Malampaya contract extended for 15 years


PRESIDENT Ferdinand R. Marcos Jr. has approved the 15-year extension of the Malampaya Service Contract No. 38 (SC 38), in a move to ensure stability in energy supply when the contract expires on February 22, 2024.

“Today we mark a very significant milestone as we pursue another huge endeavor that will promise monumental rewards for our country and our people,” Marcos said during the ceremonial signing event for the contract’s renewal in Malacañang on Monday morning.

“It holds the key to our drive towards energy security and is calculated to greatly advance the nation’s energy interest,” he added.

The Department of Energy (DOE) said the extension “will allow the continued production of the Malampaya gas field, ensuring that the remaining gas reserves are further explored and utilized.”

Malampaya is a deepwater gas-condensate reservoir, located offshore, 65 kilometers northwest of the island of Palawan.

In February, DOE announced that Razon-led Prime Infrastructure Capital Inc. (Prime Infra), the contractor, which was awarded with SC 38,was seeking to prolong the validity of its production contract.

Prime Infra is targeting to find a new gas well by 2026.

The designated SC 38 Consortium will be required to conduct geological and geophysical studies and drill at least 2 deep water wells  from 2024 to 2029 at the Malampaya production zone and its nearby area.

Its failure to do so will lead to it forfeiting a portion of its exploration areas.

The consortium will be required to submit a Decommissioning Plan and Budget within 30 days from the effectivity of the renewal agreement.

The government is hopeful the extraction of more gas from the Malampaya fields will help in the country’s “energy security” and encourage more gas exploration initiatives in the West Philippine Sea.

“Because of the contract renewal the government will continue to generate revenues from the project through a favorable sharing scheme with a private sector partner and the government,” Marcos said.

“Needless to say, this project will reduce our country’s dependence on oil imports and ensure a more stable supply of cleaner energy from an indigenous local source,” he added.

P374-B revenue

During the three-decade operation of the Malampaya project, the President said the project generated P374 billion in revenue for the government.

He noted his administration will continue to push for more exploration and development initiatives so the country can tap its “indigenous energy resources.”

Meanwhile, the DOE noted that extension of the contract with the consortium ensures the continued production of the Malampaya gas field, which delivers around 20 percent of the country’s electricity requirements.

The Malampaya consortium is composed of Prime Energy Resources Development BV (Prime Energy), UC38 LLC and PNOC Exploration Corp.

Prime Energy and UC38 each holds a 45-percent stake in the project. The remaining 10 percent is held by the government through PNOC-EC.

“The DOE 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,” DOE Secretary Raphael Lotilla said.

“The SC38 consortium is required to conduct a minimum work program consisting of geological and geophysical studies and the drilling of at least two deep water wells during the Sub-Phase 1 from 2024 to 2029. This firm work program is geared towards unlocking the potential both in the existing gas field and nearby prospect areas to provide incremental production,” the DOE said.

The conduct of exploratory drilling further away from the Malampaya production area within the contract is a requirement for the consortium to retain the exploration areas. Should there be failure to comply, the consortium is obligated to relinquish a portion of the exploration areas, said the DOE.

Likewise, the Malampaya consortium is required to submit a decommissioning plan and budget covering the abandonment of wells and decommissioning of facilities 30 days from the effectivity of the Renewal Agreement.

Prime Infra President and Chief Executive Officer Guillaume Lucci earlier said the company’s development for Malampaya includes exploring for potential reserves in surrounding areas. He added that the consortium expects to extract gas from a new well by 2026.

Separately, Prime Infrastructure Capital, Inc. (Prime Infra) Chairman Enrique Razon Jr. said SC38 extension is a significant development for the country’s national energy security and independence. “The Malampaya asset will continue what it has started in operating this world-class installation for further exploration and ultilization of the country’s remaining gas reserves, as well as open up the other potential near field areas for future production,” said Razon.

Prime Energy is a unit of Prime Infra.

Newly-appointed managing director and general manager of Prime Energy, Donnabel Kuizon Cruz, thanked the President and the DOE: “On behalf of the SC 38 consortium, we are very grateful for the renewal and for the opportunity to continue to operate and develop the Malampaya asset and facilities. Once again, we commit to doing our very best to help ensure a stable, cleaner and dependable energy supply for the Philippines.”

The Malampaya gas field was discovered in 1989 and began production in 2001. Under SC 38, the consortium has been remitting 60 percent of the net proceeds from petroleum operations to the government. From October 2001 to December 2022, the consortium remitted more than $ 13.14 billion.

Lotilla said the development of the field has had its challenges.  “The project has navigated through a myriad of complex legal, regulatory, and other issues and obstacles,” said the DOE chief.

Shell, Chevron, both former members of the consortium, and PNOC-EC applied for contract extension as early as 2010, and reiterated the same in 2018 and 2019.

Lotilla said an early decision would have encouraged additional investments in facilities and wells, ensured the resiliency of ongoing operations, and facilitated the discovery of additional resources.

“Today, less than a year before the expiration of SC 38, 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,” said Lotilla.

For stability

For his part, Speaker Ferdinand Martin G. Romualdez said the renewal agreement for SC 38 should help stabilize the prices of electricity and prevent brownouts that result in business losses.

Romualdez was among the officials who witnessed Marcos Jr. sign at the Malacañang Palace the renewal agreement of SC 38. “This is a welcome development as the Malampaya gas field provides a significant portion of our country’s energy requirement,” Romualdez said.

“Extension of the SC 38 will not only reduce our dependence on imported oil as fuel for our power plants, which will help stabilize the price of electricity. More importantly, it would help boost our power reserves and prevent brownouts resulting in losses for businesses and suffering for our people,” Romualdez said.

Deputy Speaker Ralph G. Recto, meanwhile, said, “Malampaya gas is a bulwark of our energy security. It fuels base-load power plants in my home province of Batangas.”

At one point, he added, it provided 40 percent of the energy needs of the almost 57 million people living in the world’s 4th most populous island.

Image credits: PNA/Rey Baniquet