Malampaya operator required to drill one well next year

Published September 29, 2021, 4:07 PM

by Myrna M. Velasco

The operator of the Malampaya gas field will need to drill one well next year, but that will not be a precondition for license extension of the facility’s service contract (SC) 38.

A document from the Department of Energy (DOE) furnished to the media stated that the SC 38 consortium currently led by Shell Philippines Exploration B.V. (SPEX) “has committed to drill one well by 2022.”

The document further stipulated that “this well commitment is not part of the conditions for contract renewal,” and that the cost of drilling for the committed well shall be at least $50 million (P2.5 billion).

It has to be noted though that SPEX is now finalizing the unloading of its 45 percent shareholdings in the Malampaya project. As such, the operatorship of the gas field will also be turned over to presumptive buyer Malampaya Energy XP Pte. Ltd., a subsidiary of Udenna Corporation owned by businessman Dennis Uy.

The Shell-Udenna deal for the Malampaya stake divestment is currently under DOE’s evaluation, but the closing for the transaction and facility turnover is targeted on or before December this year. On account of such development, it will be the Uy-led buyer firm that will already undertake the committed drilling at Malampaya next year.

In a Senate hearing, Director Cesar G. Dela Fuente III of the DOE’s Energy Resource Development Bureau (DOE-ERDB) admitted that there is an ongoing discussion on prospective license extension for the Malampaya gas field project. This is currently done with the current members of the SC38 consortium.

The department nevertheless acknowledged that once the sale of the SPEX shareholdings will be consummated, it will be the Udenna group as the buyer that will benefit from that license extension.

As emphasized by Dela Fuente, one facet of negotiation is a proposed review of the renewed Malampaya service contract to be done every three years. There is also that commitment to drill two wells.

“One of the terms that we are considering – assuming we recommend for the extension, is that there will be a major re-assessment every three (3) years. Meaning, for as long as there is reserve, since the reserves exhibited by Malampaya – the estimate of any party that had done reserve analysis is up to 2027, so we will give a free hand for the next administration to re-evaluate,” he said.

The energy department also qualified that it has “the right to assess the contractor’s performance against the obligations under the service contract.”

It added that “the consortium has provided the DOE a national development plan for the remaining areas in SC38 as part of its request for a 15-year extension.”

As the department explained “renewing the contract will encourage SC38 consortium to explore and appraise the near-field identified prospect within the block. Doing this will verify possible reserves that can be tied-in to the existing production infrastructure and prolong current production of SC 38.”

The DOE document similarly confirmed that there would be modification in the royalty sharing deal between the government and the Malampaya contractor in the contract extension – with the heftier 70 percent cornered by the State,while the balance of 30-percent shall be due to the contractor.

As calculated, the adjustment in the royalty sharing deal will generate higher revenue stream for the State at the scale of $128 million yearly from previously at $110 million on average.

Members of the Senate Committee on Energy, however, proposed that the better option for the government is to bid out the exploration and development service contract for the remaining reserves of the gas field, instead of extending the license for Udenna’s subsidiary company.