The West Philippine Sea refers to that part of the South China Sea that President Benigno Simeon C. Aquino III declared as the maritime area on the western side of the Philippine archipelago when he issued on 05 September 2012 Administrative Order No. 29. The area is currently subject to a maritime dispute considered by geopolitical analysts as a key political risk to watch as the Philippines seeks a further credit rating update to attract more foreign direct investments.

1. West
Philippine
Sea
Dispute
Jeopardizes
Petroleum
Exploration
and
Development
The
West
Philippine
Sea
refers
to
that
part
of
the
South
China
Sea
that
President
Benigno
Simeon
C.
Aquino
III
declared
as
the
maritime
area
on
the
western
side
of
the
Philippine
archipelago
when
he
issued
on
05
September
2012
Administrative
Order
No.
29.
The
area
is
currently
subject
to
a
maritime
dispute
considered
by
geopolitical
analysts
as
a
key
political
risk
to
watch
as
the
Philippines
seeks
a
further
credit
rating
update
to
attract
more
foreign
direct
investments.
While
the
dispute
involves
six
parties
(People’s
Republic
of
China,
Taiwan,
Vietnam,
the
Philippines,
Malaysia
and
Brunei
Darussalam)
claiming
all
or
part
of
the
South
China
Sea,
the
greatest
concern
is
that
the
ongoing
dispute
might
break
out
into
armed
conflict.
Any
instability
in
the
region
is
likely
to
disrupt
economic
activities
and
derail
development
especially
with
the
involvement
of
the
U.S.
if
it
decides
to
support
its
allies
against
China.
Some
of
the
countries
involved
in
the
dispute
contest
each
other’s
rights
to
the
200-­‐nautical
mile
Exclusive
Economic
Zone
(“EEZ”)
and
an
Extended
Continental
Shelf
(“ECS”),
citing
the
United
Nations
Convention
on
the
Law
of
the
Sea
(“UNCLOS”),
which
took
effect
in
1994.
UNCLOS
governs
maritime
disputes
on
overlapping
maritime
zones
like
overlapping
territorial
seas,
EEZs
and
ECSs.
The
Philippines
will
not
surrender
claims
to
its
EEZ
but
it
is
not
capable
of
confronting
China
militarily.
China
demands
one-­‐on-­‐one
negotiations,
but
other
claimants
prefer
a
multilateral
approach,
which
opens
the
way
for
an
indirect
role
for
the
United
States,
which
obviously
China
doesn’t
want.
Prior
to
President
Barack
Obama’s
arrival
in
Manila
on
28
April
2014
for
a
state
visit,
the
Philippines
and
the
U.S.
signed
the
Enhanced
Defense
Cooperation
Agreement
described
by
both
governments
as
an
executive
agreement,
not
a
formal
treaty
and
therefore
does
not
require
the
consent
of
the
Senate
in
either
country.
The
agreement
referred
to
by
President
Obama
as
Washington’s
“pivot”
to
Asia
and
an
“ironclad”
commitment
to
defend
the
Philippines
would
provide
for
U.S.
forces
to
rotate
in
and
out
of
existing
Philippine
military
bases
for
missions
ranging
from
narrowly
defensive
to
humanitarian
to
training
of
the
Philippines’
small,
weak
military
establishment.
Both
Obama
and
Aquino,
however,
were
careful
not
to
attribute
the
agreement
directly
to
China’s
claim
to
the
entire
South
China
Sea.
9-­‐Dashed
Lines
and
China’s
Historical
Rights
China
officially
notified
the
world
of
its
9-­‐dashed
line
claim
in
2009
when
it
submitted
the
9-­‐dashed
line
map
to
the
United
Nations
Secretary
General.
Under
the
so-­‐called
9-­‐dash
line
map,
China
claims
almost
90%
of
the
South
China
Sea,
which
overlaps
80%
of
the
Philippines’
EEZ
and
all
its
ECS
in
the
West
Philippine
Sea.
If
China’s
claim
is
upheld,
the
Philippines
will
lose
the
Reed
(Recto)
Bank
and
even
the
strategic
Malampaya
natural
gas
field.

2. Manila
filed
a
case
to
pursue
its
claims
and
submitted
a
4,000-­‐page
memorial
seeking
a
ruling
on
China’s
9-­‐dashed
line
from
the
Permanent
Court
of
Arbitration
in
The
Hague.
The
case
would
be
the
first
time
international
legal
experts
formally
consider
the
validity
of
China’s
territorial
claims
in
the
South
China
Sea.
