,329
33,033,596
Other current liabilities include unclaimed payments, salaries payable, contract retention and other miscellaneous liabilities.
Taxes payable include withholding taxes of P16.31 million in 2010 and P22.98 million in 2009 and output vat of P17.44 million in 2010 and P21.62 million in 2009.
Liability for annuity pertains to liabilities for accumulated sick leave credits of employees expected to retire in 2011.
The decrease in non-current trade accounts receivable is mainly due to the full settlement of First Gas Power Corporation and FGP Corporation of their take-or-pay (TOP) obligations.
NPC’s non-current trade accounts receivable balance decreased due to realignment at year-end. Full settlement of this account was made in 2011.
15. EXPLORATION AND DEVELOPMENT COSTS
19. UNEARNED REVENUE
The deferred exploration and development costs pertain to the following projects:
2010 Cauayan Coal Project Indonesia Coal Project BATMAN Natural Gas Study Project Natural Gas Study Isabela Coal Mine Mouth Power Plant Lumbog Coal Project Isabela Coal Exploration Project Malongan & Alegria Coal Project Surigao Coal Exploration Project Coal Exploration Project – COC 41 Other Areas Malampaya Oil Rim Exploration Siay Coal Project Natural Gas Vehicle Program Central Cebu Coal Project Camago Malampaya Oil Leg DOST-PCIERD ILB Deferred Development Cost
97,819,520 90,813,823 68,043,809 60,722,257 57,140,769 47,743,128 25,172,794 20,329,276 19,075,314 18,376,753 10,114,403 6,043,705 1,320,035 312,750 122,807 87,654 -
97,819,520 52,958,407 64,998,077 60,722,257 50,769,173 40,888,792 15,924,724 13,365,721 22,851,200 7,710,081 10,114,403 3,733,717 1,320,035 312,750 122,807 87,654 18,648,253
523,238,797
462,347,571
16. OTHER ASSETS 2010
PNOC Exploration Corporation
2010 Unearned Revenue Other deferred credits
2009
2,616,278,836 153,671
2,758,170,718 69,572
2,616,432,507
2,758,240,290
Unearned revenue pertains to the net entitlements of the Company from the undelivered gas of the “take-orpay” transactions of the SC 38 Malampaya Project where customers are obliged to pay the contracted volume or quantity even if there is no delivery or consumption of the produced gas during the period.
Other deferred credits consist of deferred interest on car loans of officers.
20. LIABILITY FOR FUTURE ABANDONMENT COSTS
This account pertains to the accumulated amount out of the estimated US$3.00 million Company share in the future abandonment costs of SC 38 Malampaya Project. Using the accrued liability method in accounting for this transaction, the liability for future abandonment costs expensed amounted to P5.98 million in 2010 and P6.83 million in 2009.
21. SHARE CAPITAL
Cash - restricted Surplus property Claims receivable Investments in shares of stock Special deposits Land, leases and easement
30
This account consists of the following:
2009
•
2009
28,299,298 3,532,089 2,283,526 1,071,250 956,785 72,550
26,101,552 3,577,857 2,792,041 1,071,250 1,122,571 72,550
36,215,498
34,737,821
2010
AnnuAl REpoRt
The capital stock of the Company are common shares with P1.00 par value, all with same rights and privileges, except that Class “A” common shares shall be issued solely to the citizens of the Republic of the Philippines while Class “B” common shares may be issued to the citizens of the Republic of the Philippines or to aliens.
The capital structure of PNOC EC is as follows: No. of Shares Class A: Authorized Issued, subscribed and paid-up (PNOC) Unsubscribed Share premium
2,100,000,000 1,522,253,065 577,746,935
Production costs amounting to P0.85 billion in 2010 and P1.17 billion in 2009 pertain mainly to the production operating expenditures of the production facility of the SC 38 Malampaya Project, i.e. wells, platform, subsea calm underbuoy, and indirect operating overhead.
Coal purchases and landed costs are broken down as follows:
Amount
1,522,253,065
2010 21,326,554
Class B: Authorized Issued, subscribed and paid-up PNOC Public Treasury shares Unsubscribed Share premium
Coal purchases Coal production cost: Direct materials Direct labor Overhead
1,400,000,000 475,532,415 4,467,585 (248,800) 920,000,000
475,532,415 4,467,585 (734,924) 1,098,396 2,023,943,091
1,596,076,079
12,091,468 48,483,281 61,895,551 3,025,974,886
7,494,298 6,195,469 38,921,826 1,648,687,672
This account consists mainly of non-operating income as follows:
There were no changes in the capital structure of the Company during the year.
2010 Interest income Marketing Fee Signature Bonus Guarantee fee Equipment rental Miscellaneous income
This account consists of the following:
2010 Drilling Rig (Kremco Model Trailer) Others
2009
89,250,000 58,406
89,250,000 58,406
89,308,406
89,308,406
The Kremco 750 Drilling Rig and the Drilling Rig Simulator were donated to the Company by Petro Canada under the Program Management Agreement between PNOC EC, Petro Canada and Office of Energy Affairs (OEA) in 1992. The equipments were received by PNOC EC in 1993 and were turned over to PNOC Energy Development Corporation (PNOC EDC) and were utilized for PNOC EDC’s geothermal drilling operations and training of personnel respectively.
The assets were returned to PNOC EC in 1998 as a result of the separation of PNOC EC from PNOC EDC Management. The Drilling Rig was eventually used by the Company for the drilling operations in Mindanao in 1999. It is being leased by Energy Development Corporation (EDC) for their drilling project in Lihir Island, Papua New Guinea under a Lease Agreement ending December 31, 2010. In 2005, the Drilling Rig Simulator, together with its housing facilities, was transferred back to PNOC EDC through a Deed of Donation between the two companies. The adjustment in the total amount of P6,412,484 was effected in 2007.
52,341,089 (800,000) 25,831,509 728,137 22,517,669
58,228,695 9,030,200 12,662,652 1,575,240 44,477,764
227,487,827
100,618,404
125,974,551
Marketing fee amounting to P13.79 million pertains to fees charged to Semirara Mining Corporation for local coal shipments to China.
Signature bonus amounting to P13.62 million in 2010 and P9.03 million in 2008 pertains to signature bonus payments received from Burgundy Global Exploration Corp. while the 2009 P0.80 million represents payments to the Office of the Government Corporate Counsel (OGCC) for attorney’s fees on the case against Burgundy that was charged against the signature bonus account.
Other Income from Guarantee Fee results from the difference between the contracted/guaranteed volume of production per Coal Contracts and actual volume of coal delivered.
Income from equipment rental pertains to the rental of various equipments in the Malangas Project Operations. Miscellaneous income includes income from sale of scrapped/overaged coal amounting to P43.49 million in 2010, P6.18 million in 2009 and P33.24 million in 2008.
Cash dividends in the amount of P1,001 million and P1,503 million were paid in 2010 and 2009, respectively.
27. ADMINISTRATIVE EXPENSES 2010
24. REVENUES
Employee cost Professional/technical services Purchased services Miscellaneous expenses Depreciation, depletion and amortization Taxes and licenses Business expense Maintenance and repairs Rental Fuel, oil, and TBA Insurance Materials and supplies
This account consists of revenues generated from the Company’s major business units as follows:
2010
2009 (Restated)
2008 (Restated)
4,731,612,790 3,579,768,530 476,870,610 34,507,589 -
4,650,999,377 1,944,606,217 89,367,951 34,328,264 -
5,770,598,115 2,531,198,062 320,441,577 23,476,787 25,147,018
8,822,759,519
6,719,301,809
8,670,861,559 Capitalized cost
25. COST OF SALES This account consists of the following:
2009
2008
196,594,716 101,609,286 46,829,749 40,536,977 31,706,380 30,915,948 29,439,300 26,470,123 15,586,284 13,634,381 10,069,719 6,770,604 550,163,467 (59,270,152)
185,501,565 165,805,388 50,467,062 29,068,330 30,552,335 18,189,534 29,409,514 20,232,008 12,881,172 10,324,329 6,961,370 16,679,815 576,072,422 (31,210,916)
143,572,628 147,137,094 35,252,358 5,412,995 22,753,588 11,139,455 28,135,554 12,786,131 7,811,095 8,264,603 6,389,619 5,008,674 433,663,794 (25,139,750)
490,893,315
544,861,506
408,524,044
28. OTHER EXPENSES 2010
Coal purchases and landed cost Production costs Depreciation, depletion and amortization Fuel, oil, and TBA Coal marketing and selling Rental Purchased services Taxes and licenses Materials and supplies Shipping and delivery Maintenance and repairs Employee cost Business expense Miscellaneous expense
68,362,668 13,791,628 13,622,000 475,088 131,236,443
The Board of Directors approved on December 7, 2010 per Board Resolution No. 11-9, Series of 2010 the appropriation of P7,500 million retained earnings as of December 31, 2010 to meet the Company’s cash requirements for capital expenditures and exploration projects in the next three (3) years.
