President Gloria Arroyo has revoked the award of a contract to Malaysian firm Mitra Energy Ltd to produce oil at a natural gas field off the western Philippines, the presidential palace said today.

Arroyo ordered state-run Philippine National Oil Co (PNOC) to make a public tender for the oil deposits at the Malampaya field, where the gas is separately being produced by a consortium led by the Royal Dutch Shell Group.

Mitra secured a June 1 preliminary agreement with PNOC unit, PNOC Exploration Corp, which owns the Malampaya oil rights, to produce the oil field from late 2007.

The Arroyo executive order was dated June 17 but was released today.

The order ruled that "there shall be no 'farm-in' or 'farm-out' contracts awarded by any government agency, including the (PNOC), including the contract for the exploration development, and production of crude oil from the Camago-Malampaya reservoir."

It said PNOC must "follow a strict bidding procedure in forging partnership with interested parties, including the Camago-Malampaya reservoir venture."

RM2.5 billion project

It said all arrangements entered into by the PNOC "which violate this Executive Order shall be immediately discontinued or cancelled."

There were no immediate reaction available from PNOC and the Malaysian firm.

Mitra has estimated that the Malampaya field holds up to 41 million barrels of oil that can be produced over four years in a project that costs RM2.5 billion (US$684 million).

Shell and Chevron earlier allowed PNOC Exploration to seek other partners in the Malampaya oil extraction project as they did not consider it commercially viable.

The Philippines only has a few small offshore oil wells that supply less than two percent of local demand.