Malampaya consortium to invest $600 million

MANILA, Philippines — The Service Contract 38 consortium, led by operator Prime Energy Resources Development B.V. of tycoon Enrique Razon, is looking to invest about $600 million in its bid to further explore and utilize the remaining gas reserves in the Malampaya gas field.

In a virtual press briefing yesterday, Energy Undersecretary Alessandro Sales said the consortium plans to spend between $80 million and $90 million for the drilling of one well under its renewed service contract agreement.

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 deep water wells during the sub-phase 1 from 2024 to 2029.

“In terms of the committed investment in the renewal contract itself, the work program commitment for the first phase is at least two new wells. In their submissions to us, they are indicating that they are preparing to drill for three wells and this is above the committed program in the renewal contract,” Sales said.

“If these wells are successful and we move into connecting them back for production in the Malampaya facilities, we need to spend another $330 million to $360 million for the tieback and the subsea facilities to allow these near field wells to produce. So in total, for two wells and the tieback for production, this would amount to about $600 million,” he said.

The SC 38 consortium is composed of Prime Energy, UC38 LLC of the Udenna Group, and state-run Philippine National Oil Co.-Exploration Corp.

“In terms of funding, this is a consortium matter in their cash calls. But as per our financial evaluation for their projected three-year performance, the companies involved would have enough cash to fund the drilling of two wells up to the tieback should the wells be successful,” Sales said.

In case any of the members of the consortium is unable to come up with its share of financial obligations, Energy Secretary Raphael Lotilla said there are provisions in the renewal agreement for the other members stepping in to provide instead.

“We wanted to guarantee that drilling operations will continue as promised,” Lotilla said.

Lotilla said the operator and its personnel have shown technical competence over the last six months by managing the decline in gas supply and undertaking successfully Malampaya’s maintenance activity.

“This confirms the findings of the DOE last year on the operator’s technical, financial and legal qualifications,” he said.

President Marcos on Monday signed the renewal agreement for the service contract, extending it for a final 15 years, or until Feb. 22, 2039, to allow for the continued production of the Malampaya gas field.

Sales said present best estimate for the near field is about additional 210 billion cubic feet of gas.

In the renewal contract, he said the sharing between the government and the contractor has been retained at 60/40.

“Sixty percent to the government share and 40 percent as contractor’s fee. We have agreed to a 60/40 split given the situation of the Malampaya field. We recognize that the field is depleting, there are limited resources left in the main field,” he said.

More than $13.14 billion has been remitted by the consortium from October 2001 to December 2022 as net proceeds from petroleum operations to the government.

The Malampaya project is one of the country’s most important power assets, as it produces natural gas to power plants in Batangas City that power up to 20 percent of the Luzon’s total electricity requirements.

With the renewal agreement for SC 38 signed by the President, the consortium plans to move full speed ahead for new exploration and development in the Malampaya deep water gas to power project.

Razon, chairman of Prime Energy parent company Prime Infrastructure Capital Inc., said the renewal of the service contract 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 utilization of the country’s remaining gas reserves, as well as open up the other potential near field areas for future production,” Razon said.