The
Philippines’
arbitration
case
against
China
is
solely
a
maritime
dispute
and
does
not
involve
any
territorial
dispute.
Chinese
Foreign
Ministry
spokesman
Hong
Lei
issued
a
statement
on
the
Philippine
request
for
arbitration
and
repeated
China’s
opposition
to
international
arbitration
over
these
issues
given
China’s
preference
for
“direct
negotiations
with
countries
concerned.”
Hong
argued
that,
by
submitting
the
case
for
arbitration,
the
Philippines
was
in
violation
of
previous
agreements
to
solve
issues
bilaterally,
including
the
2002
ASEAN
Declaration
on
the
Conduct
of
Parties
in
the
South
China
Sea.
China
is
not
expected
to
submit
a
counter-­‐claim
and
participate
in
the
arbitration
process
making
a
Philippine
victory
by
default
highly
probable.
However,
such
a
ruling
would
be
nothing
but
a
public
relations
victory
for
the
Philippines,
allowing
Manila
to
claim
that
its
position
is
internationally
sanctioned.
Philippine
Secretary
of
Foreign
Affairs
Albert
del
Rosario
said
he
does
not
expect
a
ruling
on
the
case
before
the
end
of
2015.
In
an
article
in
the
14
April
2014
issue
of
Forbes,
Singapore
senior
statesman
and
former
Prime
Minister,
Lee
Kuan
Yew
doesn’t
believe
the
China
will
submit
its
claims,
which
are
based
primarily
on
China’s
historical
presence
in
the
disputed
waters.
Lee
also
believed
that
China
would
not
allow
the
dispute
to
be
decided
by
rules
that
were
defined
at
a
time
when
China
was
weak
and
that
it
has
judged
that
the
U.S.
won’t
risk
its
present
good
relations
with
China
over
a
dispute
between
the
Philippines
and
China.
Lee
added
that
if
historical
claims
can
define
jurisdiction
over
waters
and
oceans,
the
Chinese
can
point
to
the
fact
that
600
years
ago
they
sailed
these
waters
unchallenged.
Under
the
general
principles
and
rules
of
international
law,
a
claim
of
“historical
rights”
to
internal
waters
or
territorial
sea
must
satisfy
four
conditions.
One,
the
state
must
formally
announce
to
the
international
community
such
claim
to
internal
waters
or
territorial
sea,
clearly
specifying
the
extent
and
scope
of
such
claim.
Two,
the
state
must
exercise
effective
authority,
that
is,
sovereignty,
over
the
waters
it
claims
as
its
own
internal
waters
or
territorial
sea.
Three,
such
exercise
of
effective
authority
must
be
continuous
over
a
substantial
period
of
time.
Four,
other
states
must
recognize,
tolerate
or
acquiesce
to
the
exercise
of
such
authority.
China’s
defence
of
its
9-­‐dashed
line
will
entirely
depend
on
how
it
can
convince
the
international
community
that
it
has
satisfied
these
four
conditions.
Presently,
not
a
single
country
in
the
world
recognizes
or
acquiesces
to
China’s
9-­‐dashed
line
claim.
Petroleum
Resources
in
the
Disputed
Areas
The
ongoing
dispute
involving
among
others,
the
right
to
explore
for
and
exploit
petroleum,
minerals
and
other
marine
resources
in
these
zones
raises
tension
in

3. the
area,
definitely
downplaying
energy
exploration
and
development
interests
on
the
areas
currently
claimed
by
the
Philippines.
The
West
Philippine
Sea
is
the
location
of
three
(3)
potential
areas
where
hydrocarbon
deposits
could
be
found:
Northwest
Palawan,
Southwest
Palawan
and
Reed
(Recto)
Bank.
Of
particular
interest
is
the
area
of
Northwest
Palawan,
including
Reed
(Recto)
Bank
where
most
of
the
country’s
petroleum
production,
including
the
Malampaya
natural
gas,
is
sourced
from
and
where
the
discovery
of
additional
petroleum
resources
is
most
likely.
According
to
the
Department
of
Energy
(“DOE”)
report
“Philippine
Petroleum
Resource
Assessment”
(2002)
the
estimated
mean
volume
of
the
total
risked
recoverable
resources
for
Northwest
Palawan
basin
is
494
Million
bbl
(79
Million
Sm3)
of
oil
and
9,271
Billion
cf
(263
Billion
Sm3)
of
gas.
Of
these
total
resources,
143
Million
bbl
(23
Million
Sm3)
of
oil
and
3,806
Million
cf
(108
Billion
Sm3)
of
gas
are
actually
discovered.
