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Wrong signal to foreign gas developers

November 7, 2021 Ryan Ponce Pacpaco 466 views

A SENIOR House official cautioned reelectionist senators against “political grandstanding” over Shell Petroleum N.V.’s decision to sell its 45 percent operating stake in the service contract that includes the offshore Malampaya gas field.

“We would urge our senators – especially those seeking to extend their terms in office in 2022, and who are eager to draw attention to themselves – to spare Shell from their publicity stunts,” Surigao del Sur Rep. Johnny Pimentel said Sunday.

“If we make it difficult for foreign investors like Shell to get in and get out of existing petroleum service contracts, then nobody will help us develop our vast deep-water gas deposits that we need badly to meet our growing demand for electricity,” Pimentel warned.

“Assuming the reelectionist senators really want to make themselves look good, they should address more pressing issues, such as mounting joblessness,” Pimentel said.

The Philippine Statistics Authority earlier reported that the country’s unemployment rate surged to 8.9 percent in September, even as the government began easing restrictions despite a fresh surge in COVID-19 cases.


“We cannot afford to send the wrong signal to would-be foreign gas developers because we will surely need their help in the months ahead,” Pimentel, House strategic intelligence committee chairperson, said.

The Pimentel panel has jurisdiction on economic intelligence matters.

“We will definitely need the likes of British Petroleum plc, Exxon Mobil Corp., Saudi Arabian Oil Co. and Total Energies SE if we want to harness our other gas supplies beneath the West Philippine Sea,” Pimentel said.

Pimentel said he is not worried about Malampaya, which at 20 years old is already a mature field in a state of declining gas production.

“We are more concerned here about the undeveloped Sampaguita gas discovery located some 250 kilometers southwest of Malampaya,” Pimentel said.

“There’s no question Sampaguita’s operator will eventually have to bring in a large and proficient foreign partner to help develop the field from zero to full production,” Pimentel said.

“And we do not want all the political badgering around Shell’s Malampaya divestment to drive away prospective foreign investors that might be interested in farming into Sampaguita’s service contract,” Pimentel said.

Sampaguita, which lies in Service Contract (SC) 72 operated by Forum Energy Ltd., is believed to contain more gas reserves than Malampaya when the latter was first discovered in 1989, according to an independent assessment by Weatherford Petroleum Consultants.

Shell recently signed an agreement to sell its 100 percent stake in Shell Philippines Exploration B.V. (SPEX) to Malampaya Energy XP Pte Ltd, a subsidiary of Udenna Corp.

SPEX holds a 45 percent operating interest in SC 38, which includes Malampaya.

The transaction is expected to close on Jan. 1, 2022.

“In Malampaya’s case, what is important is that the private parties to the transaction have guaranteed the safe and orderly transfer of operations, including the retention of the highly experienced workforce there,” Pimentel said.

“We want the new operator to quickly find ways – and drill a new well if needed – to further extend Malampaya’s productive life. This will not only assure us of more gas supplies for electricity, but also more revenue for the national treasury,” Pimentel said.

Department of Energy officials previously told a congressional hearing that by 2024, Malampaya’s gas output, which supplies a significant portion of the country’s energy demand, would fall to just one-third of current production.

The Philippine government gets 60 percent of the net proceeds from Malampaya’s petroleum operations, after the contractor deducts all operating expenses.

The Shell-Udenna transaction is valued at $380 million (P19.2 billion), with extra payments to Shell of up to $80 million (P4.05 billion) between 2022 to 2024, depending on Malampaya’s output and commodity prices.

Udenna, through a separate subsidiary, UC38 LLC, already owns the other 45 percent of SC 38, with the state-owned Philippine National Oil Co. Exploration Corp. holding the residual 10 percent.