PNOC EC taps gas from SSB-1 drilling; readies for second well

August 31, 1999 PSE CIRCULAR FOR BROKERS NO. 2171-99 August 31, 1999 PNOC EC taps gas from SSB-1 drilling ; readies for second well PNOC Exploration Corporation (PNOC EC) completes today the drilling and testing of the Sultan-sa-Barongis-1 (SSB-1) well in Barangay Tukanakuden, Sultan-sa-Barongis, Maguindanao. The well reached a total depth of 2,000 feet and testing resulted in stabilized gas flowrates just below 200,000 cubic feet per day from reservoir zones below 1,500 feet. With the drilling of SSB-1, the Company was able to determine the high quality of the gas reservoir and the good quality of the natural gas composition. If the reservoir quality and vertical extent of the structure persist, PNOC EC expects the possibility of a significant increase in the gas flowrates and higher reserves potential than the earlier-predicted 60 billion cubic feet of recoverable reserves. The natural gas encountered by the SSB-1 well is of premium quality as it contains 99.9% methane and traces of ethane. No harmful cases such as hydrogen sulfide or carbon dioxide were encountered during drilling. The Company is now conducting rig-down operations and will be preparing to drill the second well, SSB-2, before mid-September. SSB-2 is located 2.5 kilometers northwest of SSB-1 at Barangay Kulambog also in the same municipality. The SSB-1 drilling is the first of two wells scheduled this year under a natural gas development program being implemented by the Company for its Cotabato Basin Exploration Project. SSB-1 was programmed to gather the necessary data to determine the vertical extent of the gas zone and the producibility and sustainability of the gas flow. The SSB-2 well, on the other hand, will test the lateral extent of the reservoir and confirm the gas volume potential. PNOC EC expects definite results for the program after the drilling and testing of SSB-2. Once the reserves are proven to be commercially viable, PNOC EC will accelerate its operations to production and development ultimately aiming to generate 60 megawatts of electricity from the prospect through a combined-cycle gas turbine power plant, which will run for 20 years. The Company anticipates providing the additional capacity to the Mindanao grid by year 2003 when a shortfall of 300 megawatts is expected to occur. The power plant is projected to cost between US $40 and 50 million. PNOC EC's first well in the Cotabato Basin, Tukanakuden-1 (TKN-1), was drilled in December 1995 and reached a total depth of 4,723 feet. Although TKN-1 did no encounter the targeted oil prospect, the drilling intercepted a gas-bearing zone, which is the focus of PNOC EC's ongoing operations. The Cotabato Basin Exploration Project is expected to generate cheaper electricity for the immediate area, royalties and taxes to the local government units and possible employment for local residents apart from the infrastructure projects and economic activities which may be stimulated. The SSB-1 drilling was conducted without any security-related incident and the Company attributes this to the continued support from government, the local leaders and populace.