For
the
Southwest
Palawan
basin,
the
estimated
mean
volume
of
the
total
risked
recoverable
resources
is
around
549
Million
bbl
(87
Million
Sm3)
of
oil,
46%
of
which
comes
from
mapped
structures,
and
4,529
Billion
cf
(128
Billion
Sm3)
of
gas,
24%
of
which
is
from
mapped
structures.
For
the
Reed
(Recto)
Bank
basin,
the
estimated
mean
volume
of
the
total
risked
recoverable
resources
is
around
35
Million
bbl
(6
Million
Sm3)
of
oil
and
2,229
Billion
cf
(63
Billion
Sm3)
of
gas.
The
U.S.
Geological
Survey
(“USGS”)
came
out
in
2010
with
an
assessment
of
the
petroleum
potential
of
the
South
China
Sea
including
the
West
Palawan
Shelf.
TABLE
1.
Estimates
of
oil
and
gas
based
on
US
Geological
Survey
Total
Petroleum
Systems
(TPS)
and
Assessment
Units
(AU)
Field
Type
Largest
expected
field
size
Total
undiscovered
resources
(Mean)
Oil
(MMBO)
Gas
(BCFG)
NGL
(MMBNGL)
South
China
Sea
Platform
(Miocene
TPS)
Dangerous
Grounds-­‐Reed
Bank
AU
Oil
Gas
703
4,217
2,522
N/A
10,370
15,149
197
881
Palawan
Shelf
Province
(Eocene-­‐Miocene
Composite
TPS)
Eocene-­‐Miocene
Reservoirs
AU
Oil
Gas
101
514
270
N/A
179
1,229
6
38
BCFG
=
billion
cubic
feet
of
gas
MMBNGL=million
barrels
of
natural
gas
liquids
MMBO
=
million
barrels
of
oil
NGL=natural
gas
liquids
Largest
expected
filed
size
for
oil
is
measured
in
MMBO
and
for
gas
in
BCFG
Source:
“Assessment
of
Undiscovered
Oil
and
Gas
Resources
of
Southeast
Asia,
2010,”
US
Geological
Survey,
cited
in
THE
WEST
PHILIPPINE
SEA:
The
Territorial
and
Maritime
Jurisdiction
Disputes
from
a
Filipino
Perspective,
A
Primer”
According
to
the
“Report
on
the
South
China
Sea”
released
by
the
US
Energy
Information
Agency
(“EIA”)
on
07
February
2013,
the
region
around
the
Spratly
(Kalayaan)
Islands
have
virtually
no
proved
or
probable
oil
reserves.
Industry
sources
suggest
less
than
100
billion
cubic
feet
(Bcf)
in
currently
economically
viable
natural
gas
reserves
exist
in
surrounding
fields.
However,
the
area
may

4. contain
significant
deposits
of
undiscovered
hydrocarbons.
USGS
assessments
estimate
anywhere
between
0.8
and
5.4
(mean
2.5)
billion
barrels
of
oil
and
between
7.6
and
55.1
(mean
25.5)
Tcf
of
natural
gas
in
undiscovered
resources.
Most
of
these
undiscovered
resources
are
likely
located
in
the
contested
Reed
(Recto)
Bank,
which
is
also
claimed
by
China,
Taiwan,
and
Vietnam.
The
Philippines
began
exploring
the
area
in
1970
and
discovered
natural
gas
in
1976.
The
Philippine
government
awarded
a
petroleum
service
contract
to
U.S-­‐based
Sterling
Energy
in
2002,
which
was
then
acquired
by
U.K-­‐based
Forum
Energy
in
2005.
However,
Chinese
objections
culminating
with
an
incident
in
the
Reed
(Recto)
Bank
on
02
March
2011
when
Chinese
vessels
approached
Forum
Energy’s
ship
demanding
that
it
stop
all
exploration
activities
and
leave
the
area,
prevented
the
operator
from
pursuing
further
activities.
Theresa
Martelino-­‐Reyes
of
the
VERA
Files
reported
that
the
state-­‐owned
Chinese
oil
firm,
China
National
Offshore
Oil
Corp.
(“CNOOC”)
has
rejected
the
“Farm-­‐in
Agreement”
proposal
of
Forum
Energy
in
the
disputed
Reed
(Recto)
Bank
service
contract
because
of
“sovereignty
issues”
between
China
and
the
Philippines.
Nevertheless,
CNOOC
welcomed
“innovative”
proposals
on
how
it
can
participate
in
the
service
contract.
