Gov’t eyes up to $12B in royalties from Malampaya

The National Government (NG) is likely to collect $12 billion worth of royalties from the Malampaya deep water gas to power project due to continuing rise in international crude prices.

The royalties to be paid by the consortium developing the Malampaya project is benchmarked on the prices of international crude.

The low end of the targeted royalties is $9 billion while the high-end could reach up to $13 billion.

The Malampaya gas field is being developed by a group composed of Shell Philippines Exploration B.V., Texaco of the US and the Philippine National Oil Co.-Exploration Corp.

Spex external affairs manager Facundo Roco said for 2006, the consortium will pay about $2 billion royalties for upstream development alone.

Roco said by 2007, the consortium will be able to fully recover their cost, thus, allowing the government to collect higher royalties from the project.

Earlier estimates from the DOE show that the Malampaya consortium will pay about $125 million to the government starting in 2002 up to the seventh year of the 20-year contract period.

The payment of royalty level is expected to subsequently increase to about $250 million in the eighth year and above. These estimates, however, are subject to changes come the end result of the cost recovery program.

The cost recovery program agreed by the project proponent and the government allows Spex-led consortium to recover 70 percent of the cost incurred in the project.

After the project proponents recouped their costs, the government and the consortium will divide the remaining 30 percent revenues generated from the project.  About 60 percent of 30 percent balance will go the consortium and the remaining 40 percent to the NG.

The earnings from the $4.5 billion Malampaya project, known to be the single-biggest investment in the country so far, could also help the NG narrow down its budget deficit.

But it would be noted that the DOE has not been reporting to the public how much royalties it was able to collect from the Malampaya project.

Apart from the royalties to be paid to the NG in 20 years, the government will still have additional revenues from the project through the earnings to be incurred by PNOC-EC, a subsidiary of state-owned Philippine National Oil Co. (PNOC).

PNOC-EC owns 10 percent or about $153.5 million worth of equity in the Malampaya project. The other stakeholders are Spex and Texaco of US, each with 45 percent stake.

Earlier, there was plan to securitize the proceeds from the royalties gained from the project but this did not materialize due to some legal issues.

In 1989, Occidental Philippines Inc. discovered gas in Camago-1 well in the area covered by Service Contract No. 38, offshore of Palawan. The Camago find was in deep water and more than 300 kilometers away from its potential market.

In 1990, Spex acquired a 50-percent interest in SC 38.  Results from SPEX’s extensive drilling and evaluation program showed the large Malampaya gas field and established its connection to the Camago find.