O&M contract for Malampaya’s continued operations pushed

malampaya pna

The Department of Energy (DOE) is being urged to bid out an operation and maintenance (O&M) agreement for the Malampaya gas-to-power project, so it can continue operating without issues beyond the expiration of Service Contract (SC) 38 in 2024.

Based on a Manila Bulletin report, Senate energy committee chairman Sherwin Gatchalian said that undertaking a competitive auction for the facility’s O&M or technical contractor would be the wisest step the government can take. 

Gatchalian noted that the DOE must start preparing for the bidding process while it still has the leverage to pick the most technically qualified operator before Malampaya returns to government hands.

He suggested that tapping a technical operator, including experienced international exploration and production players, will be the most feasible option instead of extending the license for Udenna Group’s Malampaya Energy XP Pte. Ltd. (MEXP), because Udenna lacks experience and expertise in upstream facility operations. 

MEXP bought Shell Philippines Exploration B.V. (SPEX), which as operator owns 45% of Malampaya, back in May. The DOE is currently reviewing the Shell-Udenna transaction, which the Dennis Uy-led firm hopes to be finalized before the year ends. The Senate is intensely scrutinizing Udenna’s planned takeover of Malampaya. Prior to buying SPEX, Udenna acquired Chevron’s 45% in March 2020.

Once the Shell-Udenna deal is finalized, MEXP will take over the gas field’s operations from 2022 to 2024. However, MEXP officials said in last week’s Senate hearing that it will be relying heavily on consultants and technical contractors. 

The senator said that if the DOE will give the Malampaya license extension to Udenna by yearend or early next year, that may pose legal questions because it can already be construed as a midnight deal of the outgoing administration.

Gatchalian, who is eligible for re-election as senator in next year’s polls, pointed out that every part of the Malampaya project, including the rigs and pipeline will already be passed over to the government and that the best entity to assume ownership will be the Philippine National Oil Company (PNOC) upon SC38’s expiration.

But if PNOC decides that it still has no technical capacity to operate the facility, Gatchalian said that it can have a technical contractor to operate the field and do the exploration activities. 

He also pointed out that if the government, through PNOC, will already assume ownership of Malampaya after 2024, then the full revenues of at least Php20 billion yearly will already flow into the state funds, instead of sharing a sizable portion with Udenna.

Gatchalian said that PNOC is more capable when it comes to upstream operations as compared to the Uy-led firm, because it already had previous experience running the San Antonio gas field in Isabela.

Regarding the red tape in procurement, PNOC-Exploration Corporation (PNOC-EC) President and CEO Rozzano Briguez said that it can be remedied by pushing legislative amendments to the company’s charter and with advance planning by the government. 

Briguez added that procurement of technical services or equipment and materials can be accomplished in advance, possibly one year ahead or longer.

PNOC-EC owns ten percent of Malampaya on behalf of the government.