2008 (Restated)
Interest income includes the Company’s 10% share in the interest charged to SC 38 customers on their unpaid invoices for undelivered gas in the amount of P0.72 million in 2010, P1.53 million in 2009 and P10.88 million in 2008. On the other hand, interest income from bank, mainly from placements, amounted to P51.47 million in 2010, P45.79 million in 2009 and P46.46 million in 2008.
Oil and Gas Production Coal Operations Energy Supply Base Rig 1 San Antonio Gas Project
2009 (Restated)
23. RETAINED EARNINGS
2008 1,966,334,863 1,966,334,863
26. OTHER INCOME
22. DONATED CAPITAL
2009
2,903,504,586
2009
2008
3,025,974,886 848,446,967 525,206,345 355,690,610 104,953,429 14,308,101 8,619,365 3,575,845 2,674,758 1,577,232 644,684 -
1,648,687,672 1,165,129,616 560,901,305 32,536,433 52,682,443 1,504,001 9,827,505 1,577,329 800,498 4,360,956 157,047 -
1,966,334,863 666,413,158 563,684,538 253,422,608 142,093,890 3,277,284 7,807,978 3,309,932 469,187 7,874,431 1,456,658 6,243,228 108,698 12,520
4,891,672,222
3,478,164,805
3,622,508,973
This account consists of the following:
2010
2009
2008
Royalty fee due government Other miscellaneous expenses
12,857,739 6,961,857
2,460,301 3,925,454
11,902,595 2,086,170
TOTAL
19,819,596
6,385,755
13,988,765
Other miscellaneous expenses of 2010, 2009 and 2008 amounting to P6.96 million, P3.93 million and P2.09 million, respectively, mainly pertains to bank charges.
The Company is required to share the net proceeds with the government for all service contracts and coal operating contracts entered into with the Department of Energy on the exploration, development and utilization of the country’s natural resources in consideration for the right granted. The government’s share comprises of income taxes and royalty fees. The royalty fees are shared by the government through DOE and the local government units.
2010
AnnuAl REpoRt
•
PNOC Exploration Corporation
31
29. FOREIGN EXCHANGE (LOSS) GAIN - NET 2010 On placements On joint venture transactions On loan related transactions Others
2009
2008
(175,426,513) (36,378,548) 10,854,000 15,950,493
(74,560,914) (27,050,782) 5,032,599
120,989,352 79,254,290 (44,167,976) 1,423,126
(185,000,568)
(96,579,097)
157,498,792
The net foreign exchange loss for 2010 amounting to P185.00 million is mainly attributable to lower prevailing exchange rate of US$1.00: P43.885 in 2010, US$1.00: P46.425 in 2009 and US$1.00: P47.655 in 2008. A large portion of the net foreign exchange loss in 2010 and 2009 is attributable to foreign exchange loss on dollar placements amounting to P175.43 million and P74.56 million, respectively. On the other hand, a large portion of the net foreign exchange gain for 2008 is attributable to the realized gain on dollar placements amounting to P120.99 million and on joint venture transactions/remittances amounting to P79.25 million. The SC-38 related loan was fully paid in December 2008.
Foreign exchange gain on loan related transactions amounting to P10.85 million pertains to the realignment of the US$9.00 million short-term foreign currency deposit unit (FCDU) loan with Land Bank of the Philippines for PNOC EC’s share in the drilling costs for Malampaya Camago 2 Appraisal and Development Well.
Other foreign exchange transactions include foreign exchange adjustments on dollar accounts and realignments on SC 38’s trade accounts receivables balances, among others.
A reconciliation between the profit before tax and taxable profit (loss) as presented in the Statement of comprehensive income and in the Income tax return, respectively, is presented as follows:
Taxable Year 2010
Special Rate Profit (Loss) before income tax Non-deductible expenses Cost of sales TOP delay insurance proceeds Impairment losses on trade and non-trade receivables Deficiency taxes Interest Expense Foreign exchange losses Straight-lining of operating lease Other charges Non-taxable income Cost Recovery (Allowed deduction per Service Contract for tax purposes) Interest income Reversal of unrealized foreign exchange Losses for 2009 Foreign exchange gain Other non-operating income NOLCO
30. FINANCE COSTS
This account consists of the following:
Profit (Loss) per income tax return
Interest expense on short/long-term loans Guarantee fee on loan
2010
2009
2008
12,288,171 -
-
64,884,738 8,498,575
12,288,171
-
73,383,313
The components of income tax expense as reported in the statement of comprehensive income:
Deferred tax expense (income): Origination and reversal of temporary differences
2010
2009
980,727,752
945,540,745
980,727,752
945,540,745
(7,120,790) 973,606,962
Effective January 1, 2009, in accordance with Republic Act 9337, RCIT rate was reduced from 35% to 30% and non-allowable deductions for interest expense from 42% to 33% of interest income subjected to final tax.
On December 18, 2008, the BIR issued Revenue Regulations (RR) No. 16-2008 which implemented the provisions of Section 34(L) of the Tax Code, as amended by Section 3 of Republic Act No. 9504, which allows individuals and corporations who are subject to the 30% RCIT rate to adopt the Optional Standard Deduction (OSD) in computing their taxable income. Under RR 16-2008, corporations may claim OSD equivalent to 40% of gross income, excluding passive income subjected to final tax, in lieu of the itemized deductions. A corporate taxpayer who elected to avail of the OSD shall signify such in the income tax return. Otherwise, it shall be considered as having availed of the itemized deductions allowed under Section 34 of the National Internal Revenue Code. Election is done on an annual basis.
32
In 2010 and 2009, the Company opted to continue claiming itemized standard deductions in computing its income tax.
PNOC Exploration Corporation
•
2010
AnnuAl REpoRt
(1,515,622,115) (989,639) (49,610) -
(51,416,110) (19,619,533) (217,699,461)
(1,516,661,364)
(288,735,104)
3,224,059,629
(129,194,282)
Taxable Year 2009
(50,719,072)
38,208,009 18,642,843 10,297,990 1,534,815 155,162 68,838,819
(225,267,297)
1,726,030,921 28,617,858 2,118,338 32,118 1,756,799,235
24,116,323 19,619,533 11,053,117 1,602,993 1,052,937 948,181 58,393,084
(1,499,665,874) (24,366,535) (160,690)
(21,259,270) -
(1,524,193,099)
(21,259,270)
(3,151,802,483)
(188,133,483)
Profit (Loss) per income tax return
The significant components of deferred income tax assets are as follows:
2010 Tax effect on temporary differences Carryforward of unused tax losses Minimum Corporate Income Tax
Regular Rate
2,919,196,347
Non-taxable income Cost Recovery (Allowed deduction per Service Contract for tax purposes) Interest income Other non-operating income
894,721,673
The Company’s income tax for oil and gas production which pertains to the Malampaya Project was computed under special rate and settled consistent with the pertinent provisions of SC 38. On the other hand, income tax on the operations of coal projects and Energy Supply Base (ESB) was based on the Minimum Corporate Income Tax (MCIT) of two percent (2%) of the gross income since the operation of these business units resulted to a zero taxable income after utilization of Net Operating Loss Carryover (NOLCO) balance from previous years. No RCIT was reported in 2010 and 2009 as the MCIT was higher than RCIT in both years.
1,373,653,312 7,185,160 11,051 1,380,849,523
Non-deductible expenses Cost of sales General and administrative expenses Impairment losses on trade and non-trade receivables Unrealized FOREX loss on foreign currency transactions Non deductible component of pension cost Foreign exchange losses Deficiency taxes Straight-lining of operating lease Reversal of advance rental payment in 2008 Bank charges
In connection with the loan, the Company pays guarantee fee to the Department of Finance and PNOC for the SC 38-related loan.
