Philippine Supreme Court Revokes China Pact, Triggering Drop in Energy Stocks

(Bloomberg) -- Philippine oil and gas drillers fell Wednesday after the top court voided the nation’s 2005 deal with China and Vietnam to jointly explore for oil and gas in the South China Sea, less than a week after President Ferdinand Marcos Jr. agreed to revive similar talks with Beijing.

The Supreme Court on Tuesday declared unconstitutional the joint marine seismic undertaking of the three countries signed nearly 18 years ago “for allowing wholly-owned foreign corporations to participate in the exploration” of Philippine natural resources.

The agreement, signed between China National Offshore Oil Corporation, Vietnam Oil and Gas Corporation and Philippine National Oil Co. during the term of former president Gloria Macapagal-Arroyo, lapsed in July 2008.

Philippine oil driller PXP Energy Corp., which has service contracts in the South China Sea, sank as much as 8%. Oriental Petroleum & Minerals Corp. dropped more than 9%. Atok-Big Wedge Co. Inc., which also has exposure in Sampaguita gas field in the disputed sea, fell 1.2%.

The retreat in PXP Energy shares followed a recent rally in anticipation of an exploration deal between Manila and Beijing “but the court ruling mooted it,” said Nicky Franco, research head at Abacus Securities Corp. 

The court ruling came days after Marcos agreed with Chinese President Xi Jinping to resume oil and gas exploration talks in the South China Sea amid the two nations’ territorial dispute in the area.

“May this be a warning to Mr. Marcos not to trifle with the constitutional provisions that reserve the exploitation of our natural resources exclusively to Filipinos,” former lawmaker Teodoro Casiño, one of those who brought the tripartite deal to court, said on Twitter Tuesday.

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