GMA orders DOE to undertake development of Malampaya oil field

President Arroyo has ordered the Department of Energy (DOE) to undertake the immediate exploration, development and production of crude oil from the Camago-Malampaya oil field.

The President issued Executive Order 473 asking the DOE to lead the oil exploration and production activities with the help of the Philippine National Oil Co. (PNOC) and third parties, subject to existing rights over the area and applicable laws, rules and regulations.

Mrs. Arroyo said oil exploration and production activities need to be urgently conducted in the Camago-Malampaya rim at this time that extracting the volume of resources from the oil field is still possible since it has not yet been significantly undermined by the continued production of natural gas.

"The increasing prices of oil and petroleum products in the world market have made it urgent and imperative for the government to aggressively pursue its energy independence agenda, including the development of domestic oil reserves," the President said.

In December of 1990, the government, through the DOE, entered into a service contract with a consortium – now composed of Shell Exploration B.V., Shell Philippines LLC, Chevron Malampaya LLC and PNOC-Exploration Corp., as contractor for the exploration, development and production of petroleum resources in an identified area offshore northwest of the province of Palawan.

This was after the DOE and the consortium jointly declared in April of 1998 that the petroleum found in the areas designated as the Camago-Malampaya and San Martin reservoir were of commercial quantity.

But while the Camago-Malampaya reservoir is known to contain both natural gas and oil resources, the consortium expressed its position that it could not undertake the development of the Camago-Malampaya oil field since the site may not be commercially viable.

But in her order, the President asked the DOE to pursue the exploration, development and production of crude from the Camago-Malampaya rim, respecting the existing rights of the contractor over the area and with paramount consideration of national interest.

The President said the PNOC, as the government corporation mandated to undertake and transact business relative primarily to oil and petroleum operations or its subsidiaries, should undertake the activity with the DOE.

"The DOE and PNOC or its designated subsidiary shall at once commence discussions on and define the terms of service for the exploration, development or production of crude or black oil from the Camago-Malampaya reservoir," Mrs Arroyo said.

The President added the DOE, PNOC or its designated subsidiary could consult the contractor with the end view of optimizing the joint operations of the concerned stakeholders in the production of natural gas and crude oil from the Camago-Malampaya oil field.

One of the crucial talking points between the government and the Malampaya consortium is the issue of indemnity clause. Under the existing contract, any party that wants to assume the development of the oil rim is required to pay the consortium P1 billion in indemnity.