Current tax expense: Special tax rate (30%) Regular corporate income tax (RCIT) at 30% in 2009 and 35% in 2008
90,702,003
Profit (Loss) before income tax
31. INCOME TAX
3,359,871,470
Special Rate
Interest on short-term loan in 2010 amounting to P12.29 million pertains to the interest on the SC 38 $9.0 Million FCDU loan with Land Bank of the Philippines while the interest on long-term liabilities in 2008 pertains to the SC 38 related loan with Citibank, full payment of which was made in December 2008.
Regular Rate
2009
45,803,541 38,758,285 35,393,869
14,608,608 65,309,838 30,146,905
119,955,695
110,065,351
2010
2009
The deferred tax assets on temporary differences relate to the following:
Deferred tax assets: Impairment losses on trade and non trade receivables Retirement benefit cost Unrealized FOREX loss on foreign currency transactions Straight-lining of operating lease
23,156,156 21,824,511 460,444 362,430
8,406,867 8,406,867 5,885,860 315,881
45,803,541
14,608,608
As of December 31, 2010, accumulated Net Operating Loss Carryover (NOLCO), in which, for the purpose of determining the Company’s income tax obligation, can be allowed as deduction from gross income for three consecutive years immediately following the year of such loss, amounted to P129.19 million broken down as follows:
YEAR INCURRED
YEAR OF APPLICATION
Year 2007 Year 2009
2008 – 2010 2010 – 2012
AMOUNT
APPLIED
29,565,977 188,133,483 217,699,460
EXPIRED
29,565,977 58,939,201 88,505,178
-
2009
UNAPPLIED 129,194,282 129,194,282
The deferred tax assets recognized on the carryforward of unused tax losses amounted to P38.76 million.
15,157,734 8,638,169 (6,482,263) (527,410)
15,598,715 8,466,856 (6,076,632) -
Net retirement expense
11,053,118
16,786,230
17,988,939
7,326,301
5,363,644
5,997,514
No retirement expense was recognized in the statement of comprehensive income for the year 2010.
Present value of defined benefit obligations Fair value of plan assets Unfunded Obligation Unrecognized actuarial gains
Minimum Corporate Income Tax on the other hand, which is computed as two percent (2%) of gross taxable income and which can also be carried over and credited against regular income tax for the next three immediately succeeding taxable years, are broken down as follows:
Retirement Liability YEAR INCURRED
YEAR OF APPLICATION
Year 2007 Year 2008 Year 2009 Year 2010
2008 – 2010 2009 – 2011 2010 – 2012 2011 – 2013
AMOUNT
APPLIED
9,901,855 12,758,171 7,486,879 15,148,819 45,295,724
-
EXPIRED 9,901,855 9,901,855
UNAPPLIED
12,758,171 7,486,879 15,148,819 35,393,869
Net income Weighted average number of shares Basic/Diluted EPS
Defined benefit obligation, ending
The earnings per share amount was computed as follows:
2010
2009
2008
2,476,966,510 2,002,004,065
1,799,107,377 2,002,004,265
3,054,037,303 2,002,004,265
1.24
0.90
1.52
2010 Salaries and other benefits Social security costs
211,585,318 3,236,466 214,821,784
2009 186,350,315 2,644,299 188,994,614
2008
The succeeding tables and information were based on the December 31, 2009 PAS 19 actuarial valuation of the retirement benefit plan unless stated otherwise.
2009
9.13 % 8.00 % 10.00 %
81,558,702
2008
85,464,216 6,837,137 489,164
81,955,412 6,482,263 (1,854,240) (1,119,219)
Fair value of plan assets, ending
92,790,517
85,464,216
2010
2009
2008
90.40 % 6.10 % 3.50 %
90.60 % 6.90 % 2.50 %
91.30 % 7.10 % 1.60 %
100.00 %
100.00 %
100.00 %
The plan assets is composed mainly of government instruments with market value of P82.37 million, P82.47 million and P73.80 million as of December 31, 2010, 2009 and 2008, respectively. The history of unfunded obligation is as follows:
2009 Defined benefit obligation Fair value of plan assets Unfunded Obligation
The discount rate assumption is based on the PDEx (PDST-R2) benchmark rates as of the valuation dates considering the average years of remaining working life of the employees as the estimated term of benefit obligations.
2007
81,558,702 85,464,216
103,824,145 81,955,412
36,458,161
(3,905,514)
21,868,733
2009
11.25 % 8.00 % 10.00 %
2008
129,248,678 92,790,517
The history of experience adjustments on the defined benefit obligation is as follows:
Effects of changes in actuarial assumptions Experience adjustments Actuarial (gain) loss Effects of changes in assumptions as % of DBO Experience adjustments as % of DBO Actuarial (gain) loss as % of DBO
2008
The following tables summarize the components of net benefit expense recognized in the statement of comprehensive income and the funded status and amounts recognized in the statement of financial position:
129,248,678
Fair value of plan assets, beginning Expected return on plan assets Benefits paid – from plan assets Actuarial gain (loss)
Fixed income – local currency Fixed income – foreign currency Equities
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Discount rate Expected rate of return on plan assets Expected rate of salary increase
2008 103,824,145 8,638,169 15,157,734 (1,854,840) (44,207,106)
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
2009 81,558,702 9,175,354 11,195,524 27,319,098
The Company maintains a wholly-funded, tax exempt, noncontributory retirement plan covering all regular employees which provides a retirement benefit equal to the final monthly basic salary x (14/12) x 200% x number of service years. The retirement plan is under the administration of the Bank of the Philippine Islands Asset Management and Trust Group (BPI-AMTG). The recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out as of December 31, 2009 by E.M. Zalamea Actuarial Services, Inc. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.
-
The fair value of plan assets as of December 31, 2010 amounted to P93,558,426 net of benefits paid or withdrawal from plan assets of P10,714,340 and net increase in fund value for the year of P11,482,249.
149,815,855
72,748,370
34. RETIREMENT PLAN
-
Movements in the present value of the plan assets were as follows:
147,634,046 2,181,809
The expansion of the Company’s operations particularly on exploration activities (gas, oil and coal) and the takeover of the mining operations of in Zamboanga Sibugay led to the continuous hiring of new employees for the year 2010. As of end 2010, the Company has 280 employees as compared to 262 employees in 2009, and 182 in 2008.
2008
2009
The Company does not have any dilutive potential common shares nor other instruments that may entitle the holder to common shares. Hence, diluted EPS is the same as basic EPS.
33. EMPLOYEE COSTS
2009 129,248,678 92,790,517 36,458,161 36,290,209
Movements in the present value of the defined benefit obligation were as follows:
Defined benefit obligation, beginning Interest cost Current service cost Benefits paid – from retirement fund Actuarial loss (gain)
32. EARNINGS PER SHARE (EPS)
2007
11,195,524 9,175,354 (6,837,137) (2,480,623)
Actual return on plan assets
2008
Current service cost Interest cost Expected return on plan assets Net actuarial loss (gain) recognized in the year
2008
2007
31,366,108 (4,047,010) 27,319,098
(42,142,295) (2,064,211) (44,206,506)
1,541,241 (24,660,625) (23,119,384)
24.27 (3.13) 21.14
(51.67) (2.53) (54.20)
1.48 (23.75) (22.27)
The history of experience adjustments on the plan assets is as follows:
2009 Experience adjustments – gain (loss) Percentage of plan assets (%)
489,164 0.53
2008 (1,119,219) (1.31)
2007 (79,118) (0.10)
2010
AnnuAl REpoRt
•
PNOC Exploration Corporation
33
Based on the recent funding actuarial valuation report, the past service liability as of December 31, 2009 is P152,547,618 (actuarial liability for services rendered up to valuation date). However, the total Net Assets of the Retirement Trust Fund is P92,790,517 as of December 31, 2009. The Fund therefore has an unfunded past service liability of P59,757,101 as of valuation date.
As of December 31, 2009, the estimated vested benefit is P30,880,033 (benefit payable assuming all eligible employees will avail of their benefit) compared to Fund net assets of P92,790,517 as of the same date. The Fund therefore is more than sufficient to pay the benefits if all eligible employees will avail of their benefit during the valuation period. It should be noted that the vested amount is based on the applicable benefit under the Plan as of valuation date.
