Following the 15-year renewal of the Service Contract 38 for the Malampaya project, Razon-led operator firm Prime Energy can already carry out exploration drilling activities beyond the existing production area of the depleting gas field.

This developed after President Ferdinand R. Marcos Jr. signed the renewal of the Malampaya Service Contract No. 38 (SC 38) from February 22, 2024, a highly anticipated decision as to the fate of the Malampaya project under the new operatorship of the Razon group.

"The conduct of exploratory drilling further away from the Malampaya production area within the Service Contract is a requirement for the SC 38 consortium to retain the exploration areas,” the energy department primarily said.

Energy Secretary Raphael P.M. Lotilla qualified that this does not entail any expansion of the service area covered by the Malampaya contract.

“Aside from continuing the production operations, the SC 38 consortium is required to conduct a minimum work program consisting of geological and geophysical studies and the drilling of at least two (2) deep water wells during the sub-phase 1 from 2024 to 2029,” the DOE stressed.

It further noted “this firm work program is geared towards unlocking the potential both in the existing gas field and nearby prospect areas to provide incremental production.”

Previous pronouncements from the energy department indicated that there are still potential "commercial gas discovery"at Malampaya’s near-fields, primarily at Malampaya East, Iloc and Linapacan, which it claimed are still within the coverage of the field’s service contract.

Initial assessment placed the prospective gas supply from the Malampaya field could reach as much as 1.0 trillion cubic feet (TCF), but that has yet to be confirmed by extended seismic surveys and well drilling that have to be carried out by Prime Energy.

The assumption also is that the remaining gas resources that Malampaya could still yield may top roughly half of its current capacity. Hence, this could still power gas-generating plants of 1,500 to 1,600 megawatts in the next 6-7 years.

As of press time, there are array of questions yet to be answered on the terms set forth in the renewed service contract, including queries if the 60:40 royalty sharing arrangement as prescribed under Presidential Decree 87 or the Oil and Gas Law had been upheld or if there had been modifications in the sharing pact, akin to the 70:30 ratio previously proposed under the Duterte administration.

There are no information from government as well as sources from Prime Energy also if a "waiver" on a pending Malampaya tax case with the Supreme Court had been included in the contract renewal, similar to what other petroleum service contract-holders have been taking as a risk in their SCs being issued by the government.

Moreover, there are no concrete details provided by the DOE and Prime Energy on the scale of capital outlay for the scheduled work program, as well as on the specific schedules of seismic survey and well drilling activities to be undertaken.

At the very least, the DOE highlighted that “should there be failure to comply, the SC 38 consortium is obligated to relinquish a portion of the exploration areas.”

Part of the obligation bestowed on the consortium is the submission of a decommissioning plan and budget “covering the abandonment of wells and decommissioning of facilities in accordance with applicable international standards, to include timing and costs, within thirty calendar days from the effectivity of the renewal agreement for approval by the DOE.”

Lotilla said with less than a year for the country to tackle concerns on the expiration of the initial 25-year cycle of the Malampaya contract, “We find ourselves at a critical juncture for insuring in continued partnership with the private sector the further development and drilling of the SC 38 area at the soonest possible time—and restoring some certainty in our indigenous gas supply.”

He specified that under the President’s direction and working with Congress in pursuit of the country’s energy security agenda, "the DOE acknowledges its responsibility in helping ensure the efficient and sustainable exploration, development, and utilization of our indigenous energy, including Malampaya."

Lotilla further added that the department has meticulously evaluated the SC 38 consortium. The assessment encompassed legal, technical, and financial capabilities, and confirmed the consortium’s capacity to sustain the production operations and meet its obligations under the Renewal Agreement, he said.

Meantime, Prime Energy said the renewed service contract for the Malampaya gas field project will be submitted to Congress to ensure that all the terms and conditions were all done according to existing laws and regulations of the country.