PNOC invites proposals for Malampaya oil rim dev’t

The Philippine National Oil Co. (PNOC) has started issuing letters of invitation to interested parties for the development of the Malampaya oil rim in northwest Palawan, the country’s top energy official said.

Energy Secretary Raphael P.M. Lotilla told reporters that interested parties will be given up to April 17 to respond to the PNOC’s invitation.

Lotilla said after the submission of the individual proposals, the selected party would be announced by June 2 this year.

He said they have been receiving relatively positive responses from interested parties. "It’s an open invitation. Having 15 participants is relatively open."

Some of the prospective bidders for the oil rim project have already started with their own due diligence, he added.

The energy chief is also banking on the full cooperation of the consortium operating Service Contract (SC) 38, the natural gas development component of the Malampaya project covering the oil rim.

The SC 38 operators- Shell Philippines Exploration B.V. (SPEX), Chevron Texaco and PNOC-Exploration Corp. – want assurance that the oil rim development would not affect the existing structures above it.

"I think even on the impact on those who are not participating is positive, and that you have the consortium fully cooperating with us in order to utilize the oil resources in the oil rim. I think, to me, that is the most significant development that we have – the consortium working with us, even if they are not the ones who are going to conduct the exploration of the oil rim," he said.

Lotilla said even the indemnity fund being asked by the SPEX-led consortium is "a reasonable amount".

"People before were talking about a $4 billion indemnity or insurance fund, but which could have made the activity uneconomical for anyone to carry out, but that has not happened," he said.

After the selection of the third party, PNOC has until September to finalize the agreement with the party.

Lotilla said they expect physical activities in the Malampaya oil rim to start by the last quarter of the year. However, Lotilla said the first oil production would depend on the third party’s work program. "The prospective investors are putting as part of their proposal how soon the recovery can take place," he said,

The Department of Energy (DOE), PNOC and the SC 38 consortium signed two accords for the development of the Camago Malampaya Oil Leg (CMOL) located beneath the Malampaya natural gas reservoir.

Specifically, the two agreements cover the terms of service (TOS) between the DOE and the PNOC for the re-appraisal, development and production of the CMOL and the tripartite agreement among the DOE, PNOC and SC 38 consortium to ensure the protection and value of the Malampaya deep water gas to power project.

The execution of the two agreements is in implementation of Executive Order 473 issued by President Arroyo on November 29, 2005 mandating the DOE and the PNOC to develop the Malampaya oil resource following the SC 38 consortium decision to allow third parties to develop the Malampaya Oil Rim.

Under the TOS, PNOC may engage third party participants in the re-appraisal, development and production of crude oil from the CMOL.

The PNOC or through its subsidiary or third party participants shall commence the re-appraisal operations to determine the commerciality of the crude oil reservoir no later than six months from the signing of the TOS.

Re-appraisal period shall be for two years extendible for six months subject to the approval of the DOE. Re-appraisal involves assessing crude oil-bearing reservoir by means of geological, geophysical, geochemical and other methods including drilling and well testing.

The development and production period, on the other hand, shall commence after both parties declare the discovery of crude oil in commercial quantity at no later than 60 days before the end of the re-appraisal period.

Under the tripartite agreement, the DOE, PNOC and SC 38 partners resolved to ensure that the development of the CMOL is carried out in a manner that protects the value and integrity of the Malampaya project.

The agreement prescribes a production and operating zone for activities to be carried out under the CMOL TOS. Likewise defined is a "no entry zone" to protect existing infrastructure installed and operated by the SC38 consortium. The agreement also prescribes indemnity and insurance arrangements for the protection of the natural gas operations.

An oversight and coordinating committee will be established under the leadership of the DOE to ensure that operations for the production of oil and gas will proceed safely.

Studies indicated that oil exploration and production activities in the CMOL need to be urgently conducted at this time that extracting the volumes of resources from the oil leg is still possible as the conduct of the activity has not yet been significantly undermined by the continued production of natural gas.