2690-2692
PNOC-EC vs. Ana Liza Garcia
Venue: 1st Municipal Circuit Trial Court (MCTC) of Mabini & Tingloy, Batangas
Nature of Case/Claim:
This is a criminal case filed by PNOC EC against Ms. Garcia for violation of Batas Pambansa (BP) Blg. 22. Ms. Garcia issued three checks in the total amount of P381,817.79 as payment for fuel purchases made by FRMC Brokerage and Forwarders. The checks were all dishonored upon presentation for payment with the bank. Despite demands, Ms. Garcia failed to pay the face value of the checks she issued.
Status:
The case has been referred by the court to the Philippine Mediation Center. Parties are still undergoing the mediation process.
35. CONTINGENCIES
As Petitioner Case No.
34
Particulars
02-47516
PNOC-EC vs. Rafael G. Mangubat
Venue: Quezon City Regional Trial Court (RTC) Branch 218
Nature of Case/Claim:
15070/JEM
SC 38 Consortium vs. First Gas Power Corporation and FGP Corporation
For collection of sum of money (P665,294.70) plus interest. The case was filed because of non-payment by Mr. Mangubat of his remaining loan obligation to PNOC EC, which he was able to secure pursuant to a Vehicle Acquisition Plan (VAP) duly approved by the President of the Philippines.
Venue: Hong Kong International Arbitration Court
Nature of Case/Claim:
Status:
A writ of execution for the sum of P665,294.70, plus attorney’s fees of P66,529.47, has been issued against Mr. Mangubat and in favor of PNOC EC. The Company is assisting the Court Sheriff in looking for assets of Mr. Mangubat to be attached.
69263
PNOC-EC vs. Jose M. Asistio
Venue: Pasig City Regional Trial Court (RTC) Branch 67
Nature of Case/Claim:
For collection of sum of money (P719,333.30) plus interest. The case was filed because of non-payment by Mr. Asistio of his remaining loan obligation to PNOC EC, which he was able to secure pursuant to a Vehicle Acquisition Plan (VAP) duly approved by the President of the Philippines.
The SC 38 Consortium is party to Gas Sale and Purchase Agreements (GSPA) with First Gas Power Corporation (FGPC) and FGP Corporation (FGP). In July 2007 the SC38 Consortium commenced arbitration against FGPC and FGP to resolve disputes arising under the GSPAs regarding Force Majeure (FM) claims made by FGP and FGPC and unused scheduled maintenance days. FGPC and FGP are claiming that, by reason of various outages said to have occurred in the transmission lines which transmit electrical power from the FGPC’s and FGP Corp.’s power plants to Meralco, the electrical output from the said plants was restricted and such outages fall under the definition of FM under the GSPAs. The second issue pertains to periods of Scheduled Maintenance allowed under the GSPAs, and how unused Scheduled Maintenance Days are accounted for at the end of each Contract Year. The amount being claimed by the SC38 Consortium in this arbitration is US$5.4 Million for FGPC and US$3.9 Million for FGP (PNOC EC’s share in the claim is 10%, commensurate to its 10% participating interest in SC38). SC 38 Consortium has also sought clarity on the language of the FM provision considering that the issue on Force Majeure is a recurrent issue as FGPC and FGP continue to make similar claims.
Status:
The parties entered into a Settlement Agreement whereby they agreed to abide by the Partial Final Award issued by the Arbitral Tribunal. The First Gas Companies paid to SC 38 the amount of U$1.094M as full and final settlement of the 2006 claims that parties have against each other. The Settlement Agreement also contained the methodology for computing relief for Transmission Force Majeure under the Gas Sales and Purchase Agreements. Parties likewise agreed to bear their respective costs in the arbitration. The ICC has issued a Final Award by Consent upon the request of the parties on September 13, 2010 adopting the said Settlement Agreement, which effectively terminates the arbitration proceedings.
Status:
By the Order of the trial court dated 3 September 2009, the case against Mr. Asistio was dismissed for failure to prosecute. The OGCC is to recommend to PNOC EC the appropriate remedies or actions on the case.
02-48508
PNOC-EC vs. Bernardo F. Ople
Venue: Quezon City Regional Trial Court (RTC) Branch 98
As Defendant
Nature of Case/Claim:
Case No.
For collection of sum of money (P805,555.54) plus interest. The case was filed because of non-payment by Mr. Ople of his remaining loan obligation to PNOC EC, which we was able to secure pursuant to a Vehicle Acquisition Plan (VAP) duly approved by the President of the Philippines.
CCN 4108
Province of Palawan vs. SC 38 Joint Venture Partners Venue: Palawan Regional Trial Court (RTC)
Status:
Nature of Case/Claim:
The Ex-Parte Motion to declare defendant Ople to have waived his right to present/adduce further evidence is pending resolution by the trial court.
CN 69262
PNOC-EC vs. Pedro T. Santos
As a member of the SC 38 Consortium, PNOC EC is involved as a party defendant in a case filed by the Province of Palawan in a Regional Trial Court in Puerto Princessa City against the SC 38 Consortium for the collection of alleged delinquent real property taxes for the years 2002 to 2005 totaling P265,259,194.28, 10% of which shall be paid by PNOC EC if the Consortium will lose the case. For its defense, the Consortium relies mainly on the provision of SC 38 granting exemption to the SC 38 Consortium from local and national taxes, except income tax.
Venue: Pasig City Regional Trial Court (RTC) Branch 67
Status:
Nature of Case/Claim:
For collection of sum of money (P697,666.60) plus interest. The case was filed because of non-payment by Mr. Santos of his remaining loan obligation to PNOC EC, which he was able to secure pursuant to a Vehicle Acquisition Plan (VAP) duly approved by the President of the Philippines.
The case is at the trial proper stage, with the Province of Palawan set to present the secretary of the provincial council as an additional witness.
Status:
Mr. Santos filed a Petition for Review in the Supreme Court from the Court of Appeals decision denying his petition for certiorari, which, in turn, questioned the RTC’s Order declaring him in default. The Supreme Court denied Mr. Santos’ petition in a decision promulgated on September 23, 2008. Mr. Santos did not file any motion for reconsideration from the Supreme Court’s decision. The High Court is to remand the case records to the court of origin for issuance of writ of execution.
PNOC Exploration Corporation
•
2010
AnnuAl REpoRt
ICC Case No. 16890/CYK
Particulars
Wilson International Trading Private Limited (Singapore) vs. PNOC Exploration Corporation (Philippines) Venue: International Chamber of Commerce (ICC) administered arbitration in Singapore
Nature of Case/Claim:
Independent Directors
Wilson International Trading Private Limited (“Wilson”) has filed a Request for Arbitration with the Secretariat of the International Chamber of Commerce International Court of Arbitration claiming alleged losses and demurrage amounting to US$2,111,357.78 allegedly in connection with Coal Sales Contract No. S9068N. PNOC EC has engaged external counsel in the arbitration proceedings.
In 2002, the Company requested the opinion of the Securities and Exchange Commission with respect to the requirement of having independent directors of the company. The SEC issued its opinion that the Company was not required to comply with the requirements of independent directorship.
Significant Employees
The company has no employee who is not an executive officer but who is expected to make a significant contribution to the business.
Family Relationships
There are no family relationships up to the fourth civil degree either by consanguinity or affinity among the Company’s directors, executive officers or persons nominated or chosen by the Company to become its directors or executive officers.
Involvement in Certain Legal Proceedings
None of the directors, nominees for election as director, executive officers, underwriters or control persons of the Company has been involved in any legal proceeding, including without limitation being subject of any (a) bankruptcy petition, (b) conviction by final judgment, (c) order, judgment or decree, or (d) violation of a securities or commodities law, for the past five (5) years up to the latest date, that is material to the evaluation of his ability or integrity to hold the relevant position in the Company.
Executive Officers
PNOC EC’s executive officers are also regular employees of the Company and are remunerated with a compensation package comprising of twelve (12) months base pay plus the statutory 13th month pay. They also receive whatever gratuity the Board extends to managerial, supervisory, technical and professional employees of the Company.
