The Philippine government is dangling at least eight conditions that the consortium-members of Service Contract (SC) 38 led by Shell Philippines Exploration B.V. (SPEX) must comply with for the license extension of the $4.5 billion Malampaya deep-water-gas to power project.
As fleshed out by Energy Assistant Secretary Leonido J. Pulido III, these 8-point negotiating terms with the Malampaya consortium delve on: 1) the remaining reserves in the gas field; 2) the banked gas; 3) the development opportunity or the work program that will be necessary in order for the Department of Energy (DOE) to evaluate the proposals of the consortium-members; 4) the split or royalty sharing between the government and the project contractor; 5) the decommissioning plan; 6) the asset disposal; 7) the price of the gas in the event of license extension; and 8) the corporate social responsibility (CSR) programs that shall be carried out by the consortium.
“This proposal was necessary in our view, so the DOE and the members of the consortium would have a common ground on which topics to discuss; so that we – the department, could ensure that we can get the best terms for the national government,” Pulido said.
He similarly noted that based on preliminary studies and evaluations done by the DOE and the Malampaya consortium, the depletion of gas from the field may not happen until the next 6-7 years.
“The crux of the matter on why the negotiation for contract extension is significant – we all know that being a conventional source of energy, it would someday run out.
And that estimated run-out period would occur sometime in the second quarter of 2027,” Pulido specified.
The energy official highlighted that even if the Malampaya gas field will eventually have a new operator, it is the requirement of the government that the consortium-members will continually pursue development in the areas within SC 38 – including those in Malampaya East, Iloc, Nido and the Linapacan plays.
“All of these fields have varying possibilities of success in geological terms. The talk about the potential of each area and each one has its own estimated potential volume of petroleum – whether in the form of natural gas, condensate or oil,” Pulido pointed out.
In particular, he noted that prospects at Malampaya East had been estimated at 140 billion cubic feet; “and this is one of the areas that we’re hoping will be further developed within the service contract.”
Given the take-or-pay deals with off-taker power plants, Pulido indicated that the volume of production at Malampaya is at average 120 billion cubic feet annually – and the highest output it yielded so far was at 155 billion cubic feet in a year.
If reckoned from the field’s kick-off of commercial operations in 2001, the DOE official qualified that the magnitude of production would reach an aggregate 2.9 trillion cubic feet (TCF) up to 3.1 TCF throughout Malampaya’s life cycle.
And in order to facilitate the discussion on prospective stretched contract for Malampaya, Energy Secretary Alfonso G. Cusi has created a team in October 2019 “that would work with the members of the consortium to discuss the license extension.”
At this stage though, the energy official specified that discussions are on hold, because the DOE is requiring first the submission of a four-year work program that will contain the plans of the consortium to drill within the classified retention and appraisal areas.