Ann: Philippines Approvals, page-14

And the fundamentals bear this out as well in my opinion. This latest announcement, just as those since June last year, did not have the desired effect. Look closely, study closely and you will understand the reasons why......play of words, deals for a dollar (i.e. the 1 dollar Bangchak deal (I think it was for a buck) – but in fact it is not really a dollar deal now is it? There are WP&B obligations, P&A obligations, etc.). Could it be that the SGC MDs, AMs and CMs are using “strategic” sentences to get people to pump? To deflect from the “biting more than they can possibly chew position” (hmm….is this why JK jumped ship?).

There are only four things needed to be announced by SGC for proof of credibility (and not one of them is correlated to a drilling symposium in Singapore…well perhaps we can give that an R coefficient of +0.01). Does SGC have (a) the approval of the DOE, explicitly stated..in writing (nothing prevents them from posting it here), that they are the majority equity holder in SC 6B and the Operator on record at the DOE as per the FIA (and not just the so-called “Technical” Operator), which implies (b) that the DOE are satisfied that they can fund the full field development of SC 6B, (c) their POD, and correspondingly their EWT (on what terms, e.g. is it a maximum amount of barrels or time constraint or both...for example 600,000 barrels or 60 days) have been agreed/approved with/by the DOE (an EWT Agreement with the DOE is a separate written agreement altogether), and then, the final critical item, (d) the ECC from the DENR (not a CNC as announced). None of the above 4 have been consummated or announced so far.

The rules of the Philippines Department of Environment and Natural Resources are very clear (they alone clear the way for drilling offshore): CNCs are issued only when it is an exploration well that will be drilled. Exploration drilling means NOT having production facilities which have the risk of oil spills etc. (in other words, no separation equipment and other production topsides..whatsoever). Thus a CNC is easily acquired (takes only several weeks) and does not require the DENR Secretary's signature (a USEC or Director will suffice). And hence why SGC have been able to get one just in a few weeks. Note: even Blade Petroleum, Peak and CADCO did not bother getting a CNC since they deemed it irrelevant and redundant with respect to Cadlao.

As you all know, Cadlao is not exploration drilling (as least as represented by SGC). SGC plans an EWT plus full field development (2 to 4 Cadlao new wells? plus 1 or 2 on East Cadlao later on? The DOE still needs to approve the POD, and to get that SGC needs to provide proof of full funding (cash in account). Then one needs to prepare an Environmental Impact Assessment Report and an Oil Spill Response Plan to be submitted to the DENR. Then you will need the okay from the Palawan Council for Sustainable Development. There are one or two more items but this will all finally lead to the issuance of an Environmental Certificate of Compliance. It may come but I still opine that it will perhaps happen middle of 2023 at the earliest (that will leave at best 8 months to prepare for the POD as SC 6B is expiring in Feb 2024 – 15 years since the extension given to Blade Petroleum in Feb 2009). If the DENR did really issue a CNC for a Cadlao EWT then... boy oh boy...someone over there (and perhaps even at the DOE) are going to be in trouble with the Ombudsman! Or maybe SGC is soliciting the help of Philodrill to get the EWT rebranded as ”Exploration” Well Test (not Extended Well Test)…they implied as much on their website (calling the wells appraisal or exploration). However, we all know what EWT really means so this is just another case of….well you know.

If you have the inclination, visit the Philodrill website and read what they are planning to do with SC 6A Octon...it is a sly move but this might be the strategy for SGC on Cadlao. Octon has been an “asset” (by the way SCs cannot be booked as assets on the Balance Sheet, despite this widespread practice by the entrenched) of Philodrill since donkeys years (rough guess....at least 35 years and still a dud). Why would you give them another crack at it? If SGC replicates this strategy for getting “more years” on Cadlao, it is highly likely that their nomination will have several challengers for the “new Cadlao re-configured block”. A risky move if this goes to a Swiss challenge as per the DOE rules.

Regardless, ket us assume that SGC are indeed using the CNC as the green light to drill Cadlao because they are rebranding the wells as exploration wells, then they have to contend with another funding rule/issue from/with the DOE. And that is, all exploration wells have to be backed by a performance bond equal to the total cost of drilling those wells. This rule does not apply to development/production wells. This will add to the funding needs....1) the performance bond being an insurance will cost money to set up, and 2) if you do not perform as represented, the DOE gets paid the bond amount.

On the latter part of the announcement, I am not surprised that their WP&Bs for their other assets in the Philippines have been. These are small ticket items that are required by the DOE to be submitted once a year (e.g. further G&G, reservoir studies, seismic reprocessing, etc.). Easily funded from cash from their other operations as I expect these to be in the 500K to 1million dollar range..

All in all...another nothing-burger announcement and reflected once again in the share price movement since the announcement. It only took a few days for the market to say... ”and so what?”