UPDATE 1-Philippines says Galoc starts producing oil

(Adds details, comments, background)

By Karen Lema

MANILA, Oct 9 (Reuters) - The Galoc oilfield off southwestern Philippines went onstream on Thursday, the government said, the first major production since the 1990s in the underexplored country that is trying to cut its crude import dependency.

But repeated delays in the delivery of first oil from the 17,500 barrels per day (bpd) offshore field, initially due to start in the first quarter of this year, mean that its operators have missed this year's oil price rally.

Global crude oil prices CLc1 are now around $89 a barrel, well off highs near $150 a barrel in mid-July.

"We are expecting to get 20,000 barrels a day in the first 90 days of commercial production," Energy Secretary Angelo Reyes said in a statement.

"That will provide for 6 percent of the daily oil demand of the country."

The field in the North West Palawan basin holds oil reserves estimated at 10 million barrels.

The new crude will raise the Philippines' domestic oil output by some 70 percent to 42,500 bpd, a welcome addition to the country, which imports nearly all of its requirements.

But Galoc's crude, also called Palawan Light, could find it hard attracting customers as it has a higher sulphur content than most Asia-Pacific grades, at 1.64 percent. It is also coming on stream at a time of weakening oil demand in Asia, even as Vietnam has started selling first cargoes of its new light sweet Song Doc crude. [ID:nSP300839]

Galoc's start-up was initially planned for the first quarter but was delayed by bad weather and repairs of the oil extraction equipment at the field.

Oilfields' start-up dates are prone to repetitive slips while the infrastructure needed to extract and transport the oil is put in place.

MIXED RECEPTION

News of first oil from Galoc pushed up shares of Australia-based Nido Petroleum (NDO.AX), one of the field's owners, by 21.88 percent on Thursday against the 1.53 percent decline in Australia's benchmark stock index .AXJO.

Investors bought back Nido on news of the start of Galoc production after dumping the stock in broad market selloffs since last month, an analyst who declined to be named said.

Aside from Nido, which has a 22.28 percent stake, Galoc is majority-owned by the Galoc Production Company composed of European trader Vitol and Otto Energy (OEL.AX).

Otto shares fell 2.27 percent, with news of the start of oil production already priced in by the market. Galoc is Otto Energy's first oilfield to come onstream.

"This is Otto's first production asset and transforms the company from pure explorer to explorer and producer," Alex Parks, chief executive at Otto Energy, said in a separate statement.

Philippine firms Oriental Petroleum and Mineral Corp (OPM.PS), The Philodrill Corp (OV.PS), Alcorn Gold Resources Corp (APM.PS), PetroEnergy Resources Corp (PERC.PS), and Forum Energy hold minority stakes in the oilfield.

Galoc comes as a relief for the Philippines, which is trying to cut its $6 billion annual oil import bill and is feeling the pinch from high fuel and food prices, which have pushed annual domestic inflation to record highs.

In June, Reyes said Galoc's output, now known as Palawan Light, will be aimed at local refineries.

Vitol and European trader Trafigura, will be the two main marketers of the light crude.

The Philippines also wants to drill oil from its Malampaya gas field off the Palawan coast and expects to start producing oil from its largest hydrocarbon discovery in under two years. (Additional reporting by James Regan in Sydney and Maryelle Demongeot in Singapore; Editing by Raju Gopalakrishnan/Ramthan Hussain)