The Company’s executive officers are as follows:
Status:
Hearing proper has been concluded and both parties have filed all documentary submissions to the Arbitral Tribunal. The Arbitrator is expected to render an Arbitral Award by end of May 2011.
36. RELATED PARTY TRANSACTIONS
Due from Affiliates - net:
2010 PNOC Malampaya Production Corporation Due from Joint Venture Partners Shell Philippines Exploration BV Petro-Vietnam Investment and Development Corp. Basic Energy Corporation Petroenergy Resources Corporation Agusan Petroleum and Mining Corporation Pearl Oil (Ragay) Limited BHP Billiton China National Offshore Oil Corporation Nido Petroleum Philippines
1,583,466 1,583,466
1,559,461 1,559,461
7,004,596 668,484 635,059 614,623 464,409 79,754 3,778 (268,078) (416,245) 8,786,379
81,239,726 668,484 2,841,811 40,346,652 (268,078) 82,283,352 207,111,947
10,369,845
208,671,408
5,286,118 (1,812) (30,646) 12,307,076
2,847,734 12,319,844
17,560,736
15,167,578
Due from affiliates account represents charges and credits from affiliated companies which are payable within a year or the following month upon presentation of debit/credit notes. Due from joint venture partners, on the other hand, are expenses incurred in connection with joint explorations which were paid for and advanced by the Company.
Due to PNOC balance of P5.29 million pertains to miscellaneous intercompany charges.
Due to Nido Petroleum represents security deposit for the second sub-phase acquisition of 3D seismic data for SC 58 West Calamian Project.
Directors
PNOC EC’s Articles of Incorporations provides for the election of nine (9) directors to serve a term of one (1) year. The Board of Directors is responsible for the overall management and direction of the company. It meets on a regular monthly basis to review and monitor PNOC EC’s operations.
Due to Affiliates: Philippine National Oil Company (PNOC) PNOC Alternative Fuels Corporation PNOC Shipping and Transport Corporation Nido Petroleum
2009
Members of the Governing Board are as follows:
Chairman/President & CEO Director Director Director Director Director Director Director
- - - - - - - -
Gemiliano C. Lopez, Jr. Rafael E. del Pilar Minita V. Chico-Nazario William D. Dichoso Christopher H. Lindo Armando P. Galimba Henry M. Dueñas, Jr. Lasse A. Holopainen
Term of Office
Pursuant to the company’s by-laws, the directors are elected at each annual stockholders’ meeting by stockholders entitled to vote. Each director holds office until the next annual election and his successor is duly elected, unless he resigns, dies or is removed prior to such election.
President and Chief Executive Officer Vice President, Petroleum Division Vice President (Acting), Finance, Corporate Planning & Project Development Dept. Vice President (Acting), Corporate Services Information & Communications Tech. & Accounting Division Manager, Coal Operations Manager, Trading & Marketing Dept. Corporate Secretary/Compliance Officer Manager, Legal Department Manager, HR and Admin. Dept. Manager, Internal Audit Department Manager, Production and Natural Gas Department Manager (OIC), Energy Supply Base Project Manager, Malangas Manager (OIC), Exploration Dept. Manager (OIC), Project Dev’t. Dept.
- -
Gemiliano C. Lopez, Jr. Leocadio M. Ostrea
-
Lionel Q. Calo, Jr.
- - -
Lourdes S. Gelacio Raymundo B. Savella Candido M. Magsombol
- - -
Jose C. Sta. Ana Ma. Rita S. Dayleg Lucila Q. Maralit
- - - - -
Jose Edilbert S. Corsame Jose Allan R. Caringal Dancelo G. Gacutan Jaime A. Bacud Rolando V. Oliquino
Executive Compensation
Below is the aggregate compensation paid or incurred during the last two (2) fiscal years and the estimate for the ensuing year: ANNUAL COMPENSATION Name and Principal Position
Salary (P)
Year
Bonus (P)
Other Compensation (P)
TOTAL (P)
GEMILIANO C. LOPEZ, JR. President and CEO LEOCADIO M. OSTREA VP - Petroleum Division LIONEL Q. CALO, JR. Acting VP - FCPPD Division LOURDES S. GELACIO Acting VP - CSICTA Division RAYMUNDO B. SAVELLA Manager - Coal Operations 2009 2010 2011 Estimates 2009 All other officers and Directors 2010 as a group unnamed 2011 Estimates Above-named officers as a group
2010
AnnuAl REpoRt
•
9,338,847 10,436,684 9,888,444 13,130,387 8,127,816 12,757,152
4,709,349 4,404,754 4,848,522 8,333,486 4,770,382 5,354,526
3,641,329 8,443,653 2,061,341 10,217,134 5,709,723 5,277,678
17,689,525 23,285,091 16,798,307 31,681,007 18,607,921 23,389,356
PNOC Exploration Corporation
35
37. FINANCIAL RISK AND CAPITAL MANAGEMENT
The Company’s financial assets consist mainly of cash and cash equivalents, money market placement, investment in government securities and trade and other receivables. The main sources of which are proceeds from sales of gas, coal, fuel and other services. The Company has various financial liabilities such as short-term loans payable, due to related parties, trade payables and other liabilities which arise directly from operations.
The BOD has the overall responsibility for the establishment and oversight of the Company’s risk management framework. The BOD has established a Risk Management Committee (RMC) which plays a vital oversight role in the implementation of the Company’s Program and is also an important liaison to the BOD. The RMC shall assist the BOD of the Company in its oversight responsibility of managing risks involving physical, financial, operational, labor, legal, security, environmental and other risks of the corporation.
The Company’s Risk Management Committee (RMC) identifies and analyzes potential events that may affect the Company, strategize and manage risks to be within its risk appetite. In addition, RMC provides a holistic approach to the protection of assets, revenues, liabilities, personnel and reputation against predictable and unpredictable losses to achieve maximum efficiency at minimum costs to provide reasonable assurance with respect to the achievement of Company objectives.
The main financial risks arising from the Company’s financial instruments are credit risk, foreign currency risk, equity price risk, interest rate risk and liquidity risk.
The Company’s policies for managing the aforementioned risks are summarized hereinafter below.
Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s trade and other receivables and investment securities.
2010 US Dollar Financial Assets Loans and receivables: Cash in bank Cash equivalent Trade receivables - net Advances to & other employee receivables Due from related party Non-current trade receivables Total Financial Assets Financial Liabilities Liabilities at amortized cost: Short-term loans payable Trade and accrued payables Due to related party Total Financial Liabilities Net foreign currencydenominated monetary assets (liabilities)
2009
Peso Equivalent
US Dollar
Peso Equivalent
15,499,923 2,500,000 14,188,962
680,214,128 109,712,500 622,682,609
192,809 25,825,809 17,196,992
8,951,161 1,198,963,200 798,370,351
5,205 200,214
228,429 8,786,379
25,865 4,461,216
1,200,804 207,111,947
336,501 32,730,805
14,767,329 1,436,391,374
711,548 48,414,239
33,033,596 2,247,631,059
9,000,000 3,188,269 280,439 12,468,708
394,965,000 139,917,201 12,307,077 547,189,278
7,060,719 265,371 7,326,090
327,793,887 12,319,845 340,113,732
20,262,097
889,202,096
41,088,149
1,907,517,327
The Company reported net foreign exchange gains (losses) amounting to P185 million and P96.58 million in 2010 and 2009, respectively, with the translation of its foreign currency-denominated assets and liabilities. These resulted mainly from the movements of the Philippine peso against the US dollar as shown in the following table:
The Company’s major customers are the SC 38 power plant customers and coal trading customers. SC 38 customers include the National Power Corporation (NPC), First Gas Power Corp., Shell International Eastern Trading and Chevron Malampaya Llc. SC 38 customers are covered by Gas Sales and Purchase Agreements (GSPAs) which are long term contracts with provisions for interests on payment default and take-or-pay commitments, and NPC being a Government Owned and Controlled Corporation (GOCC) is guaranteed by the Government. Coal trading customers include Holcim Philippines Inc., National Power Corporation, Saturn Cement Marketing Corp., Republic Cement Corporation, Rock Energy International Corp., Iligan Cement Corp. and Pacific Cement Corporation among others. Coal trading customers are covered by coal sales agreements also with provisions for interests on payment default and inflationary adjustments.
Receivable balances are monitored on an ongoing basis to ensure that the Company’s exposure to bad debts is not significant. The maximum exposure of trade receivable is equal to the carrying amount.
