Gov’t confirms sale of Shell’s 45% Malampaya stake

Published September 23, 2020, 1:51 PM

by Myrna M. Velasco

The Philippine government has officially confirmed the planned sale of the 45-percent interest of Shell Philippines Exploration B.V. (SPEX) in the $4.5 billion Malampaya deep water gas-to-power project.

“Yes, we were informed that Shell is selling. That’s how much we know,” Energy Secretary Alfonso G. Cusi said in his message to the Manila Bulletin.

Highly placed sources from government first indicated that Shell’s Philippine upstream company already made indications on the planned sale, primarily with the Department of Energy and the Department of Finance.

A source from the energy department tipped off: “we’ve heard of the plan; and what we know is: they’re willing to sell if the right cheque or offer will come along.”

Sources from regional oil markets in Singapore also indicated that Shell has been looking at several assets for divestment; and stake in Malampaya is potentially in the bag. “This is in line with targeted deep cuts on global operating costs which may reach as much as US$4.0 billion,” the source said.

The sale of targeted assets is also anchored on the Anglo-Dutch energy giant’s project re-shaping plan, primarily diversification into the power sector and renewables.

Shell is effectively following the lead of its former partner, American energy giant Chevron Corporation, which sold its 45-percent stake in the gas field to Udenna Corporation of businessman Dennis Uy.

That Udenna-Chevron transaction was completed in March this year; and the DOE-floated price for the purchase was at US$565 million.

Aside from Uy’s Udenna, the other shareholder in the project is state-run Philippine National Oil Company-Exploration Corporation (PNOC-EC) which has the minority interest of 10-percent.

The Malampaya project is a major revenue-generating venture for the Philippine government – with aggregate remittances of US$11 billion as of August 2019.

Proceeds from the gas field project over the years had also been funneled to reduce the electricity rates for the Filipino consumers – and that will be done by scrapping the universal charges for stranded debts and stranded contract costs, which are two separate line items in the electric bills.

The total allocation for that power cost subsidy under the Murang Kuryente Act or Republic Act 11371 had been set at P208 billion; and will be in force until year 2026.

In the last budget hearing of the DOE in Congress, energy officials indicated that the Malampaya fund had been shored up to P260 billion as of end last year.

The Malampaya gas production facility is the fuel source for electricity generation of more than 3,211 megawatts of power capacity in the country – primarily the 1,200-megawatt Ilijan; 1,000-megawatt Santa Rita; 500MW San Lorenzo; 414MW San Gabriel; and 97MW Avion plants.

The Service Contract (SC) 38 of the gas field will expire in 2024; and the project operator and its partners have been batting for license extension, but there had been no action yet from the government.

The project was also embroiled in an arbitration case at the International Chamber of Commerce (ICC) in Singapore relating to the income tax interpretation of the Commission on Audit (COA) on the 60:40 royalty sharing arrangement between the Malampaya consortium and the government. The consortium won the case, but that is still pending for final resolution of the Philippine Supreme Court.

The Malampaya field started commercial operations in 2001; and it had been the country’s biggest commercial discovery so far for indigenous gas.

The struggle of the Philippine government at this point is how to corner new investments to replace the Malampaya project, including on bids to have import facilities for liquefied natural gas (LNG) so the gas-fired power facilities can continually run beyond 2024.

Shell’s downstream oil business also decided recently to shut down its refining operations; and had opted to convert its Tabangao refinery in Batangas into a world-class import terminal.