Forum
Energy
reportedly
declared
force
majeure,
which
will
end
on
August
2014.
Meanwhile,
the
company
released
in
2012
its
estimate
of
petroleum
resources
for
the
Reed
(Recto)
Bank.
TABLE
2:
Estimates
of
hydrocarbon
resources
in
Reed
(Recto)
Bank
based
on
Weatherford
Petroleum
Resource
Type
Estimate
Type
Low
High
Best
estimate
Gross
prospective
resources
Gas
4.666
TCF
16.612
TCF
8.799
TCF
Oil
117
MMBO
416
MMBO
220
MBO
and
liquids
in
places
Gross
contingent
resources
Gas
Oil
1.474
TCF
37
MMBO
2.603
TCF
115
MMBO
4.598
TCF
65
MBO
and
liquids
in
place
NOTES
• “Prospective
resources
refer
to
quantities
of
oil
and
gas
estimated
at
a
given
date
to
be
potentially
recoverable
from
undiscovered
accumulations,
which
are
technically
and
economically
viable
to
recover…”
• “Contingent
resources
refer
to
quantities
of
oil
and
gas
estimated
on
a
given
date
to
be
potentially
recoverable
from
known
accumulations
but
are
not
currently
economically
viable
to
recover.
Such
resources
include
accumulations
for
which
there
is
no
viable
market…”
• Pre-­‐drill
estimates
of
resources
are
based
on
certain
assumptions
and
information
and
interpretations
currently
available,
with
no
assurances
of
accuracy.
(Source:
“Recto
Bank
sitting
on
16T
cubic
feet
of
gas,”
Business
Mirror,
April
26,
2012,
pg.
A1-­‐A2,
cited
in
THE
WEST
PHILIPPINE
SEA:
The
Territorial
and
Maritime
Jurisdiction
Disputes
from
a
Filipino
Perspective,
A
Primer)

5. Joint
development:
An
Innovative
Proposal?
The
Arroyo
government
agreed
to
a
Joint
Marine
Seismic
Undertaking
(“JMSU”),
which
was
a
tripartite
agreement
signed
on
14
March
2005
between
the
state-­‐
owned
oil
companies
of
the
Philippines
(PNOC),
China
(CNOOC)
and
Vietnam
(Petrovietnam).
Under
the
JMSU,
the
parties
agreed
to
conduct
a
joint
seismic
survey
for
three
years
in
an
area
of
the
West
Philippine
Sea
including
the
Spratly
(Kalayaan)
Islands
and
Reed
(Recto)
Bank.
However,
JMSU
did
not
involve
joint
development
activities.
According
to
then
PNOC
President
Eduardo
Mañalac,
JMSU
involved
“a)
a
sincere
effort
on
the
part
of
three
governments
to
find
common
ground
for
cooperation
involving
the
South
China
Sea
area;
b)
a
desire
to
materialize
this
effort
in
terms
of
a
concrete
scientific
study,
the
results
of
which
could
be
of
great
value
in
determining
over-­‐all
consequences
for
the
region;
and,
c)
a
common
determination
to
cement
the
friendships
formed
by
opening
further
discussions
beyond
the
JMSU.”
Despite
the
fact
that
the
JMSU
agreement
provided
a
provision
that
maintained
that
the
“signing
of
this
Agreement
shall
not
undermine
the
basic
position
held
by
the
Government
of
each
Party
on
the
South
China
Sea”,
and
the
DOE
issued
a
“Non-­‐Exclusive
Geophysical
Permit”
on
10
June
2005
to
give
a
legal
cover
for
the
other
JMSU
parties
to
conduct
seismic
activities
thereby
indicating
that
the
Philippine
government
still
continued
to
exercise
jurisdiction
over
the
affected
areas,
the
JMSU
was
regarded
as
a
“sell-­‐out”
by
the
Philippines
because
it
gave
China
an
opportunity
to
claim
access
to
the
Reed
(Recto)
Bank
that
had
never
been
disputed
before.
Intense
public
opposition
to
the
Arroyo
Administration’s
role
in
the
JMSU,
particularly
allegations
that
tied
the
JMSU
to
corruption,
caused
the
agreement
to
lapse
without
extension
in
2008.