With respect to credit risk arising from other financial assets of the Company, which comprise cash and cash equivalents excluding cash on hand, trade and other receivables, investment in debt and equity securities and due from related parties, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments before taking into account any collateral and other credit enhancements.
Equity Price Risk
Equity price risk is the risk that the fair values of traded equity instruments decrease as the result of the changes in the levels of equity indices and the value of the individual stocks.
2010 Loans and receivables: Cash and cash equivalents (excluding cash On hand) Trade receivables - net Non-trade accounts receivables Short-term investment Loans and notes receivables Advances to & other employee receivables Non-current receivables - net Due from related party Claims receivable AFS investments: Club membership shares Investment in treasury bills HTM investments: Investment in treasury notes Total
36
The Company’s foreign currency-denominated financial monetary assets and liabilities (translated into Philippine peso) as of December 31, 2010 and December 31, 2009 are as follows:
2009
3,985,346,879 926,329,008 20,562,839 1,094,820 3,380,682 5,289,746 14,767,329 10,369,845 2,283,526
1,244,294,183 1,170,712,395 28,820,920 742,029,003 2,812,410 4,601,837 33,033,596 208,671,408 2,792,041
1,071,250 50,769,000
1,071,250 -
211,778,494 5,043,043,418
3,438,839,043
The Company trades with recognized, creditworthy third parties and/or transacts with institutions and/or banks which have demonstrated financial soundness and which have passed the financial evaluation and accreditation of the Company.
Foreign Currency Risk
The Company’s exposure to foreign currency risk resulted from the financial assets and liabilities that are dollar denominated. The Company’s exposure to foreign currency risk to some degree is mitigated by some provisions in the Company’s service contracts and gas sales and purchase agreements. The sales agreements include billing adjustments covering the movements in Philippine Peso and the US Dollar rates.
PNOC Exploration Corporation
•
2010
AnnuAl REpoRt
Peso to US Dollar December 31, 2008 December 31, 2009 December 31, 2010
47.655 46.425 43.885
The Company has enough internally generated foreign-currency denominated resources used to settle foreign-currency denominated financial liabilities, thus reducing the Company’s risk on foreign currency rate fluctuation as compared to funding obtained from the active market.
As of December 31, 2010 and 2009, the Company’s exposure to equity price risk is minimal.
Interest Rate Risk
Interest rate risk is the risk that the future cash flows from a financial instrument (cash flow interest rate risk) or its fair value (fair value interest rate risk) will fluctuate because of changes in market interest rates.
The Company regularly evaluates its interest rate risk by taking into account the cost of qualified borrowings being charged by its creditors. Prepayment or refinancing the risks are undertaken when deemed feasible and advantageous to the Company.
The Company’s exposure to interest rate risk is minimal since the Company does not have any long-term debt obligations as of December 31, 2010.
Interest expense recognized amounted to P10.30 million which relate to the short-term loan with a local bank (See Note 18). The Company, however, was able to reduce or match the net interest cost through adequate yields from its investments which during the year generated interest income of P68.36 million.
Liquidity Risk
The Company’s objective is to maintain balance between continuity of funding and sourcing flexibility through the use of financial instruments. The Company manages its liquidity profile to meet its working capital and capital expenditure requirements and service debt obligations. The Company is not exposed to liquidity risk since the Company is involved in the sale of oil, gas and coal which are readily marketable.
The Company monitors and manages constantly its liquidity position on a regular basis. It has enough internally generated funds to service maturing debts and a committed stand-by credit facility from several local banks is also available to ensure availability of funds when necessary.
Capital Management
The Company manages its capital to ensure that the entity will be able to continue as going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance.
The Company is not subject to any externally imposed capital requirements.
The Company monitors capital using the debt ratio, which is long-term liabilities divided by long-term liabilities plus equity.
2010
2,917,004,449 12,920,399,860
19.52 %
Debt ratio
Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Trade receivables - net Non-trade accounts receivables Short-term investment Loans and other employee receivables Non-current receivables - net Due from related party Claims receivable AFS investments: Club membership shares Investment in treasury bills HTM investments: Investment in treasury notes Financial Liabilities Liabilities at amortized cost: Short-term loans payable Trade and accrued payables Due to related parties Government & Other liabilities
2009
2,784,782,469 14,264,142,258
22.58%
Debt ratio provides an indication of the long term solvency of the company. A lower debt ratio indicates that the company has the ability to meet its financial obligations.
Financial Assets and Financial Liabilities
Set out below is a comparison of carrying amounts and fair values of the Company’s financial instruments as of December 31, 2010 and 2009.
2010 Carrying Amount Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Trade receivables - net Non-trade accounts receivables Short-term investment Loans and notes receivables Advances to & other employee receivables Non-current receivables - net Due from related party Claims receivable AFS investments: Club membership shares Investment in treasury bills HTM investments: Investment in treasury notes
Financial Liabilities Liabilities at amortized cost: Short-term loans payable Trade and accrued payables Due to related parties Government & Other liabilities
2009 Carrying Amount
Fair Value
Fair Value
3,985,309,171 926,329,008
3,985,309,171 926,329,008
1,244,294,183 1,170,712,395
1,244,294,183 1,170,712,395
20,562,839 1,094,820 -
20,562,839 1,094,820 -
28,820,920 742,029,003 2,812,410
28,820,920 742,029,003 2,812,410
8,670,428
8,670,428
4,601,837
4,601,837
14,767,329 10,369,845 2,283,526
14,767,329 10,369,845 2,283,526
33,033,596 208,671,408 2,792,041
33,033,596 208,671,408 2,792,041
1,071,250 50,769,000
1,071,250 50,769,000
1,071,250 -
1,071,250 -
211,778,494 5,233,005,710
211,778,494 5,233,005,710
3,438,839,043
3,438,839,043
394,965,000 437,732,740 17,560,737
394,965,000 437,732,740 17,560,737
464,807,871 15,167,578
464,807,871 15,167,578
83,252,572 933,511,049
83,252,572 933,511,049
117,962,444 597,937,893
117,962,444 597,937,893
The methods and assumptions used by the Company in estimating the fair value of each class of financial instruments are:
Cash and Cash Equivalents
Carrying amounts approximate fair values due to its short-term nature.
Trade and Other Receivables, Short-term investment and Trade and Other Payables
These are instruments with relatively short maturity. Carrying amounts approximate fair values.
Short-term loans payable, Non-current Trade Receivables, Due from & Due to related party, and Other liabilities
These are instruments that are expected to be realized within a year. Carrying amounts approximate fair values.
AFS and HTM Investments
Fair values of debt securities are based on quoted market prices. For equity investments that are not quoted, the investments are carried at cost less allowance for impairment losses due to the unpredictable nature of future cash flows and the lack of suitable methods of arriving at a reliable fair value.
The Company classifies its financial instruments in the following categories.
AFS Investment
HTM Investment
Liabilities at Amortized Cost
3,985,309,171
-
-
-
3,985,346,879
926,329,008
-
-
-
926,329,008
20,562,839
-
-
-
20,562,839
1,094,820
-
-
-
1,094,820
8,670,428
-
-
-
8,670,428
14,767,329
-
-
-
14,767,329
10,369,845 2,283,526
-
-
-
10,369,845 2,283,526
Loans and Receivables
The table below shows the Company’s debt ratio as at December 31, 2010 and 2009.
Long-term liabilities Long-term liabilities & equity
2010 Total
-
1,071,250
-
-
1,071,250
-
50,769,000
-
-
50,769,000
-
211,778,494
-
-
-
-
-
394,965,000
394,965,000
-
-
-
437,732,740
437,732,740
-
-
-
17,560,737
17,560,737
83,252,572 933,511,049
83,252,572 6,166,516,759
4,969,386,966
51,840,250
211,778,494
211,778,494
2009 Loans and Receivables Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Trade receivables - net Non-trade accounts receivables Short-term investment Loans and notes receivables Advances to & other employee receivables Non-current receivables - net Due from related party Claims receivable AFS investments: Club membership shares Financial Liabilities Liabilities at amortized cost: Short-term loans payable Trade and accrued payables Due to related parties Government & Other liabilities
AFS Investment
HTM Investment
Liabilities at Amortized Cost
Total
1,244,294,183 1,170,712,395
-
-
-
1,244,294,183 1,170,712,395
28,820,920 742,029,003
-
-
-
28,820,920 742,029,003
2,812,410
-
-
-
2,812,410
4,601,837
-
-
-
4,601,837
33,033,596 208,671,408 2,792,041
-
-
-
33,033,596 208,671,408 2,792,041
-
1,071,250
-
-
1,071,250
-
-
-
-
-
-
-
464,807,871 15,167,578
464,807,871 15,167,578
1,071,250
-
117,962,444 597,937,893
117,962,444 4,036,776,936
3,437,767,793
-
2010
AnnuAl REpoRt
•
PNOC Exploration Corporation
37
The table below demonstrates the income (expenses) of the Company’s financial instruments for the years ended December 31, 2010 and 2009.
