Speculative market play

The news that President Duterte has given the go-signal for the resumption of oil and gas exploration in the West Philippine Sea has stoked intense investor interest in speculative stocks with a stake in drilling contracts frozen for years by the territorial dispute between the Philippines and China.

As soon as the announcement was made, share prices of PXP Energy Corp. and Atok Big Wedge surged by nearly 50 percent. Apex Mining also gained 34.84 percent while shares of PXP’s parent firm, Philex Mining, jumped by 20.76 percent. All in just one trading day.

There is nothing wrong with such spurts in stock prices. There are investors accustomed to such volatile market activities—the so-called high-risk, high-return plays. This should not be the case, however, for small investors seeking to grow their money in the stock market; the most prudent recourse for them is to be careful and wary of such plays.

A rational assessment as of now shows that the risk of buying stocks of companies with interests in oil and gas exploration in the West Philippine Sea is greater than the expected rewards. Actual exploration for the precious minerals is far from getting started. The certainty of finding oil and gas is another big question.

Even the involved companies are very quiet. In a disclosure to the Philippine Stock Exchange (PSE), Atok Big Wedge only had this to say: “We can only surmise that the unusual price movement (in its share prices) can be attributed to the government’s announcement that President Duterte has lifted the moratorium on oil and sea exploration in the West Philippine Sea.” In a separate statement to the bourse, Philex also said that there was nothing worth “disclosable” to explain the surge in its share price and that of its subsidiary PXP.

Energy Secretary Alfonso Cusi has given the “resume to work” notice to contractors doing petroleum exploration in Service Contracts No. 59, 72, and 75—all covering exploration areas within the West Philippine Sea. However, when asked when such activities were expected to resume, Cusi told reporters in a virtual press briefing that he was not aware of any schedule as yet. The listed companies involved in any exploration activity have to disclose their exploration plans — including timetable — to the Department of Energy as regulator and to the PSE as a regulatory requirement.

Even Philippine Ambassador to China Chito Sta. Romana noted in a televised Palace press briefing that while the Chinese foreign ministry gave a fairly positive reaction to the lifting of the moratorium, “there will be more discussions” on the cooperation between China and the Philippines as stipulated in a 2018 memorandum of understanding (MOU).

In 2014, the administration of President Benigno Aquino III ordered a moratorium on all exploration and drilling activities in the West Philippine Sea following increased tensions between the Philippines and China. In 2018, however, the Duterte administration signed the MOU with China to pursue a joint oil and gas exploration deal in the area. Talks were slow to prosper, and any possible agreement got stalled further by the COVID-19 pandemic.

The announcement of the project’s resumption is significant, but it’s still a long way from here to actually finding oil and gas, if there are indeed commercial quantities deposited in the area. While some of the involved firms have issued statements in the past about the possibility of large quantities of oil and gas deposits because of the area’s proximity to the Malampaya gas field, test wells need to be drilled and further studies made to confirm the actual presence of mineral deposits.

The rewards may certainly be huge when commercial quantities of oil and gas deposits are found there. At the same time, however, for small investors excited by the spike in the stock market, the risks remain high. Note that reports of oil and gas presence from previous test wells in the area were inconclusive. Small investors seeking to make a killing on the sudden frenzied activity generated by drilling stocks may well be advised that, at least for now, it’s better to be safe than sorry. Too many small investors — retirees, teachers, ordinary employees, and the like — have already been burned before by such speculative stock market plays.