Malampaya consortium softens stand on oil drilling ventures

The Malampaya consortium led by Shell Phils. Exploration B.V. (Spex) is softening on its stand not to develop the oil rim of the gas field and is now reportedly willing to form joint ventures for the extraction of 40 million barrels of oil in northwest Palawan.

Energy Undersecretary Guillermo Balce said Spex is reviving its interest in exploring possible joint ventures or farm-in agreements with parties that want to participate in extracting oil from Malampaya.

The oil rim is a 56-meter thick oil zone located below the 600-meter thick gas cap that is being produced by the consortium since October 2001 as part of the Malampaya deep water gas-to-power project.

The government wants desperately to develop the oil rim in the wake of soaring prices of crude in the world market.

The Philippines, which imports 98 percent of its oil requirements, is spending billions of dollars to purchase oil. Hence, having part of it produced locally will provide some respite from surging prices of crude in the world market.

The country’s oil import bill for the first five months of the year has increased by 27.2 percent to $2.3 billion from $1.8 billion despite the notable decline in the demand for oil by 8.6 percent over the same period a year ago.

Energy Undersecretary Peter Abaya noted that the country’s oil import bill in 2004 was about 22 percent of the country’s gross domestic product or GDP. In contrast, the ratio of oil import bill to GDP in 1995 was just 7.7 percent.

Four groups already expressed keen interest in extracting oil from the Malampaya which could significantly ease the country’s dependence on expensive imported oil.

Estimated to generate at least $2 billion in revenues, it was initially discovered with the drilling of well Malampaya-1 in 1991 but was considered at the onset as a separate development from the much larger natural gas reserves comprising the bulk of the Malampaya petroleum resources.

"We are exhausting possibility that present contractors undertake the recovery of oil under the existing SC 38 contract. They may ask other companies to farm in. That’s their option which is being explored by several proponents," Balce said.

Spex previously said oil deposits from the Malampaya field is "sub-commercial," which means it is not viable for commercial production.

Aside from Spex with a 45 percent stake, the other members of the consortium include Chevron-Texaco with another 45 percent and PNOC-Exploration Corp., 10 percent. Balce said the oil rim should be developed by mid-2006.

The development of the oil rim has drawn strong interest from US-based Argo Group, PetroEnergy Resources Corp. (PERC) and South China Resources Inc. and Norwegian firm Norsk Hydro ASA which previously expressed interest but eventually withdrew.

Instead, it is pushing another Norwegian firm Petroleum Geoservices to develop it. Norsk Hydro is engaged in the exploration and production of oil and gas, as well as the manufacture and supply of aluminum worldwide.

The company has producing fields in Norwegian Continental Shelf, Angola, Canada, Russia, and Libya. Norsk Hydro also has exploration activities in other countries, including the United States and Iran.

On the other hand, US-based Argo Group has direct operational experience from producing oil from the Malampaya oil rim as it conducted the extended well test production from exploratory MA-10 well in late 2001.

PetroEnergy Resources Corp. (PERC) is a listed company at the Philippine Stock Exchange. It provides technical services to local and international companies, as well as participates in various exploration and development activities, both local and overseas.

South China Resources Inc.’s principal activities are the exploration, development and production of oil and gas in certain areas in the Philippines.