(“The
West
Philippine
Sea:
The
Territorial
and
Maritime
Jurisdiction
Disputes
from
a
Filipino
Perspective,
A
Primer”,
The
Asian
Center
and
Institute
for
Maritime
Affairs
and
Law
of
the
Sea,
University
of
the
Philippines,
2013)
According
to
Supreme
Court
Senior
Associate
Justice
Antonio
Carpio
in
his
speech
given
before
the
Philippine
Bar
Association
on
29
August
2013,
China
has
been
dangling
to
the
Philippines
and
other
claimant
states
its
offer
for
joint
development
of
the
disputed
areas
while
shelving
the
sovereignty
issues.
However,
he
mentioned
at
least
three
problems
to
this
offer.
First,
China
wants
to
jointly
develop
the
EEZ
of
the
Philippines
but
refuses
to
jointly
develop
China’s
own
EEZ.
In
effect,
China
is
saying
to
the
Philippines,
what
is
exclusively
China’s
economic
zone
is
China’s
alone,
but
what
is
exclusively
the
Philippines’
economic
zone
belongs
to
both
China
and
the
Philippines.
Second,
China’s
offer
of
joint
development
is
subject
to
the
precondition
that
participating
coastal
states
must
first
expressly
recognize
China’s
“indisputable
sovereignty”
under
its
9-­‐dashed
line
claim.
This
precondition
effectively
means
that
once
a
state
agrees
to
joint
development,
it
must
not
only
vacate
any
island
it
possesses
in
the
Spratlys
and
turn
over
the
same
to
China,
it
must
also
renounce
any
maritime
claim
within
the
9-­‐dashed
line
area.
This
precondition

6. demanded
by
China
is
obviously
inconsistent
with
its
offer
to
shelve
the
sovereignty
issue.
Third,
if
the
Philippines
agrees
to
China’s
joint
development
offer,
the
Philippines
will
in
effect
give
up
its
exclusive
“sovereign
rights”
to
exploit
all
the
living
and
non-­‐living
resources
in
its
own
EEZ.
The
Philippines
will
also
give
up
its
exclusive
right
to
exploit
the
mineral
resources
in
its
own
ECS.
The
bottom
line
is
that
China’s
joint
development
offer
will
negate
the
maritime
entitlements
of
the
Philippines
under
UNCLOS.
This
is
constitutionally
impermissible
because
our
1987
Constitution
mandates
the
State
to
“protect
the
nation’s
marine
wealth
in
its
xxx
exclusive
economic
zone,
and
reserve
its
use
and
enjoyment
exclusively
to
Filipino
citizens.”
Any
joint
development
with
China
constitutes
a
“culpable
violation
of
the
Constitution.”
For
whatever
reason
the
Arroyo
government
entered
into
the
tripartite
JMSU
agreement,
the
author
believes
that
it
was
a
major
political
and
diplomatic
blunder
on
the
part
of
the
government.
I
agree
with
Justice
Carpio’s
assessment
that
“the
only
joint
development
that
is
feasible
in
the
Spratlys
is
for
all
claimant
states
to
respect
each
other’s
EEZs
as
guaranteed
by
UNCLOS
and
to
jointly
develop
the
disputed
areas
beyond
these
EEZs.”
Conclusion
The
Western
Palawan
shelf
and
the
Reed
(Recto)
Bank
are
undisputedly
part
of
the
Philippine
EEZ.
In
the
past,
the
Philippine
government
has
exercised
exclusive
“sovereign
rights”
over
the
area
by
awarding
petroleum
service
contracts.
In
addition
to
pursuing
the
arbitration
case
against
China,
the
government
through
the
DOE
should
continue
offering
service
contracts
in
the
disputed
areas
despite
opposition
from
the
Chinese
government.
If
the
DOE
gets
intimidated
by
China
and
wavers,
it
is
a
tacit
recognition
of
China’s
9-­‐dashed
line
historical
claim.
If
needed,
the
Philippine
military
should
provide
protection
to
contractors
while
they
engage
in
exploration
and
development
activities
in
the
disputed
areas.
On
the
other
hand,
the
energy
community
must
do
it
share
by
applying
or
bidding
for
service
contracts
in
the
West
Philippine
Sea.
While
there
may
be
other
“commercial”
considerations
for
multinational
energy
companies
when
they
bid
for
acreage
they
should
also
bear
in
mind
that
nothing
protects
their
investment
more
other
than
their
total
support
and
commitment
for
the
general
rules
and
principles
of
international
law.
Fernando
“Ronnie”
Penarroyo
is
the
Managing
Partner
of
Puno
and
Penarroyo
Law
(fspenarroyo@punopenalaw.com).
He
specializes
in
Energy,
Resources
and
Environmental
Law,
Business
Development
and
Project
Finance.