DOE in talks with 3 big oil drilling firms for Malampaya exploration

The Department of Energy (DOE) is in negotiations with at least three big oil exploration groups for drilling more oil wells in the Malampaya oil field in northwest Palawan.

"There are three groups or parties that signified interest to conduct oil development in Malampaya," Energy Secretary Vincent S. Perez said.

Energy Undersecretary Eduardo Mañalac pointed out that they currently holding preliminary negotiations with Filipino, American and European exploration firms. But he said they would encourage Filipino oil firms to join the DOE in developing Malampaya.

Mañalac said Shell Philippines Exploration B.V. (SPEX), the major operator of the $4.5-billion Malampaya deep water gas-to-power project, had informed the DOE of its plans to abandon the development of an oil rim within its service contract after a number of extended well test programs conducted in the past few months.

"We are having final discussions with the SPEX consortium. We have to formalize their decision not to pursue the oil rim development in their service area. This is why we are having preliminary talks with other prospective oil exploration firms who would want to pursue oil development," Mañalac said.

Mañalac, however, pointed out that contracting new groups to develop the oil rim will not in anyway affect the contract with the SPEX consortium. Aside from SPEX, which corners 45-percent share in the project, the other members of the group are: Chevron Texaco (45 percent) and state-owned PNOC-Exploration Corp. (10 percent).

"There will be no modification in the contract. It is actually part of the national government’s contract with SPEX that if the consortium fails to develop the oil rim, we can get other companies to do it. We can not just leave the oil reserves in Malampaya untapped, we need additional source of oil especially now that we are badly hit by rising global oil prices," he said.

Mañalac stressed the government is not blaming SPEX for its decision not to push through with the project.

"We understand that it is purely a business decision. We respect their decision. The projected oil reserves of 35 million barrels could be very small compared to other projects of SPEX being a giant oil exploration firm. But the Philippine government should try to explore all known oil resources," he said.

If the DOE can formalize the talks with SPEX within this week, Mañalac said they hope to enter into an agreement with an oil exploration firm within this quarter.

SPEX had earlier said that it is still working out a scheme to be able to come up with an exploration mode that would not be too expensive for the group. Based on earlier estimates, development of an oil well would need $10-to $30-million capital, depending on the technology used.

A few years ago, SPEX was able to extract oil from the Malampaya field and sold it to Korea and Singapore.

SPEX, however, said it still has to determine if the volume of oil being extracted from the oilfield will be "commercially viable".

The Malampaya field is located in the South China Sea, off the northern island of Palawan, and contains an estimated 2.6 trillion cubic feet of natural gas. A 312-mile (504-kilometer) pipeline links the field to three power plants in Batangas. The pipeline is among the longest deep-water pipelines in the world, with half of its length more than 600 feet deep.

Natural gas from Malampaya eventually will fuel three power plants with a combined 2,700-megawatt (MW) capacity for the next 20 years and will displace 26 million barrels of fuel oil, according to the Philippine government.

The government is expected to raise between $9 to $13 billion in revenues from the royalties that would be paid by the consortium within the 20-year contract.