Private firm wants to develop Malampaya even after it runs dry

Metro Manila (CNN Philippines, November 12) — A local oil firm has offered to develop the Malampaya gas facility off Palawan even after it runs dry.

In a disclosure to the Philippine Stock Exchange on Tuesday, PXP Energy Corporation said it had submitted an unsolicited proposal to the Department of Energy to carry on with drilling and extraction work off the waters of Palawan.

The company led by businessman Manny Pangilinan wants to take over from the Malampaya Consortium, whose deal to extract fuel in the area expires in 2024. Once the petroleum exploration and production Service Contract (SC) 38 lapses, full control and ownership of the Malampaya natural gas and facilities will be turned over to the national government.

For now, PXP said it wanted to buy a 45 percent stake in Chevron Malampaya LLC, hoping to match the ownership of operator Shell Philippines Exploration BV in the consortium. The facility started commercial operations in 2001 and provides about 30 percent of the country's power needs.

'Strategic' location

PXP cited Malampaya's "strategic" position in the West Philippine Sea to justify its bid. This is where its subsidiary, Forum Energy, holds the rights to drill off the waters of Reed Bank (Recto Bank) — a sea feature within the Philippines’ 200-nautical mile exclusive economic zone.

PXP is mainly involved in oil and gas exploration projects. The company, through Forum Energy, secured a contract with the Philippine government to explore Recto Bank in search of oil reserves under SC 72.

The service contract has not been made public. Forum Energy's exploration has been stalled since 2014 when former President Benigno Aquino ordered a moratorium on all exploration activities in contested waters amid a long-standing maritime and territorial dispute with China. An international tribunal eventually ruled in 2016 that the Philippines has sovereign rights to Recto Bank and other features within its EEZ, and dismissed China's sweeping claims.

The area covered by SC 72 is southwest of the Malampaya Gas Field, spanning 8,800 square kilometers.

"Forum plans to drill two wells over the Sampaguita Field once the Force Majeure is lifted," PXP said in its website.

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Keeping PXP's presence in Malampaya "is envisioned to support the continued development of the Malampaya resources, as well as the economic development of Sampaguita Field and other nearby prospects under SC 72," the firm said in the statement.

The Philippines and China are in the middle of negotiations for its plan to carry out joint oil and gas exploration deals in disputed waters.

Although not indicated in the memorandum of understanding (MOU) and terms of reference signed by the two countries last year, President Rodrigo Duterte earlier said that China had agreed to get just 40 percent of the proceeds of oil exploration. This would leave the bigger chunk for the Philippines in keeping with foreign ownership limits under the 1987 Constitution. A "model" service contract from the DOE — which is used as a template for exploration deals between the Philippine government and the private sector — carried two key provisions declaring all petroleum and oil reserves retrieved from the service areas "belong to the state."

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In 2012, Forum Energy began negotiating a commercial agreement with the state-owned China National Offshore Oil Corporation which Pangilinan wanted to bring in as a strategic partner for SC 72. The proposed joint development deal would have set aside the sovereignty issue on the overlapping claims of the two countries over Reed Bank and provided the much-needed alternative source of energy once Malampaya ran out, but the talks failed to progress. With the MOU in place, talks could be revived, the 2014 moratorium lifted, and a joint deal eventually signed.

More supply

The search for additional oil reserves prove crucial for local supply, with Malampaya seen running dry in a few years. PXP hinted at a long-term concession deal in its proposal.

"The project intends to ensure energy security to the country from indigenous natural gas resources for the next 25 years and beyond, while bringing in significant revenues to the Philippine government," PXP said, adding that further development would boost the natural gas industry.

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Energy Secretary Alfonso Cusi said back in September that the Malampaya reservoir is only good until 2027.

PXP added that sourcing fuel locally would save on foreign exchange costs with fewer coal and fuel imports. The company also has existing contracts to search for oil in two areas in Northwestern Palawan.