Malampaya group gives up right to extract oil

The Malampaya consortium, made up of Shell Philippine Exploration B.V. (SPEX), Chevron Malampaya LLC and Philippine National Oil Co.-Exploration Corp. (PNOC-EC), decided yesterday to relinquish its rights to the Malampaya oil rim (MOR) in northwest Palawan.

In a press conference, SPEX general manager for external affairs Facundo S. Roco said the relinquishment will enable the government to select a third party to develop the resource independently from the $4.5-billion Malampaya deep water gas-to-power project.

Roco said they have formally informed the Department of Energy (DOE) of their decision.

The Malampaya joint venture partners, however, offered to cooperate with the DOE and third parties willing to develop the oil rim found beneath the Malampaya gas field, subject only to conditions that will safeguard the integrity of the national gas reservoir and the existing development, and offer reasonable indemnity to protect the gas project from impacts that may arise from the oil development.

"The envisaged relinquishment of our rights to the black oil in the MOR will enable the DOE to approach financially and technically capable candidates for development of the MOR," Roco said.

He added that they have formed a special Service Contract (SC) 38 project team to commence discussions on the conditions of the relinquishment next week in order to immediately reach an agreement.

Roco said this move will also allow the government to award a separate service contract to whoever will be chosen to develop the MOR.

"This is a unique arrangement which will allow two SCs in one oil exploration development area," he said.

The SC 38 partners’ decision not to proceed with the development of the oil rim came after a series of detailed studies on the technical viability of the proposed project conducted over the past four years.

The studies, Roco said, revealed that the resource is estimated at only 25 million barrels of oil that will last only for five years and equivalent to about two-month’s oil supply of the country.

Development costs are expected to be very high at around $700 million to $900 million, and with crude oil prices so volatile, Shell and Chevron considered the MOR non-commercial.

The SPEX official also pointed that the inability of the government to allow cost recovery of 100 percent for the project has something to do with their decision not to develop the MOR.

In recent months, the SC 38 partners have worked closely with the DOE and several third parties to find alternative solutions that could enable the development of the oil rim.

Having failed to find a viable commercial development solution, the SC 38 consortium partners have elected to relinquish their rights to the oil rim resource to allow the DOE to continue to pursue the development independently with interested third parties.

"We will continue to work with the DOE and any designated third party developer to ensure that the oil is extracted safely and efficiently without compromising the Malampaya gas field nor any other components related to its production," Roco said.

For his part, Energy Secretary Raphael P.M. Lotilla welcomed the expression of resolve by the SPEX-led consortium to support the Philippine government in providing for the country’s needs and, in particular, to assist in recruiting interested third parties in the development of the MOR.

The DOE has received expressions of interest from several international and local oil companies in developing the MOR, in collaboration with the Philippine government.

"While we note that the SC 38 consortium considers the oil rim non-commercial based on their economic parameters and standards of operation, we look forward to tapping other oil companies that consider the oil deposits viable to produce," Lotilla said. "We hope to start this partnership soonest to optimize the opportunities in the development of the oil rim for the benefit of the Filipino people and with reasonable returns for participating third parties."

Lotilla said decision brings closure to the long-standing issue on the development of the oil rim while ensuring a continuing long-term partnership between the consortium and the government, particularly in developing the natural gas in Malampaya.