Gas & Oil Production
2010 Effect in Profit or Loss Increase (Decrease) Loans and receivables: Interest income on cash in banks Interest income on placement & short-term investments Interest income on trade & other receivables Interest income on non-current receivables AFS Investment: Interest income on treasury bills HTM Investment: Interest income on treasury notes Liabilities at amortized cost: Interest expense on short-term loans payable
2009 Effect in Equity Increase (Decrease)
Effect in Profit or Loss Increase (Decrease)
Segment Revenues Segment Expenses Segment Results Other Income Administrative Expenses Other Expenses Finance Costs Foreign Exchange Gain / (Loss) Profit Before Tax Income Tax Expense Profit for the Period
Effect in Equity Increase (Decrease)
633,411
-
2,109,182
-
36,396,324
-
43,677,313
-
16,177,570
-
5,026,165
-
719,378
-
1,528,430
-
3,103,885
-
-
-
11,294,393
-
-
-
All Other Segments
TOTAL
4,650,999,377 (1,726,030,921) 2,924,968,457 26,216,345 (28,617,858) (32,118) (3,338,479) 2,919,196,346 (894,821,673) 2,024,374,674
1,944,606,217 (1,707,234,271) 237,371,946 38,687,371 (219,882,072) (3,479,530) 2,977,103 55,674,818 55,674,818
123,696,215 (44,899,613) 78,796,602 35,714,689 (296,361,577) (2,874,107) (96,217,721) (280,942,115) (280,942,115)
6,719,301,809 (3,478,164,805) 3,241,137,004 100,618,404 (544,861,507) (6,385,755) (96,579,097) 2,693,929,050 (894,821,673) 1,799,107,377
Gas & Oil Production
Coal Operations
All Other Segments
TOTAL
Year Ended December 31, 2008
(10,297,990) 58,026,971
-
52,341,090
-
38. SEGMENT INFORMATION
The Company’s business operations are identified into separate operating segments based on the nature of products and services provided to its varied customers. Management’s strategic decisions are made on the basis of these operating segments.
The Company’s major sources of revenues are as follows:
Segment Revenues Segment Expenses Segment Results Other Income Administrative Expenses Other Expenses Finance Costs Foreign Exchange Gain / (Loss) Profit Before Tax Income Tax Expense Profit for the Period
5,770,598,115 (1,222,694,705) 4,547,903,410 45,828,012 (24,814,641) (43,878) (73,370,133) 87,700,425 4,583,203,195 (1,781,892,504) 2,801,310,691
2,531,198,062 (2,121,468,563) 409,729,499 55,220,624 (140,257,356) (12,915,075) 7,505,071 319,282,763 319,282,763
Gas & Oil Production
Coal Operations
369,065,382 (278,345,705) 90,719,677 24,925,915 (243,452,047) (1,029,812) (13,180) 62,293,296 (66,556,151) (66,556,151)
All Other Segments
8,670,861,559 (3,622,508,973) 5,048,352,586 125,974,551 (408,524,044) (13,988,765) (73,383,313) 157,498,792 4,835,929,807 (1,781,892,504) 3,054,037,303
TOTAL
10% share in the sale of gas and condensate from the SC 38 Malampaya Gas-to Power Project, which provides for the gas fuel requirements of the Santa Rita, San Lorenzo, Ilijan power plants in Batangas and the Tabangao refinery. The condensate it produced, on the other hand, is shipped to buyers in Singapore;
As of and for the year ended December 31, 2010 Segment Assets Unallocated Corporate Assets Total Assets
9,616,739,722 9,616,739,722
1,149,529,879 1,149,529,879
213,799,908 213,799,908
10,980,069,508 4,198,834,187 15,178,903,695
Coal trading and integrated services or coal operations which continues to serve the coal requirement of existing industrial and power plant customers with the coal production from COC 41 and other local coal mine sources; and
Segment Liabilities Unallocated Corporate Liabilities Total Liabilities
3,169,915,831 3,169,915,831
221,526,000 221,526,000
24,760,000 24,760,000
3,416,201,831 283,342,075 3,699,543,907
c.
Other services namely, pier services, warehousing and sale of fuel and lubes at ESB and equipment rental.
Capital Expenditure Unallocated Capital Expenditure
Financial information regarding the Company’s operating segments for the years ended December 31, 2010, 2009 and 2008 are presented in the following tables:
371,418,537 371,418,537
49,698,624 49,698,624
3,997,580 3,997,580
425,114,741 34,774,232 459,888,973
Depreciation & Amortization Unallocated Depreciation and Amortization
525,206,345
14,951,451
5,699,849
545,857,644
525,206,345
14,951,451
5,699,849
17,846,281 563,703,925
a.
b.
Gas & Oil Production
Coal Operations
All Other Segments
4,731,612,790 (1,373,653,312) 3,357,959,478 9,031,526 (44,464,447) (40,774) (12,288,171) (60,233,939) 3,249,963,672 (973,606,962) 2,276,356,710
3,579,768,530 (3,134,222,894) 445,545,636 71,695,265 (275,671,477) (19,269,006) (3,600,959) 218,699,459 218,699,459
511,378,199 (383,796,016) 127,582,183 146,761,036 (170,757,391) (509,816) (121,165,671) (18,089,658) (18,089,658)
TOTAL
Year Ended December 31, 2010 Segment Revenues Segment Expenses Segment Results Other Income Administrative Expenses Other Expenses Finance Costs Foreign Exchange Gain / (Loss) Profit Before Tax Income Tax Expense Profit for the Period
8,822,759,519 (4,891,672,222) 3,931,087,297 227,487,827 (490,893,315) (19,819,596) (12,288,171) (185,000,568) 3,450,573,472 (973,606,962) 2,476,966,510
Gas & Oil Production
PNOC Exploration Corporation
•
2010
AnnuAl REpoRt
Coal Operations
All Other Segments
TOTAL
As of and for the year ended December 31, 2009 Segment Assets Unallocated Corporate Assets Total Assets
9,617,359,117 9,617,359,117
1,575,462,605 1,575,462,605
94,927,909 94,927,909
11,287,749,631 2,214,097,661 13,501,847,292
Segment Liabilities Unallocated Corporate Liabilities Total Liabilities
3,068,320,949 3,068,320,949
78,878,423 78,878,423
1,757,859 1,757,859
3,148,957,231 349,494,650 3,498,451,881
Capital Expenditure Unallocated Capital Expenditure
157,007,548 157,007,548
30,760,868 30,760,868
11,010,652 11,010,652
198,779,068 198,779,068
Depreciation & Amortization Unallocated Depreciation and Amortization
560,901,305
7,880,456
6,058,274
574,840,035
560,901,305
7,880,456
6,058,274
18,964,643 593,804,678
38
Coal Operations
Year Ended December 31, 2009
Geographical Segments:
The distribution of the Company’s revenue per geographical location for the years ended December 31, 2010, 2009 and 2008 is presented in the following table:
Beginning of the year (includes input tax deferred on capital goods from previous period) Current year’s purchases: I. Goods for resale/manufacture or further processing II. Goods other than for resale or Manufacture III. Capital goods subject to amortization IV. Capital goods not subject to amortization V. Services lodged under cost of goods sold VI. Services lodged under other accounts Claims for tax credit/refund and other Adjustments (net of input tax on capital goods deferred for the succeeding period) Balance at the end of the year
2010 REVENUE Local Export
Gas & Oil Production
Coal Operations
3,728,437,871 1,003,174,919 4,731,612,790
2,142,748,637 1,437,019,893 3,579,768,530
Gas & Oil Production
Coal Operations
Others
3,694,537,111 956,462,266 4,650,999,377
1,853,581,082 91,025,135 1,944,606,217
123,696,215 123,696,215
Others 511,378,199 511,378,199
Consolidation 6,382,564,707 2,440,194,812 8,822,759,519
2009 REVENUE Local Export
Consolidation 5,671,814,408 1,047,487,401 6,719,301,809
B.
REVENUE Local Export
Coal Operations
Others
4,354,256,283 1,416,341,832 5,770,598,115
2,531,198,062 2,531,198,062
369,065,382 369,065,382
48,967,494
5,764,592 106,750 3,381,784 30,479,406
88,700,026
7,386,110 135,618,450
1,990,181 1,091 1,991,272
Consolidation 7,254,519,727 1,416,341,832 8,670,861,559
C.
D.
A.
Value Added Tax (VAT)
The Company is a VAT-registered entity with VAT output tax declaration of P246,709,678 for the year based on the amount reflected in the Revenue and Other income accounts, respectively.
The revenue and other income accounts includes sale of gas and condensate from the Company’s oil and gas production of SC 38 Malampaya project which exempt from VAT pursuant to Section 12(a) of Presidential Decree (PD) No. 87, Section 6.2 of SC 38 and Section 109(k) of the Tax Code of 1997, as amended by R.A. No. 9337.
The Company also has VAT exempt/zero-rated sales from its coal and energy supply base operations pursuant to the provisions of Section 16 of PD No. 972 and Section 106(A)(2), 108(B) and 109 of the Tax Code of 1997, as amended by R.A. No. 9337.
34,241,643 42,431,619 6,950,170 38,190,091 121,813,523
All other Taxes (National and Local) Other taxes paid during the year recognized under “Taxes and licenses” account under Cost of Sales & Operating expenses Business taxes Real Estate Taxes License and permit fees Others
The Bureau of Internal Revenue (BIR) issued on November 25, 2010 Revenue Regulation (RR) 15-2010, Amending Certain Provisions of Revenue Regulations No. 21-2002, as amended, Implementing Section 6 (H) of the Tax Code of 1997, authorizing the commissioner on internal revenue to prescribe additional procedural and/or documentary requirements in connection with the preparation and submission of financial statements accompanying income tax returns. Under the said regulation, companies are required to provide, in addition to the disclosures mandated under PFRSs, and such other standards and/or conventions as may be adopted, in the notes to the financial statements, information on taxes, duties and license fees paid or accrued during the taxable year. In compliance with the requirements set forth by RR 15-2010 hereunder are the information on taxes, duties and license fees paid or accrued during the taxable year.
Withholding Taxes Withholding taxes paid/accrued for the year amounted to: Tax on compensation and benefits Creditable withholding taxes Final withholding taxes VAT and other percentage taxes
Segment asset and capital expenditure by geographical location are not separately disclosed since all of the Company’s operations are in the Philippines.
39. INFORMATION REQUIRED UNDER RR 15-2010 OF THE BUREAU OF INTERNAL REVENUE
39,532,314
Documentary Stamp Tax (DST) DST paid/accrued on the following transactions are: Loan instruments Others
2008 Gas & Oil Production
The amount of VAT input taxes claimed are broken down as follows:
7,520,501 3,377,132 221,633 22,999,563 34,118,829
The “Others” includes deficiency taxes (including interest) for the 2006 BIR assessment amounting to P18.32 million and DOE royalty assessment amounting to P3.97 million.
E.
Deficiency Tax Assessments and Tax Cases
As of December 31, 2010, the Company has not received tax assessment notice from the BIR nor has pending tax court cases.
2010
AnnuAl REpoRt
•
PNOC Exploration Corporation
39
Board of D i r e c t o r s
Gemiliano C. Lopez, Jr. Chairman
October 28, 2010*
(L to R)
01 Minita V. Chico-Nazario Director June 8, 2010*
02 Rafael E. del Pilar Director October 28, 2010*
03 William D. Dichoso August 24, 2007*
04 Henry M. Dueñas, Jr. Director October 28, 2010* * Date Elected
40
PNOC Exploration Corporation
•
2010
Annual Report
(L to R)
05 Armando P. Galimba Director June 8, 2010*
06 Christopher H. Lindo Director June 8, 2010*
07 Leopoldo E. Petilla Director March 1, 2011*
08 Lasse A. Holopainen Director (not in photo) October 28, 2010*
2010
Annual Report
•
PNOC Exploration Corporation
41
Management &
Raymundo B. Savella Vice-President Petroleum & Coal Operations Division
Candido M. Magsombol Manager Trading & Marketing Department
Jose C. Sta. Ana Manager Legal Department
Dancelo G. Gacutan Project Manager Malangas Project Operations
Rolando V. Oliquino, Jr. Manager Project Development Department
Jose Allan R. Caringal Manager Energy Supply Base
Restituto G. Taganas, Jr. Superintendent Coal Engineering Section
Cesar B. Ramirez Superintendent Malangas Project Operations
Federico D. Galang, Jr. Superintendent Petroleum Engineering Section
Gemiliano C. Lopez, Jr.
Chairman, President & Chief Executive Officer
42
Lourdes S. Gelacio Vice-President Corporate Services Division
PNOC Exploration Corporation
•
2010
Annual Report
O f f i c e r s Te a m
Lionel Q. Calo, Jr. Vice-President Planning & Treasury Division
Joseph Omar A. Castillo Vice-President Business Operations Division
Sylvestre R. Punsalan III Chief-of-Staff
Lucila Q. Maralit Manager Internal Audit Department
Jose Edilbert S. Corsame Manager Production & Natural Gas Department
Maria Rita S. Dayleg Manager Human Resources & Administration Department
Jaime A. Bacud Manager Exploration Department
Joseph M. Foronda Superintendent Coal Exploration Section
Miguel A. Tordilla Superintendent Malampaya Asset Section
Ferdinand G. Reyes Supervisor Tondo Coal Terminal
Leonardo M. Macias Supervisor Naga Coal Terminal
Jose L. Pascua Supervisor (OIC) Batangas Coal Terminal
2010
Annual Report
•
PNOC Exploration Corporation
43
Company & Field Offices
Head Office
PNOC Exploration Corporation Building 1, Energy Center, Merritt Rd. Fort Bonifacio, Taguig 1634 Metro Manila, Philippines Tel.: 63 (2) 479-9400 Fax: 63 (2) 840-2055 / 840-1471 http://www.pnoc-ec.com.ph Email:
[email protected]
B atangas Coal T erminal
M alangas project operations
PNOC Exploration Corporation San Miguel, Bauan 4201 Batangas, Philippines Tel.: 63 (43) 727-1133 63 (2) 479-9407 Fax: 63 (43) 980-6157 Email:
[email protected]
PNOC Exploration Corporation Km. 9, Diplahan 7039 Zamboanga Sibugay, Philippines Tel.: 63 (919) 540-2154 63 (2) 479-9490 Exploration Corporation Fax: 63 (919) 547-0630 Email:
[email protected]
E nerg y S u pply B ase PNOC Exploration Corporation Barrio Mainaga, Mabini 4202 Batangas, Philippines Tel.: 63 (43) 723-7519 / 487-0325 / 487-0552 / 479-9431 Fax: 63 (43) 723-4018 Email:
[email protected]
N aga Coal T erminal PNOC Exploration Corporation 6037 Cebu, Philippines Tel.: 63 (2) 479-9489 Tel./Fax: 63 (32) 236-7044 Email:
[email protected]
TO N D O Coal T erminal PNOC Exploration Corporation Lot 2-A Vitas Industrial Estate, R-10 Vitas, Tondo Manila Tel.: 63 (2) 479 - 9487
Transfer Agent: Philippine National Bank - Trust Banking Group 3/F PNB Financial Center Pres. Diosdado Macapagal Blvd., Pasay City 1305 Tel.: 832-2615, 526-3688 • Fax: 526-3379
44
PNOC Exploration Corporation
•
2010
Annual Report
Working Together Towards an Energy Self-Sufficient Philippines
Concept, Design, Production and Printing: MODE MATRIX MANILA , INC. Annual Report PNOC Exploration Corporation
2010
•
45
